Republican Budget Concessions Enrich Tax Cheats and Increase the Deficit
By Alex Kilander
The budget deal recently struck by congressional leaders would be a bittersweet resolution to this year’s spending fight. On the one hand, it prevents a harmful government shutdown and adheres to the spending levels in the Fiscal Responsibility Act (FRA) negotiated by President Biden and former House Speaker Kevin McCarthy (R-Calif.) in June. But it rewards Republicans for threatening to renege on the agreement they already made and may help wealthy tax cheats in the process. Moreover, it avoids any real discussion about what is needed to remedy our nation’s fiscal imbalance.
The bipartisan agreement calls for just under $1.66 trillion in discretionary spending for fiscal year 2024, split between domestic and defense programs. Defense spending will be set at $886 billion, a 3% increase over the previous year, while non-defense spending will be set at $773 billion, roughly flat from the previous year. After accounting for inflation, this amounts to roughly flat defense spending with a 3.4% cut for non-defense spending.
Most importantly, this deal averts a harmful shutdown that would interrupt important federal programs and create a costly disruption to the nation’s economy through higher unemployment, lower GDP and disruptions to important sectors. Depending on their length, previous government shutdowns have cost the economy as high as $20 billion.
However, such a negotiation shouldn’t have been needed at all after majorities of both parties in both chambers of Congress voted for the FRA’s spending levels eight months ago. But instead of sticking to their word, House Republicans unnecessarily dragged out the budget process by pursuing unrealistic and harmful cuts to programs that support early education, aid low-income families, protect workers, speed up the energy transition and more.
If passed, the House GOP appropriations bills would have cut non-defense spending by an additional $119 billion beyond the FRA levels, to its lowest levels as a percent of GDP since at least 1962. Those bills are also littered with extraneous policy riders like cutting funding for Planned Parenthood and reducing the salaries of public servants Republicans dislike to $1. These provisions made the Republican-led bills non-starters from the very beginning, signaling that the Republican caucus is more interested in performative brinkmanship than the basic responsibility of actually funding the government.
Ironically, the one additional spending cut that Republicans did win in this deal appears to be the most fiscally irresponsible one they advocated for. In addition to IRS cuts negotiated in the FRA, this budget deal makes additional, faster cuts to the agency. Rather than reduce the deficit, these are expected to widen it by curbing the agency’s ability to enforce tax laws. Congressional Budget Office (CBO) estimates that the IRS cuts under the FRA alone raised the deficit by $19 billion. The additional cuts included in this deal will only increase that number. Republican prioritization of the IRS seems to serve only to line the pockets of the wealthy looking to avoid taxes at the expense of law-abiding taxpayers and future generations responsible for the resulting debt. Paired with an uncompromising disapproval of any tax increases on high-income Americans, this signals how far the GOP is from engaging seriously on responsible fiscal policy.
Although Republicans deserve the overwhelming share of blame for their obstinate push for IRS cuts, Democratic leadership should be reproached for their willingness to give them up so easily. Since it involved no additional taxes or spending cuts, Democrats used IRS enforcement as an easy pay-for in the IRA, only to quickly give it up both in the FRA and this budget deal. This sets a dangerous precedent. While rewarding backsliding is never wise policy, it is especially harmful that Democrats did so by throwing an important revenue source under the bus and demonstrating that defending prior offsets is not a high priority. This concession will allow hefty cuts for the IRS that substantially decrease their enforcement capacity, increase the deficit, and tilt the scale back towards wealthy tax cheats. That combination is far from being responsible fiscal policy.
Ultimately, this budget deal does little to address the nation’s structural fiscal deficits and continues to kick the can down the road rather than honestly debate what is needed to remedy them. With interest costs expected to continue rising over the next few decades, even prominent progressive economists recognize the importance of making progress on reducing the deficit.
While no panacea, lawmakers could take a step in the right direction by establishing a bipartisan fiscal commission alongside this budget deal. The bipartisan Fiscal Commission Act would create such a commission, composed of a bipartisan group of lawmakers and experts tasked with creating a consensus plan on how to stabilize our fiscal imbalance. This plan would propose recommendations that stabilize the debt-to-GDP ratio and would be presented to Congress under expedited voting procedures. It would provide a sorely needed forum and benchmark for the dialogue Washington needs to have on correcting our fiscal outlook.
This deal has reopened rifts in the Republican caucus between leadership and hard-right Republicans over concerns about long-term spending. If these same Republicans were serious about what they constantly preach, they would pursue this bipartisan legislation rather than trying to torch the federal government.
Although this budget deal adheres to previous bipartisan agreement and averts a harmful government shutdown, it again rewards reckless brinkmanship in caving to Republican demands on the IRS. These extreme demands to gut IRS funding, along with Democrats willingness to give them up, makes it clear that responsible fiscal policy is on the backburner in Washington.
Alex Kilander is a policy analyst at the Center for Funding America’s Future at the Progressive Policy Institute.
This story originally ran in The Messenger on January 16, 2024.
