The New Republican Dream

Once upon a time, the Republican Party in America stood for balanced budgets, efficient government, and private enterprise. No more. To be sure, you will still hear many Republican candidates give lip service to such ideals, but their actions in office tell quite a different story. The GOP of today does not stand so much for small government as it does for no government at all, and it hopes to achieve this new American Dream through a systematic wrecking of the nation’s finances.

But before I delve into the details, I should first say that I want the Republican Party to succeed. Not the Republican Party of today, of course. I would prefer not to ruin the lives of countless Americans just to prove an ideological point. Rather, I would like to see the party welcome back the pragmatic centrists it has expelled — the Eisenhower and Rockefeller Republicans. The GOP seems to have wholly abandoned the legacy of the first post-New Deal Republican president. With a unified government (the presidency and both houses of Congress controlled by Republicans), many rightwingers wanted to see President Eisenhower attempt to roll back the New Deal. Instead, he launched a massive infrastructure project (the interstate highway system). A true believer in balanced budgets, he actually sought to pay for his initiatives by cutting military spending and keeping tax rates at levels that would sustain his administration’s expenditures.

The heart of Old Republican dogma — the balanced budget — predates Ike. Actually, it was not exclusively Republican — it was the general consensus, before John Maynard Keynes revolutionized economic theory and described how running deficits during recessions (and surpluses during booms) could help smooth out economic cycles. Presidents Hoover and Roosevelt (in the earlier part of his presidency) both sought to balance their budgets, as did Coolidge and Harding before them. Tax cuts were good, if they could get them, but secondary to managing the nation’s finances responsibly. Put another way, when faced with a choice of either chronic deficits or a balanced budget, members of the Old GOP chose the latter.

Things started to change in the late 1970s, however. In California, citizens passed a ballot initiative, Proposition 13, that made it virtually impossible to raise taxes. The Reagan revolution added to the momentum, as the president called for and received massive tax cut legislation. One would (rightfully) conclude that such large tax cuts, even if spending remained flat, would result in huge deficits and increasing debt. But emerging New Republican orthodoxy placed less emphasis on balancing budgets and maintaining fiscal responsibility than at cutting the size of government and slashing taxes, at all costs.

The argument was that balancing budgets would necessarily follow cutting taxes. At a 1980 debate, Reagan framed it like this: “Well, if you’ve got a kid that’s extravagant, you can lecture him all you want to about his extravagance. Or you can cut his allowance and achieve the same end much quicker.”

The problem is, drastic tax reductions necessitate similar spending decreases to balance budgets. Although some revenue from the cut can be recouped thanks to increased economic activity, the ultimate effect is a net loss of revenue. (This economic consensus — that tax cuts do not “pay for themselves” — stands in stark contrast to the talking points of many GOP politicians). A huge loss of revenue, when coupled with the fact that any sizable cuts would necessarily affect politically popular programs like Social Security, Medicare, and defense spending, leads to an untenable situation in which tax cuts are not followed by spending cuts.

Whereas American appetite for tax cuts is voracious, neither citizens nor politicians have had much appetite for cutting programs that comprise the bulk of U.S. spending: Social Security, Medicare/Medicaid, and defense spending. To the contrary, spending in these areas has trended upward while taxes have trended down. Reagan, for instance, ramped up military spending to bankrupt the Soviet Union while simultaneously slashing income tax rates. The result was huge, chronic deficits, and the Reagan Administration subsequently signed off on numerous tax increases. In fact, the Reagan Administration presided over largest peacetime tax increases in American history, as well as a tax reform that broadened the tax base and removed many deductions from the tax code, effectively raising revenue. The George H.W. Bush and Bill Clinton Administrations similarly increased taxes and cut spending. These actions were driven by the very real need to address budgetary issues.

As this graph from Wonkblog shows, spending cuts were dominant in the Bush and Clinton deficit reduction packages (and were likely made easier due to the collapse of the Soviet Union and the end of the Cold War).

Today, however, New Republican dogma is to avoid any and all tax increases. Republican candidates clamor to take tax activist Grover Norquist’s “no tax pledge,” effectively tying their hands once in office. Break the pledge, and prepare to be bludgeoned by political adversaries in your next campaign. This, of course, sets the stage for a frozen Congress — how can you hope to govern if one side of the aisle is completely unwilling to yield any ground?

Note that every  Republican presidential candidate in a 2012 debate indicated they would walk away from a debt deal that cut spending $10 for every $1 tax increase. Now read this, from the Economist:

Put simply, no fiscal consolidation that the IMF has judged to be successful relied on public spending cuts for more than 83% of its impact. In successful fiscal consolidations, tax rises accounted for between 17% and 33% of deficit-reduction measures.

Deficit reduction is generally more successful when spending cuts are more numerous than tax increases. Reducing the deficit wholly through spending cuts is unprecedented, not to mention impossible, politically. There is a reason why Social Security, Medicare, and defense are known as “third rails” — you touch them, you die. Even were it possible, it is not clear that such a solution would be desirable or advisable. And, indeed, polls have shown that large majorities of Americans recognize the need for both tax increases and spending cuts.

Still, even tax increases to help balance the budget are anathema to the New GOP. Their primary goal, despite what they might say, is not to get America’s fiscal house in order. It is, in Grover Norquist’s words, to get government so small that you can “strangle it in a bathtub.” And to do this, they have employed a strategy known as “starving the beast” — cutting revenues to force a budgetary crisis, and then demanding that tax increases play little to no role in the fiscal consolidation.

This is the party that wants to claim the mantle of ‘fiscal responsibility.’

Three words: I like Ike.

{ Leave a Reply ? }

Leave a Reply

Your email address will not be published. Required fields are marked *

Pingback & Trackback

  1. The Baby Boom and Bust: Demographics and the American Entitlements « Diniverse Major - Pingback on 2012/03/10/ 23:21