No Fight Over Red Ink Now, but Virus Spending Will Force Tough Choices

No Fight Over Red Ink Now, but Virus Spending Will Force Tough Choices

WASHINGTON — The deficit hawks have had their wings clipped.

No one wants to hear alarms raised about the dangers of staggering government spending during a monstrous threat to public health and the economy. Any such concerns have been silenced and set aside as the federal government throws open the spigots in an unstinting effort to protect both American lives and the nation’s financial underpinnings.

“It hasn’t been a prominent topic of conversation, I think it is fair to say,” conceded Senator Patrick J. Toomey, Republican of Pennsylvania and a longtime fiscal conservative, about the potential hazards of compounding an already spiraling federal deficit in response to a crippling pandemic.

Like others who have long preached fiscal discipline, often to no avail, Mr. Toomey said he saw no alternative to the costly push by the federal government to try to mitigate the coronavirus outbreak. But he and like-minded fiscal watchdogs remain deeply worried about the inevitable consequences of the historic outpouring of cash from a government that was already deeply in the red.

Just last month, Congress allocated and President Trump signed into law a series of bills that spent an estimated $2.6 trillion — the equivalent of twice the annual discretionary federal budget. And that does not take into account the certainty of much more spending on the way, including the $250 billion currently teed up to replenish a small-businesses aid program and hundreds of billions of dollars more sought for hospitals, states and cities. Something will eventually have to give.

“I accept the fact that this is an emergency,” said G. William Hoagland, the former top budget expert for Senate Republicans. “My problem is, we should have been fixing the roof when the sun was shining. But we didn’t.”

Mr. Hoagland, who is on the board of the Committee for a Responsible Federal Budget, was referring to the period before the outbreak, when the economy was booming and the deficit was already projected to skyrocket to an estimated $1 trillion for 2020. President Trump — who once branded himself the “king of debt,” referring to his big-borrowing ways as a real estate developer — pledged during his 2016 campaign to eliminate the deficit. Yet under his watch, the opposite happened.

The more than $1.5 trillion in tax cuts that Mr. Trump enacted with the help of congressional Republicans in 2017 were not paying for themselves as promised. And deals negotiated between congressional Republicans and Democrats that traded increases in military spending for added domestic dollars boosted the deficit as well. Republican concerns about deficit spending — once an animating force of the party — seemed to have evaporated when President Obama left the White House.

Then came the pandemic, and any flimsy barriers to spending that remained were demolished in an instant. Even Maya MacGuineas, the president of the Committee for a Responsible Federal Budget, known for the scathing statements she routinely releases about legislation that ignores the deficit, conceded in a letter last month that, “now is not the time to worry about near-term deficits.” But she also warned that the issue would have to be addressed once the crisis abated.

A new report compiled by the organization asserted that “a large share of today’s massive deficits are both inevitable and necessary in light of the current pandemic crisis,” but it contained some eye-popping figures.

The nonpartisan committee projected that under the emergency legislation already passed and economic fallout from the pandemic, the annual budget deficit would quadruple and reach more than $3.8 trillion this year, while the accumulated federal debt — projected to be about $24 trillion — would exceed the size of the entire United States economy by Oct. 1. Interest on the debt could reach the level of federal spending outside of defense.

These “never-before-seen levels” of deficit and debt would put the country on a debt trajectory it has not experienced since World War II, the group said. And that is if things go well and the economy bounces back quickly — a fairly uncertain prospect. No matter which way things go, the report warned, “At some point such high and rising deficits and debt levels will prove unsustainable, and corrective action will be needed.”

In other words, the bill will come due, as it always does.

“Long-term, this is going to have enormous implications,” said Kent Conrad, the former Democratic senator from North Dakota and chairman of the Senate Budget Committee. “It is going to make budgeting in the future extraordinarily difficult.”

And it is quickly becoming apparent that the future, in some cases, is not far off. Governors who don’t have the luxury of deficit spending have already announced budget cuts, eliminating services and readjusting their priorities to account for shortfalls caused by the pandemic response. At the same time, lawmakers on Capitol Hill have pressed for more federal aid to flow to state and local governments, adding to the deficit spending by Washington.

The pandemic response will amplify the push and pull that has long shaped the fiscal wars, between those who argue that the answer to deficits is to reduce spending and those insisting that the solution is new revenue streams. Complicating the situation, each side will suspect the other is using the crisis to advance their own policy agendas, as either an excuse to raise taxes or a justification to squeeze spending on programs they already didn’t like.

To Mr. Hoagland, the answer is clear, particularly since demand for economic aid for both individuals and businesses is not likely to dissipate any time soon, with some calling for elements of the rescue package to be made permanent. He is already throwing around the “R” word.

“We are just going to have to belly up to the bar and admit there is going to have to be more revenue,” said Mr. Hoagland, who raised the possibility of a carbon tax as one avenue to generate new federal income. “We have to start paying for this in the current world, and not just throwing it off onto the future generations.”

To Mr. Toomey, a tax increase would be the worst possible response.

“That would be a very bad idea,” he said, adding that trying to fight the deficit with a tax increase “will crater the economy and postpone the recovery for I don’t know long.’’ His idea going forward would be to take steps to eventually constrain spending and simultaneously spur growth that could outpace the debt — a strategy that might be easier said than done.

The spending surge has implications beyond the usual deficit tug of war. It could prompt inflation, and it also leaves the nation far less prepared in the event of another emergency. The fiscal situation further endangers the nation’s health and retirement guarantees — already facing a grim financial outlook, with insolvency projected over the next two decades if nothing is done — and limits the ability to spend on other programs that have been on hold.

“Once we get beyond this disaster, some very hard choices will have to be made, or you will have a federal government that is simply crippled in terms of being able to respond to crisis — whether it is a coronavirus or a natural disaster or a military conflict or economic downturn,” warned Mr. Conrad.

But those concerns have been pushed deep into the background at the moment by the urgent need for a federal spending onslaught against the spread of Covid-19. Lawmakers know that, particularly with an election just months away, deficits cannot be a roadblock to recovery.

There is no choice now, but tough decisions are ahead.

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