GOP shutdown threat is the wrong way to win a budget war − history shows a better strategy for reducing the deficit

Congress has just days to keep the federal government from grinding to a halt, and a last-minute deal seems increasingly unlikely. The problem is that lawmakers need to pass a dozen appropriations bills^[1] – or a single continuing resolution – by Sept. 30, 2023, in order to keep the government’s lights on. But a key group of House Republicans is refusing to pass anything without steep spending cuts^[2]. No bills, no government – at least for a few days or weeks^[3], anyway.

While fiscal discipline has long been the rallying cry^[4] for shutdown supporters, the tactic isn’t necessarily effective at reducing the government’s deficit.

I’ve been following efforts to shut down the U.S. government for one reason or another for more than 40 years, first from various perches at the Congressional Budget Office, then at the National Governors Association, and now as a professor of public policy^[5]. History shows that shutdowns are counterproductive – at least as measured by their own defenders’ goals. Fortunately, the past also provides a proven way to reduce the deficit, which I agree is a laudable goal.

Deficits are too high

When House Republicans say America’s finances are in bad shape, they do have a point. The deficit, currently estimated at US$1.5 trillion^[6], and debt held by the public, estimated at $25.8 trillion, are both dangerously high.

Why is the status quo so risky? For one thing, large deficits are inflationary and put pressure on the Federal Reserve to raise interest rates. For another, interest on public debt is now estimated to be $663 billion^[7] a year, which is slightly over 10% of total spending – a huge fiscal burden.

Finally, and most importantly, at some point individuals and foreign countries may dump U.S. treasury bills^[8] and bonds on the market because of a loss in confidence. That would make interest rates spike and could create a major economic collapse.

Because of these risks, members of the House Freedom Caucus have threatened to shut down the federal government on Oct. 1, the beginning of the next fiscal year, if they aren’t able to get big cuts to domestic discretionary spending.

Negotiations are further complicated by some House Republicans’ desires to add riders about the border and culture war issues to the must-pass spending bills, as well as the Biden administration’s request for $24 billion for Ukraine^[9], which not all party members support.

Fighting the wrong battle

I would argue that now is the wrong time for Republicans to take a stand on reducing the deficit, for two reasons.

First of all, shutdowns don’t get results. The U.S. has had 21 shutdowns over the past five decades, three of which have been major. These have all caused real harm to the U.S. economy, but they haven’t led to the spending levels Republicans wanted.

What’s more, in each case, the public blamed Republicans^[10] for the shutdowns, polls show. Some historians have even suggested that the fallout from the weekslong 1995-96 shutdown contributed to then-speaker Newt Gingrich having to resign^[11] in 1998.

Second, the cuts Republicans are seeking aren’t all that significant. The bottom line is that they’re ignoring national defense and mandatory spending, which together represent 75% of total spending^[12]. The current effort aims only to trim domestic discretionary spending, which makes up a small and shrinking slice of the federal-spending pie – less than 15% in 2023.

At the same time, mandatory spending, including entitlements, totals nearly $4 trillion annually^[13] and is growing rapidly. So, even if Democrats agreed to the domestic discretionary-spending cuts advocated by the House Freedom Caucus, those savings would be overtaken by growth in entitlement spending – primarily Social Security, Medicare and Medicaid – within a year.

What’s more, any serious plan to reduce the federal deficit must consider increasing the $4.8 trillion of federal revenue^[14]. The House Freedom Caucus has expressed no interest in raising taxes.

The bottom line, in my view, is that the shutdown strategy is more about creating drama, publicity and campaign fundraising for certain lawmakers than it is about seriously reducing the deficit.

How to get results

While it’s never politically easy to cut entitlements or raise taxes, the reconciliation provision in the 1974 Congressional Budget and Impoundment Control Act^[15] was enacted specifically for this purpose. It allows entitlement cuts and tax increases to be incorporated into the same bill, which cannot be filibustered in the Senate and only needs a majority for passage.

Over the past 40 years, there have been six serious budget negotiations that resulted in deficit reductions. One in 2011, negotiated by then-President Barack Obama and House Majority Leader John Boehner, was likely the most successful^[16] from a fiscal perspective. When it was finally enacted, it generated $1.95 trillion in deficit reduction over nine years.

References

1. ^{^} need to pass a dozen appropriations bills (theconversation.com)
2. ^{^} spending cuts (www.washingtonpost.com)
3. ^{^} a few days or weeks (theconversation.com)
4. ^{^} rallying cry (www.washingtonpost.com)
5. ^{^} professor of public policy (www.linkedin.com)
6. ^{^} US$1.5 trillion (www.cbo.gov)
7. ^{^} $663 billion (www.cbo.gov)
8. ^{^} dump U.S. treasury bills (theconversation.com)
9. ^{^} $24 billion for Ukraine (www.reuters.com)
10. ^{^} blamed Republicans (fivethirtyeight.com)
11. ^{^} Newt Gingrich having to resign (www.nytimes.com)
12. ^{^} 75% of total spending (www.cbo.gov)
13. ^{^} $4 trillion annually (www.cbo.gov)
14. ^{^} $4.8 trillion of federal revenue (www.cbpp.org)
15. ^{^} 1974 Congressional Budget and Impoundment Control Act (www.govinfo.gov)
16. ^{^} most successful (manhattan.institute)
17. ^{^} Roger Wollenberg/Getty Images (www.gettyimages.com)
18. ^{^} in 1997 (media4.manhattan-institute.org)
19. ^{^} first surpluses since 1969 (clintonwhitehouse4.archives.gov)