Are House Republicans Sore Winners?

Treasury Secretary Jack Lew sent a letter to Congress yesterday warning that the federal government probably will breach the statutory debt limit in late February. To remind those who may have forgotten, there is no credible evidence that the U.S. economy is running up against any genuine economic constraint on debt. Interest rates remain historically low and federal budget deficits are actually closing historically rapidly. Yet because the United States (almost alone among advanced countries) has an arbitrary limit on the amount of outstanding federal debt that must be periodically renewed through legislative action, approaching the statutory debt limit provides members of Congress the chance to flirt with severe economic damage simply by refusing to raise the limit.

The House GOP leadership claimed that they did not want to get “even close” to a default. However, a spokesperson for House Speaker Boehner said a clean bill to raise the debt limit would not pass the House without some concessions to Republicans in order for them to “save face.” These concessions presumably would be more spending cuts. Given what should be considered a GOP “win” in the recent Murray-Ryan budget deal, one wonders what more do they want? It is worth taking a closer look at the GOP win in the budget deal and compare it to what might have been.

The chart below displays nondefense discretionary budget authority from fiscal year 2006 to fiscal year 2021 (when funds are appropriated by Congress, agencies are given budget authority to incur financial obligations—i.e., spend money). Nondefense discretionary spending includes spending for public investments such as roads, bridges, sewage systems, basic scientific research, and education—all the things that boost long-term economic growth. The Budget Control Act (BCA), the law that gave us the sequester, along with other steep cuts that have attracted less attention, specifies the limits on discretionary spending until 2021. It is specified in nominal dollar amounts, which rise over time. In inflation-adjusted terms, however, the spending is constant. But a better way to measure public spending is as a percentage of GDP—basically looking at public spending in relation to income available to pay for that spending.

The black curve in the chart (between 2006 and 2012) shows actual nondefense discretionary budget authority (excluding the increased temporary spending enacted in the American Recovery and Reinvestment Act of 2009) before, during and after the Great Recession. The black line in the chart displays the average of nondefense discretionary spending in 2006 and 2007 (the two years before the onset of the Great Recession) as a percentage of GDP—showing what nondefense discretionary spending would be if it were to increase as income increases until 2021.

The grey curve in the chart shows the pre-sequester budget caps put into place by the BCA. This budget plan would have allowed nondefense discretionary spending to fall from 3 percent of GDP in 2012 to 2.4 percent of GDP by 2021. If one believes in the importance of public investments and a well-run government, then compared to pre-recession spending this plan can be described as bad, since the proportion of income being invested in the future is falling dramatically.

The bright blue curve displays the plan for nondefense discretionary budget authority under the sequester. This plan would bring spending down to less than 2.3 percent of GDP by 2021; it is even worse than the bad pre-sequester plan. The nondefense discretionary budget authority under the two year budget deal is shown in the dark blue curve and falls somewhere between bad and worse.

It is pretty clear that the GOP has been winning the budget battle. Now they want even more, just to “save face.”