Playing Politics with Deficits and Debt

So according to unconventional  wisdom, when a Republican resides in the White House, deficits don’t matter one iota.  But the instant a Democrat moves in, the budget deficit becomes the single greatest threat to American society since the War of Independence; the absolute bane of our existence.

How strange, then, that Republican economic policies have the effect of increasing the budget deficit, while Democratic policies have tended to decrease the level of deficit, or even result in a budget surplus.  Yet Republicans in Congress would like us to believe that they have just the remedies necessary to stamp down that pesky deficit and cut our national debt!

So with the 2010 midterm elections fast approaching, let’s try to get an idea of what might happen should Republicans retake majorities in the House and Senate, and what they would do to change our economic course.

Meet the new fiscal policies, same as the old fiscal policies.

As usual, Republican economic policies revolve around tax cuts.  Early in the Bush administration, we saw two rounds of tax cuts, neither of them accounted for in the federal budget; i.e. neither of them paid for.  But according to Republicans, you don’t have to pay for tax cuts—they pay for themselves.  And according to Arizona Republican Senator Jon Kyl, “You should never have to offset a deliberate decision to reduce tax rates on Americans.” But even a cursory glance at the facts reveals this position to be an utterly ridiculous falsehood.

Headybrew.net

George W. Bush came into office with a $236 Billion surplus.  Then, in a 2001 speech, he declared that the U.S. Government was running budget surpluses because taxes were too high, and thus he was going to demand a refund on behalf of all Americans.  The resulting tax cuts plunged the deficit to the deepest levels ever.  And so no, Senator Kyl, they didn’t pay for themselves.

In fact, according to the Center on Budget Policy and Priorities, the Bush tax cuts are BY FAR the biggest contributors to the budget deficits.  It’s not even close!  They account for 49% of the deficits, whereas the wars in Iraq and Afghanistan, along with other defense increases, have accounted for 34%.

Center on Budget Policy and Priorities

With the Bush tax cuts set to expire at the end of 2010, the latest fight in Congress is whether or not to extend them indefinitely, or as the Obama administration intends, to let the cuts on the wealthiest Americans—those making $250,000 or more—expire, while maintaining or even lowering the rates on the middle class.

Most economists agree—even Republican economists—that allowing the Bush tax cuts for those making over $250,000 to lapse is just good policy.  But Republicans in Congress are adamantly opposed to allowing those cuts to lapse, insisting that it will further decimate the economy.  Facts be damned.

Just for the record, Congressional Republicans made the same claims when President Clinton raised taxes on the top earners.  But what actually ensued was one of the most prosperous periods in American history.

Republican economic theory stems from the supply side, or “trickle-down economics” of the Ronald Reagan era—a theory decried by his opponent in the 1980 presidential election, George H. W. Bush, as “Voodoo Economics.”  The premise is that tax cuts are always a good thing.  It holds that by putting money in the pockets of the uber-wealthy through tax cuts, that money will magically and mystically “trickle down” into the pockets of everyone else.  It assumes that the wealthy will always take that extra cash and invest it into new business ventures, creating new jobs, boosting the economy, and putting more wealth in the bank accounts of the middle and poorer classes.

The theory also tells us that tax cuts for the wealthy don’t add to the deficit or national debt, and will pay for themselves.  Even at lower rates, government tax receipts will increase, the deficit and debt will all but disappear, and the American economy will flourish!  That’s the theory, at least.

Supply-side economics have been debunked, over and over, even by conservative economists.  One of George W. Bush’s former chief economists, Greg Mankiw, finds the premise totally bunk.  But while supply-side economic policy has been a complete and utter disaster for the economy, it’s been a political gold mine for Republicans.  As Martin Wolf of The Financial Times puts it:

“Supply-side economics liberated conservatives from any need to insist on fiscal rectitude and balanced budgets.  Supply-side economics said that one could cut taxes and balance budgets, because incentive effects would generate new activity and so higher revenue.

The political genius of this idea is evident.  Supply-side economics transformed Republicans from a minority party into a majority party.  It allowed them to promise lower taxes, lower deficits and, in effect, unchanged spending.  Why should people not like this combination?  Who does not like a free lunch?

How did supply-side economics bring these benefits?  First, it allowed conservatives to ignore deficits.  They could argue that, whatever the impact of the tax cuts in the short run, they would bring the budget back into balance, in the longer run.  Second, the theory gave an economic justification – the argument from incentives – for lowering taxes on politically important supporters.  Finally, if deficits did not, in fact, disappear, conservatives could fall back on the “starve the beast” theory: deficits would create a fiscal crisis that would force the government to cut spending and even destroy the hated welfare state.”

