Democrats Brush Off Deficit Fears in Quest to Bolster Safety Net
Democrats Brush Off Deficit Fears in Quest to Bolster Safety Net
(Bloomberg) -- Bill Clinton famously declared in 1996 that “the era of big government is over.” Now, on the Democratic campaign trail, it’s back with a vengeance.
Presidential candidates are replacing their post-Clinton rhetoric of fiscal restraint with a new argument that money is no obstacle to addressing domestic issues like rising inequality and poverty — and they promise to pay for it by taxing the rich, cutting military spending, or borrowing.
There’s Bernie Sanders with Medicare for All, and a promise of an economic bill of rights that also guarantees housing, a job and a living wage. Elizabeth Warren proposes having the federal government eliminate vast amounts of student debt as well as pay for universal child care. Even former Vice President Joe Biden, the most moderate of the major contenders, says there’s plenty of money to pay for Democratic priorities.
The sharp change in attitude is propelled by Democrats’ irritation that Republicans have grown the deficit despite years of presenting themselves as the belt-tightening party as well as voter pressure to tackle priorities like health and child care.
“It’s very different this time around. Democrats are seeing themselves as Charlie Brown to Lucy and the football. At least some of them are waking up to the fact that they have been played” by Republicans and fiscal hawks, said Stephanie Kelton, a senior economic adviser to the Sanders campaign.
A Time to Spend
Biden, the early front-runner, said Monday at the Poor People’s Campaign forum in Washington that at a time of record income inequality, money isn’t a hindrance to goals like free community college.
“The fact of the matter is there is plenty, plenty of money to go around,” the former vice president said. “The first thing I would do as president is eliminate the president’s tax cut, which added to the deficit $2 trillion. And also we now have $1.6 trillion in tax expenditures — fancy word for saying loopholes. You cannot justify over a trillion dollars in that. So we have the money.”
Democratic presidents have been castigated by Republicans for decades about domestic spending, and a new breed of fiscally-conscious leaders like Clinton and later Barack Obama acted to reduce it — Clinton created a surplus and Obama cut the deficit by over two-thirds. Republican successors like George W. Bush and Donald Trump were big spenders, too, but focused instead on military buildups and tax cuts, following in the footsteps of GOP icon Ronald Reagan by increasing the deficit.
Fiscal Postures
Biden was a senator for three dozen years beginning in 1973, a period following Lyndon B. Johnson’s Great Society and the Vietnam War when voters believed Democrats were fiscally reckless. In 2011, when Biden was vice president, Obama declared that “we have to live within our means; we have to reduce our deficit” before signing a deficit-reduction package.
Conservatives railed against a looming debt crisis but those fears fizzled after they had control of both Congress and the White House. In 2017, they passed a tax overhaul estimated to add $1.9 trillion to the long-term debt as well as striking a deal to raise government funding by $300 billion over two years. The deficit, which was $666 billion when Obama left office, is projected to be $896 billion in 2019.
Now, Democrats are tired of letting Republicans have all the fun.
“It’s impossible not to reflect on their fiscal hypocrisy,” Senator Michael Bennet of Colorado, a Democratic presidential candidate running as a moderate, said in an interview. “Their record is atrocious on this issue, and pathetic.”
“I don’t think anybody should unilaterally disarm,” he said. “I think people should remember this is the American people’s money.”
Debt Fears Ebb
Helping enable policy makers and candidates to ignore America’s growing fiscal shortfall is the ease with which investors are snapping up all the extra debt the U.S. has been selling to finance the deficit.
Treasury Secretary Steven Mnuchin more than doubled new debt sales last year versus 2017 to more than $1.3 trillion and is on course to top $1 trillion this year. Yet the benchmark 10-year Treasury note yield is hovering just above 2%, near its lowest since 2016. The added supply hasn’t pushed bond yields higher given in part a voracious global appetite for positive-yielding Treasuries, as much of Europe and Asia’s government securities offer less than zero.
“None of the bad things that were supposed to happen, according to the warnings from the ‘very serious economists’ — crowding out effects, inflation, slower growth, have happened,” Kelton said, adding that Democrats used to be “too timid” and “too afraid” of those claims.
Republicans say the national debt, which topped $22 trillion this year, must be dealt with by privatizing or other means of controlling programs like Social Security and Medicare. But Trump promised he wouldn’t touch them and Republicans have made no effort to rein in those benefits, fearing blowback from seniors who rely on them.
Cutting the debt “should be a much higher priority for us,” said Senator Mitt Romney of Utah, the Republican presidential nominee in 2012. “It’s not an immediate crisis, but longer-term it can reach a crisis unless we take action now.”
Senator Rob Portman of Ohio said he remains interested in tackling the debt, but that it’s “probably going to take another election — it won’t be a big issue this election.”
“The president won’t raise it, the Democrats won’t raise it,” Portman said. “The fact that we have a growing economy probably does make it harder for people to say the deficit matters. Because in the old days when deficits were this high, you would expect interest rates to go up and difficulty in attracting foreign investors.”
Magic Wand
As recently as 2016, Democratic presidential nominee Hillary Clinton argued that proposals like Medicare-for-All and free college tuition were unrealistic in “the real world” and that the president cannot “wave a magic wand” to finance the left’s priorities. It was a swipe at rival Sanders, whose proposals to expand the safety net have since caught on.
Sanders, who is running again, has framed his pitch for a “21st century economic bill of rights” in moral terms and avoids discussing the high cost of his ideas. Last week he proposed to carry on the legacy of Franklin D. Roosevelt and “guarantee every man, woman and child in our country basic economic rights,” including quality health care, education, a job, living wage, housing, secure retirement and clean environment.
Warren draws heavy applause at campaign rallies when touting her wealth tax on assets above $50 million and saying it can raise enough money to fund universal child care, universal pre-K and canceling student debt. Kamala Harris tells crowds she gets questions like “how you gonna pay for it” and answers that she’d repeal Trump’s tax cuts.
Repealing those tax cuts would only finance a fraction of the progressive ideas the candidates espouse. But many voters are unperturbed — borrow the funds, they say.
“The government has always found money for wars and other causes, and borrow money when needed,” said Grace Eyiba of Beltsville, Maryland. “So they can definitely find the money to help regular people and improve daily living like other bigger economies of the world do. Money isn’t the issue here.”
--With assistance from Jarrell Dillard and Liz Capo McCormick.
To contact the reporter on this story: Sahil Kapur in Washington at skapur39@bloomberg.net
To contact the editors responsible for this story: Max Berley at mberley@bloomberg.net, Wendy Benjaminson, John Harney
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