Dionne: Yes, deficits matter, but so does income inequality

By E.J. Dionne Jr.

A truly gifted con artist is someone who pulls off the same scam again and again and keeps getting away with it.

Say what you will about Republicans and conservatives: Their audacity when it comes to deficits and tax cuts is something to behold, and they have been running the same play since the passage of the Reagan tax cuts in 1981.

Republicans shout loudly about how terrible deficits are when Democrats are in power — even in cases when deficits are essential to pulling the nation out of economic catastrophe, as was the case at the beginning of President Obama’s first term.

But when the GOP takes control, its legions cheerfully embrace Dick Cheney’s law and send deficits soaring. Recall what President George W. Bush’s vice president said in 2002 justifying the 2003 tax cuts: “Reagan proved deficits don’t matter.”

Deficits don’t matter if they would impede handing out tax benefits to corporations and the affluent. But they put us “on the brink of national bankruptcy” and threaten “a debt crisis,” as House Speaker Paul Ryan put it in 2011, when Democrats want to finance programs for the middle class or the poor.

Republicans know one other thing: Their deception will work as long as neutral arbiters — in the media and think tanks along with those who genuinely care about deficits — fail to call it out.

Sure, there has been some tut-tutting about last week’s announcement that the deficit had risen to $779 billion in 2018, up from $666 billion in 2017. This is not the sort of thing that unified Republican government was supposed to produce, especially at a moment of sustained economic growth.

And for now, the Republicans’ absurd claim that their $1.5 trillion corporate tax cut last year had nothing to do with this has encountered considerable derision.

Senate Majority Leader Mitch McConnell, R-Kentucky, even gave Democrats the gift of saying that the problem — “the real drivers of the debt” — lay in spending for Medicare, Medicaid and Social Security. Democrats always say the Republican game plan is to use deficits to cut the heart out of our social insurance system. There it was in black and white.

But the real test will come when Republicans lose power. Does anyone doubt that with Democrats in charge, the promiscuous tax cutters will be reborn yet again as fiscal scolds? They’ll dust off those old Ryan speeches and call for steep spending cuts. Will voices from the policy and financial establishments fall in line, as so many did during the Obama years, and say, yes, let’s be fair here, the Republicans have a point about the deficit?

If this were just about politics and had no serious consequences to the country, we might write off the trickery as part of our now normal dysfunction. But the underlying effect of the GOP’s deficit two-step poses an even greater hazard than the deficits themselves.

Earlier this month, Moody’s Investors Services issued a remarkable report warning that rising economic inequality will “impact the U.S.’s credit profile through multiple rating factors, including economic, institutional and fiscal strength.” They add that “income inequality could negatively affect economic growth and its sustainability.”

The dry language lacks the drama of, say, “Workers of the World, Unite,” but that is the point: Here is a capitalist rating service with an interest in capitalism’s success warning that economic inequality is bad for the system itself.

According to the report, the GOP’s 2017 tax cut will “contribute to the widening of the U.S.’s inequality by exacerbating income and wealth concentration.”

Inequality “lowers GDP growth by depriving lower-income households of the ability to stay healthy and accumulate both physical and human capital, including underinvestment in education, which results in lower labor productivity in the economy,” according to the report.

Inequality is also self-reinforcing. As the report observes, “politically empowered high-income earners will likely resist higher, more progressive taxation.”

And you can’t say that this is a global thing. “The U.S.,” the report notes, offering a pile of persuasive data, “stands out for particularly high inequality.” As for the debt, Moody’s concludes that inequality “coincides with a deteriorating fiscal outlook.”

So here is my plea to the honest deficit hawks out there: Please face up to how right-wing policies are doubly damaging to national solvency. They raise deficits by reducing revenues. But they also endanger us by aggravating inequalities that themselves imperil sustainable budgets and a growing economy. This is worse than a swindle. It’s a dangerous mistake.

E.J. Dionne’s email address is ejdionne@washpost.com. Follow him on Twitter @EJDionne.