- - Thursday, November 6, 2014

ANALYSIS/OPINION:

Republicans have won. Now they must prove they can govern. In crafting their agenda, there is no better place to start than by reducing the government’s impact and simultaneously growing the economy. By decreasing federal spending, taxes and debt, they could enact economically beneficial policy and pursue extremely favorable politics.

Having won control of Congress by winning the Senate, Republicans face a difficult dual task over the next two years. To win the White House in 2016, they must prove to the broad electorate that they are qualified to take full control of the government. To do that, “not Obama” is unlikely to be enough. At the same time they are seeking to appeal to the broad electorate, they must also retain their base by pursuing policies they favor. Fortunately, there is an agenda that can accomplish all this.

Americans dislike many aspects of the Obama administration, but its handling of money issues has ranked first for years.

Under President Obama, federal spending has averaged 22.4 percent of gross domestic product (GDP), far higher than the 40-year average of 20.5 percent and higher than any single year since 1983. Next year, the Congressional Budget Office (CBO) projects the federal tax burden will hit 18.3 percent of GDP, almost one full point over its 40-year average of 17.4 percent. The federal debt currently stands at 74.4 percent of GDP — almost double the 39.3 percent level when Mr. Obama became president, and the highest since 1950.

Together, federal spending, taxes and debt are projected to equal 112.3 percent of GDP — the highest level since 1947. In comparison, in 2008, they measured just 76.6 percent of GDP.



The nation’s economy (assuming CBO’s estimated 1.5 percent real GDP growth for 2014), has averaged just 1.2 percent growth during the Obama presidency, while unemployment (assuming CBO’s estimated 5.9 percent level for 2014) has averaged 8.2 percent.

This is extremely fertile policy and political ground for the new Republican Congress. Reducing the government’s impact on the economy will have both a salutary effect on the economy and offer tremendous political inroads for Republicans.

If the government’s impact on the economy declined and the economy responded, it would institute a positive cycle. A stronger economy would further reduce the government’s relative impact on it. Instead of the self-defeating cycle America has witnessed, it would see a positively self-reinforcing one.

Such a positive cycle could be political as well as economic. Just as a negative economy has eroded the administration’s support over the past six years, a positive one could bolster Republicans, who sorely need to refurbish their image.

Reducing the government’s role in the economy has a definite partisan appeal to conservatives, who support a more robust and unencumbered private sector. However, that appeal runs well beyond conservatives. CBS News’ latest poll showed “money issues” — including the economy (38 percent) and the budget deficit (8 percent) — were rated the most important issues by a two-to-one margin over health care, the second-rated issue.

In each of these areas — spending, taxes, debt and the economy — Republicans can point to the current administration’s negative performance. Because of this, and the advent of a Republican Congress late in the administration’s tenure, Mr. Obama would have a very difficult time taking credit for any turnaround.

That is starkly different from what happened when Republicans took control of Congress during Bill Clinton’s presidency. Just two years into office, Mr. Clinton had not established his reputation for economic performance. When Republicans became the majority in 1995, Mr. Clinton gained substantial credit for the fiscal discipline they instilled and the resulting economic takeoff.

In contrast, Mr. Obama has had six years in office and largely drawn his fiscal and economic profile for the nation. This is why two recent quarters of good GDP performance has not changed America’s opinion of the president’s economic stewardship. Six months could not offset six years.

A final question is whether Mr. Obama, who presided over spending, tax and debt increases, would agree to their reduction. Possibly. Conversely, what policy worthy of pursuit would guarantee his support? Better to at least start where it most matters and where the return — political and economic — would be greatest.

Republicans might find themselves surprised by how many Democrats in Congress join them — and distance themselves from an administration that has cost them a congressional majority. In such a case, Mr. Obama could be forced to acquiesce, even without agreeing.

Real economic results — diametrically counter to what has happened under the current administration — would buoy their base and open political inroads into the broader electorate. This would constitute a grand slam for Republicans, who need to demonstrate quickly the effectiveness of their agenda.

J.T. Young served in the Treasury Department and the Office of Management and Budget from 2001 to 2004 and as a congressional staff member from 1987 to 2000.

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