It has been widely reported that House Republican leader Eric Cantor and Republican Senator Jon Kyl have walked out of the budget negotiations led by Vice President Biden. In public statements, they object to putting revenue on the table and to additional economic stimulus. House Speaker John Boehner has publicly supported the departure—citing a list of demands that includes immediate drastic spending cuts, strict budget caps, and no additional revenue.
By now, it is more than obvious that the showdown over the debt ceiling has nothing to do with economics or jobs. As Matt Miller has repeatedly pointed out, the Republican Budget plan, as initially proposed by Paul Ryan, would add $5.4 trillion to the debt over the next decade—why not boost the debt ceiling by that amount as a common-ground approach? To be clear, all but five Republican Senators, and all but four House Republicans (97% of the Republican Congressional delegation) voted for this budget, which would necessitate a multi-trillion increase in the debt ceiling.
It is also clear what is driving the near-term deficit outlook. The Congressional Budget Office recently released their long-term budget outlook, which examines the deficit over the next 25 years. In short, the CBO report shows that if Congress simply did nothing new on revenue—in particular, if they did not extend the Bush-era tax changes nor other temporary tax reductions—then the deficit would be on a sustainable path over the 25-year horizon (with debt at a reasonable 84% of GDP in 2035). On the other hand, if we were to continue with current tax policy for the next 25 years, debt would spiral up to nearly 200% of GDP. (Over the long-term, rapidly rising health care costs are another prime driver of deficits, in addition to inadequate revenue.) The contention that revenue should not even be under discussion is at odds with economic reality.
As the economy continues to climb out of a severe recession, what is needed now is additional job creation, not premature austerity. With interest rates at historic lows, there is no indication that deficits are a drag on the current economy. Over the long-term, we need a balanced approach to realign revenues with spending in a way that preserves public investments.