GOP budget hawks burn out, fade away

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Jul 17, 2024 View in browser
 
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By Sam Sutton

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QUICK FIX

Former President Donald Trump’s GOP platform doesn’t have much to say about reducing the federal government’s ballooning $35 trillion debt.

The 28-page document adopted by Republican delegates this week — which was personally blessed by Trump — made no mention of the country’s debt burden save for a lone reference to cutting “wasteful spending.”

For a party that had counted deficit reduction as a staple of its official agenda for decades, the topic’s irrelevance as a political talking point marks the end of an era. And it’s a reflection of ascendant GOP populists who eschew the party’s traditional hymn book when it comes to economic messaging.

“In many places in the country, this isn't top of mind,” Rep. David Schweikert (R-Ariz.), a longtime deficit hawk who is also vice chair of the Joint Economic Committee, told MM. “The political class — whether it be on the right or the left — haven't told the truth because it's too painful.”

If you ask fiscal watchdogs or Wall Street CEOs, pain is what’s in store if the U.S. doesn’t get its fiscal house in order.

“We've missed our chances to deal with this problem in a preventive way,” Mitch Daniels, a former Republican governor of Indiana who also led the Office of Management and Budget during President George W. Bush’s administration, said in an interview. “One day we'll have that reckoning.”

Ratings agencies have already signaled they’re losing faith in the ability of U.S. leaders to meet fiscal challenges as Congress becomes more polarized, injecting uncertainty around basic functions like raising the debt limit or certifying election results. The International Monetary Fund’s chief economist, Pierre-Olivier Gourinchas, on Tuesday warned that expansionary federal spending policies in an era of near-full employment and growth pose “risks to both the domestic and global economy.”

What would that mean for the real economy? More government borrowing will cause interest rates to climb. That will make it more costly to finance the social safety net and government services. And it will make borrowing more expensive for everybody else. BlackRock founder and Chairman Larry Fink warned earlier this week that the burdens would ultimately be borne by “our children, our grandchildren.”

Fink’s comments echo what had long been a popular line of attack by GOP policymakers. Republicans invoked the demands that would be placed on “future generations” because of the federal debt load in their 2016 platform. That was also the case in 2012. In 2008 they called for a balanced budget amendment. In 2004, they said Bush and Republican leaders in Congress would cut the deficit in half within five years.

Annual deficits climbed during the Trump years and exploded when the Covid-19 pandemic unleashed a wave of federal stimulus that required trillions in government borrowing. During his first term, Trump approved $8.8 trillion of gross new borrowing and just $443 billion in deficit reduction, per a recent Committee for a Responsible Federal Budget analysis.

The previous generation of Republican leadership might have gagged at those figures. And to be sure, there has been plenty of grousing about the borrowing that occurred under President Joe Biden — who’s overseen $6.2 trillion of gross new borrowing approved against $1.9 trillion in deficit reduction, per CRFB.

Asked for comment on the debt’s omission from the platform, the RNC responded with a statement from Trump spokesperson Karoline Leavitt contending that inflation is due to Biden’s “out-of-control spending.” But the debt’s absence from the official GOP platform reflects how marginal this issue has become — at least politically.

“There are certain laws of gravity, right?” said Mark Epley, a partner at the law firm Arnold & Porter who was previously general counsel to former House Speaker Paul Ryan, a leading Republican deficit hawk. “It's not going away. One of the mysteries is: How does this breakthrough as a matter of public concern?”

Republicans “still have visions of the 1990s” in their approach to reducing annual deficits, Schweikert said. Reducing wasteful spending, fraud or foreign aid won’t go far enough, he said. The same is true of Democratic plans to raise revenue by taxing the rich.

The continued failure to address this issue could turn the bond market into the “single most important driver of U.S. policy,” he said, referring to the higher yields that investors will demand from the government to buy Treasurys. “Not wars. Not a president. Not Congress. It's the winds of the bond market.”

IT’S WEDNESDAY — If you’re a Republican who longs for a GOP platform that’s more 2012 than 2024, give me a ring. Send tips and suggestions to ssutton@politico.com and @samjsutton. If you’re in Milwaukee, say hey to Victoria Guida (vguida@politico.com) and Zach Warmbrodt (zwarmbrodt@politico.com). And if you can’t make it, be sure to catch their POLITICO Grill panels online.

 

The CNN-POLITICO Grill has quickly become a key gathering place for policymakers and thought-leaders attending the RNC in Milwaukee.


On Tuesday, POLITICO and Bayer convened two conversations: a discussion with Sen. John Boozman (R-Ark.) and Rep. G.T. Thompson (R-Pa.) and an executive conversation with Bayer’s Jessica Christiansen, senior vice president and head of crop science and sustainability communications.



The conversations focused on the news of the day in Milwaukee, including deeper discussion centered on the critical challenges faced by the agriculture sector.