The budget deficit is the topic du jour in Republican political circles these days.  And the hypocrisy is staggering.  After all, it was former Vice President Dick Cheney who matter-of-factly declared in 2002 that “Reagan proved that deficits don’t matter.” Only now, according to his Republican contemporaries (because we have a black Democratic President?), deficits do, in fact matter.  They might be the ONLY things that matter.

The trouble is that it’s because of Republican fiscal policies that this country is running such huge deficits and skyrocketing the national debt in the first place.  And talk about running up the credit card for future generations to have to worry about?  It has been Republicans who have presided over the biggest increases in our national debt in the last 40 years.

Newsjunkiepost.com

It was the George W. Bush White House and the Republican controlled Congress and Senate that presided over the largest increases in our national debt in the history of this country.  But they would have voters believe that they’re the ones who are fiscally responsible and should be entrusted to guide us out of the economic ditch we’re in.  They would have us believe that it is Barack Obama’s fault that the deficit stood at $1.3 trillion on the very day he was sworn in as President of the United States.

The Republican mantra is that in order to facilitate recovery, we must cut taxes.  And after we’ve cut taxes, we cut taxes some more.  And then cut taxes again.  The idea is that by putting more money in the pockets of the wealthy, they’ll turn around and invest it.  They think that productivity will increase despite the fact that there is no demand because those at the lower end of the pay scale cannot afford to purchase anything.

Never mind that every shred of evidence tells us otherwise.  Nobel Prize winning economist Paul Krugman explains in a segment on “The Colbert Report” with Stephen Colbert why tax cuts don’t work, particularly in this economic environment.  He says if you give money (in the form of tax cuts) to somebody who’s well off, they’re probably going to save it because they’re “not living hand to mouth,” which doesn’t help the economy.   What actually happens is that the wealthy put the money in their pockets and hang on to it, making them richer, but doing nothing to stoke business growth.

The last (or lost?) decade has seen an increase in wealth for the top 2% of the income scale, but a substantial decrease in wealth for the middle class:  Real wages for the middle class have stagnated or decreased, while corporate CEO’s are reaping record windfalls.  According to FactCheck.org, the top 2% of household earners (those making $250,000 or more) accounted for 24.1% of all income in 2009.

Perhaps the biggest hypocrisy, however, is the fact that despite the overwhelming evidence that tax cuts do not pay for themselves and have been a major contributing factor in exploding the budget deficit and national debt, is the insistence on the part of Republicans to indefinitely extend the Bush tax cuts for the wealthiest Americans without any need to offset them, which economists predict will add $650 billion to the deficit.  But at the same time they refuse to extend unemployment benefits to the long-term unemployed to the tune of $30 billion.  So it’s OK to add $650 billion to the deficit, but it’s not OK to increase the deficit in the short run by less than ¼ of one percent.

Conservatives scream that the debt and deficit are the single greatest threats to America today, yet they’re chomping at the bit to reintroduce policies that will make those threats even greater.

Besides, the CBO recently scored 11 different policies to increase economic growth and found that extending tax cuts—or further reducing the tax rate, particularly on the wealthy—was the LEAST effective way to stoke economic growth.  The same study found that increasing aid to the unemployed was the single BEST way to aid economic growth.

Republicans believe that having a set of rules for corporations to follow in order to level the playing field and ensure the safety of workers, the stability of industry, and the vibrancy of the economy as a whole is a bad thing.  This despite the fact that it was a lack of oversight and regulation that led to the catastrophe in the Gulf of Mexico brought on by BP.  It was the lack of regulation and oversight that led to the subprime mortgage meltdown (and no, it was not Fannie and Freddie’s fault, but rather the fault of private lenders who were overzealous in their pursuit of profits) and the financial crisis that brought us here in the first place.  It was deregulation that brought on a tripling of electricity rates in San Diego while energy providers found new and creative ways to game the system and drive up prices, and thus profits, all the while inducing rolling blackouts throughout California.

It was a complete lack of oversight and regulation that led to Enron.

Today, with the American economy slowly recovering from the massive meltdown of the financial industry in 2008 but still in the tank, it is more imperative than ever that our Congress enacts policies that are proven to stoke growth and promote our economic well-being.  It has been made absolutely clear through the statements Republican politicians have made in recent weeks and months that should they retake control of Congress they will as sure as you are reading this return us to the very policies that brought on the economic crisis in the first place.  They will return us to the policies that have been proven beyond a doubt to be an abject failure for America as a whole.  Sure, times have been great for their corporate benefactors, but for the rest of us, not so much.

So come November, do the entire nation a favor:  Vote Democratic.

UPDATE: David Stockman, Director of the OMB (Office of Management and Budget) under Ronald Reagan, has this op-ed in the NY Times taking Republicans to task for their miserable fiscal failures.

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1 comment so far

  1. […] the explosion in the national deficit and debt during his tenure.  I’ve written about it before here, complete with some nifty graphs to prove the […]


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