WASHINGTON — Big government is officially back in style.
Republicans propelled themselves to power in Washington by promising an end to fiscal recklessness. They are now embracing the kind of free spending and budget deficits they once claimed to loathe.
Congress is debating a bipartisan spending deal that would blow through the caps imposed by the 2011 Budget Control Act, unlocking $300 billion in additional spending for the military and domestic programs over the next two years. That comes on top of last year’s $1.5 trillion tax cut package and as the White House prepares to unveil Monday a $1.5 trillion infrastructure plan that would require $200 billion in government funding.
While the White House says it plans to offset that $200 billion through unspecified cuts, none of the other spending is paid for at a time when the nation’s debt already tops $20 trillion.
The long-term implications of all this borrowing put the United States on track to ultimately owe more to its creditors than the economy produces over the course of a year. The nonpartisan Committee for a Responsible Federal Budget projects that the United States will run $2 trillion annual budget deficits by 2027 and have a debt-to-gross domestic product ratio of 105 percent — a level not seen since the end of World War II.
"With this deal, we will experience trillion-dollar deficits permanently," said Andy Roth, vice president of the conservative Club for Growth. "That sort of behavior, the last time I checked, is not in the Republican platform."
The seeds of this ballooning debt load are already taking root: The Treasury Department said last month that it expects to borrow $955 billion this fiscal year and more than $1 trillion in both 2019 and 2020. That money appears set to get only more expensive to borrow, as the Federal Reserve looks to continue raising interest rates and investors demand higher returns from an increasingly debt-laden government.
Indeed, the borrowing spree is contributing to recent volatility in financial markets, as investors fret that the additional fiscal stimulus, paired with a strengthening economy, could fuel inflation and translate into higher interest rates more quickly than anticipated. Major stock indexes dropped sharply again late Thursday afternoon, falling into a market correction, or a drop of more than 10 percent from their peak. Investors poured into bonds in a flight to safety, pushing the yield on the 10-year Treasury bill to a four-year high of 2.88 percent.
For many Republicans, backing the budget agreement is a break with conservative fiscal orthodoxy that carries risk going into the midterm elections. The party’s professed commitment to limited government and deficit reduction helped Republicans regain control of the House and Senate during President Barack Obama’s administration and also helped President Donald Trump win election, with the candidate promising to get federal spending under control.
Last May, the Trump administration released a budget projecting the United States would swing from a deficit of $440 billion in 2018 to a surplus of $16 billion in 2027. The budget called for deep cuts to domestic programs and a robust increase in military spending.
Instead, the opposite has happened as Washington has opened the spending spigot in ways once unimaginable to the Republicans’ fiscal discipline wing.
"Republicans were very concerned about debt and deficits during President Obama’s two terms in office. Then their concern kind of evaporated," said Michael R. Strain, an economist at the conservative American Enterprise Institute. "I do think as an economic reality, deficits do matter."
Strain said the implications of the nation’s debt trajectory included significantly higher interest payments, a loss of confidence in U.S. Treasury bonds and less room to maneuver in a recession.