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Driving the Day

Housing starts and building permits data for June will be released at 8:30 a.m. … Richmond Fed President Thomas Barkin will deliver informal remarks on the economy before the Greater Prince George’s Business Roundtable at 9 a.m. … Fed Gov Christopher Waller will speak on the economic outlook at a hybrid event hosted by the Kansas City Fed at 9:35 a.m. … The Fed’s Beige Book will be released at 2 p.m. …

Trump: I’ll let Powell stay — Trump tells Bloomberg Businessweek that he would allow Jerome Powell to serve out his term as Federal Reserve chair. “I would let him serve it out,” Trump says, “especially if I thought he was doing the right thing.” He also said he’s considering JPMorgan Chase CEO Jamie Dimon for Treasury secretary.

At the Barr Kentucky Republican Rep. Andy Barr tells Zach that banks are starting to come around on “fair access” regulations that would restrict their ability to decline service to certain businesses. “They were resistant originally but because of state laws that have been passed, now they want uniformity,” he said.

— Barr, who’s vying to be the top Republican on House Financial Services, also said that a Trump 2.0 banking agenda should include “shot-clock on healthy mergers” as a top priority.

Keep me searching for a bar of goldSen. Bob Menendez (D-N.J.) was found guilty in a major corruption trial, Daniel Han and Ry Rivard report. Menendez, who previously chaired the Senate Foreign Relations Committee and holds a seat on Senate Banking, had been charged with bribery, acting as a foreign agent for Egypt, obstruction of justice, extortion and conspiring to commit those crimes.

Saying the quiet part loud — After months of speculation, Marc Andreessen and Ben Horowitz — the leaders of one of Silicon Valley’s largest venture capital firms — informed employees that they plan to make large contributions to super PACs supporting Trump, The Information’s Cory Weinberg and Kate Clark report.

— The day after news broke of his plans to commit $45 million a month to pro-Trump efforts, Elon Musk announced that he would relocate the headquarters for X and SpaceX from California to Texas. He cited a California law that prohibits schools from informing guardians if their children identify as gay or transgender.

White House scrapping over rent cap — The White House is sparring with real estate and banking industry groups that panned Biden’s plan to revoke tax credits for large landlords who increase rent by more than 5 percent in a year. The proposal is designed to give “hard-working families a fair shot at the American Dream,” Senior Deputy Press Secretary Andrew Bates told MM, leaning into more populist economic messaging. “Not to line the pockets of corporate landlords and big banks.”

At the regulators

Back at it again — In a conversation with Victoria Guida at the CNN-POLITICO Grill, former Small Business Administration head Linda McMahon said she’s “ready to serve” in a second Trump cabinet, Jared Mitovich reports. She also said the business community should feel “very good” about Ohio Sen. J.D. Vance as Trump’s vice presidential pick.

Late feesAn appeals court ruled that the banking industry’s challenge to a Consumer Financial Protection Bureau rule capping credit card late fees must proceed in federal court in the Northern District of Texas, a major win for credit card issuers, Katy O’Donnell reports.

— Congressional Progressive Caucus Chair Pramila Jayapal (D-Wash.) and 53 other caucus members sent a letter to Speaker Mike Johnson (R-La.) calling for debate and a vote on a resolution sponsored by Barr that would signal congressional disapproval of the CFPB’s late fee rule. The caucus welcomes “the opportunity to highlight the contrast in our priorities on the House floor this summer,” they wrote, according to text shared with MM.

Crypto

CryptoDad vouches for Vance — Zach reports that former CFTC Chair J. Christopher Giancarlo — a digital assets advocate who’s been floated as a potential Trump SEC chair – told RNC attendees Tuesday that the selection of Vance for vice president would help the crypto cause.

Giancarlo, who was dubbed the “CryptoDad” for kickstarting the CFTC’s work on digital assets, shared his upbeat Trump 2.0 outlook as he gave a presentation on why Trump was the “first crypto president.”

Giancarlo cited Trump’s desire for policies that promote U.S. economic growth and his populist leanings.

“The notion of crypto — and certainly J.D. Vance is talking about this — is returning direct access to one’s financial resources without having to go through intermediaries,” he said.

The RNC crypto talk continues today. Rep. Bryan Steil, a Wisconsin Republican on House Financial Services, is set to give a keynote address at a digital asset event on the sidelines of the convention. MM has a first look at his speech.

“Regardless of what the pessimists say, Web 3 is happening and it’s transformative,” Steil will say. “American lawmakers, who are accountable to the people, have the responsibility to answer tough questions and build frameworks that support innovation."

Stabenow’s bill Senate Agriculture Chair Debbie Stabenow is circulating text of a 113-page bill that would give the CFTC exclusive jurisdiction over trades involving digital commodities, Eleanor Mueller reports.

Ether trades incoming New investment products linked to the price of ether will start trading in the U.S. next week, two people familiar with the process told Declan Harty. One of the people said the SEC had indicated the final approval orders were likely to come down Monday, with trading set to kick off Tuesday morning.

 

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