Without Deep Spending Cuts, the Republicans Will Lose the House in 2014

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Published: Friday, 18 Jan 2013 | 4:31 PM ET
Larry Kudlow By: | "The Kudlow Report" Anchor
Robert Clare | Taxi | Getty Images
The Capitol Building in Washington, D.C.

Okay, it's official. According to the Treasury Department, the U.S. debt jumped to $16.1 trillion in 2012 from $14.8 trillion in 2011. That's a $1.3 trillion deficit for the last year. Remarkable. During President Obama's first term, the federal debt rose by roughly $6 trillion.


(Read More: House GOP Debt Ceiling Plan: 'No Budget, No Pay')

So Republicans can persuade the public about bold spending cuts. They can make it their key message and central marketing strategy. If they don't, they risk losing the House in 2014.

Voters are smart. Another Rasmussen poll shows that 68 percent of Americans say cutting government spending is the solution to our economic problems. Support for cutting government spending has generally remained in the high 60s to low 70s over the past couple of years. Voters realize full well that a private, free-enterprise economy that holds on to more of its hard-earned money while the government share of the economy shrinks is pro-growth. Limited government is a tax cut.

Unlike the recent "fiscal-cliff" tax-hike deal, we need to let successful earners, investors, and risk-takers keep more of what they earn as an incentive to remain the activists who drive the economy. Of course, Obama wants another $1 trillion in taxes. But Republicans must just say no. (While they're at it, the GOP should cut tax rates for large and small businesses to 25 percent.)

As an extension to this hard-line spending message, the GOP must make it clear that spending cuts equal economic growth. Think Friedrich Hayek, Milton Friedman, and James Buchanan -- all Nobel prize winners who argued that less spending means more growth.

And the GOP should stop paying people not to work as part of their spending-cut campaign. With unemployment falling modestly in the last couple of years, food stamps have exploded by 7.2 million recipients. That's 10,000 per day, according to Ohio University professor Richard Vedder, even in an expanding economy. Social Security disability payments also have exploded. So have long-term, extended-unemployment benefits.

It's this simple: If you pay people not to work, they won't work. And if they won't work, the economy won't grow.

(Read More: For Americans, 'Cope' Replaces 'Hope': NBC Poll)

This is part of the spending-cut message. The GOP has to repeat this message again and again.

Now, we know President Obama is against spending cuts. In his debt-ceiling speech this week, all he did was demonize the Republican party, saying the GOP is making America a deadbeat nation. Obama continues to blame Republicans for throwing old folks, young people, military troops, and others under the bus. Sheer demagoguery. Awful, divisive, non-compromising, non-leadership rhetoric.

But the GOP can make hay on this with a strong spending-cut, shrink-the-government message. With no gimmicks, please.

It's okay to extend the debt-ceiling increase for another three months (as announced by Paul Ryan and the Republican leadership in Williamsburg, Va., this week). It's also okay to use a continuing resolution to force short-term spending cuts, and maybe even get some long-term spending-cut plans going. Perhaps even the Democrats, who haven't passed a budget in 1,360 days, will finally put one out in response to these Republican House measures.

But the idea of allowing the borrowing limit to expire, and using some kind of prioritization of payments while the government runs out of money, will not only damage the current economy, it will absolutely sink the Republican party for the 2014 midterm elections.

The bipartisan Policy Center projects that on March 1, the U.S. government will receive $20 billion in revenues to cover $84 billion in committed spending to obligations like Social Security, Medicare, Medicaid, veterans' benefits, military pay, and so forth and so on. Sure, we can cover the interest on the debt, which is only about $20 billion a month. But what about these other commitments? And how would such a dysfunctional approach look to world financial markets and credit-rating agencies?

That's why gimmicks like this should not be used. They will snatch political defeat from the jaws of a potential spending-cut victory.

But the moral of this story is that congressional Republicans must develop an effective spending-cut message. And that message should be linked to economic growth and job creation. If they do that, they will help the economy and their political futures. If they don't, they're going to lose the House and undermine the economy.

I think it's that simple.

(Read More: Conservatives to GOP: Don't Mess With the Debt Ceiling)

—By CNBC's Larry Kudlow; Follow him on Twitter @larry_kudlow



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