Bush’s Tax Cuts
Insanity, said Albert Einstein, is doing the same thing over and over again but expecting different results. By this measure, the latest Bush tax cuts qualify as certifiably insane.
Where have we seen this deranged fiscal strategy before? Remember Ronald Reagan and Supply Side Economics? In the early 1980s, Reagan promised the nation that if we lowered tax rates on the wealthy, the economy would grow so much the federal budget would be balanced "within three years, maybe even two."
Sober people were skeptical-and rightly so. Reagan’s Republican opponent for the 1980 presidential election, George H.W. Bush called it "voodoo economics." His own Budget Director, David Stockman, called it a "Trojan horse," a scam intended really to funnel more money to the already rich. Stockman was quickly dismissed.
The results, we now know, were a disaster. In 1982, the first full year after the tax cuts were enacted, the economy actually shrank 2.2%, the worst performance since the Great Depression. And the effect on the federal budget was catastrophic.
Jimmy Carter’s last budget deficit was $77 billion. Reagan’s first deficit was $128 billion. His second deficit exploded to $208 billion. By the time the "Reagan Revolution" was over, George H.W. Bush was running an annual deficit of $290 billion per year.
Yearly deficits, of course, add up to national debt. When Reagan took office, the national debt stood at $994 billion. When Bush left office, it had reached $4.3 trillion. In other words, the national debt had taken 200 years to reach $1 trillion. Reagan’s Supply Side experiment quadrupled it in the next 12 years.
Is there anything to compare this to? When Bill Clinton took office he intentionally reversed the Supply Side formula, raising taxes on the wealthy and reducing them on the lowest wage earners. Supply Side true believers predicted the arrival of the Apocalypse. Bob Dole said the stock market would collapse. Newt Gingrich said the world would fall into another Great Depression.
What actually happened?
Between 1992 and 2000, the U.S. economy produced the longest sustained economic expansion in U.S. history. It created more than 18 million new jobs, the highest level of job creation ever recorded. Inflation fell to 2.5% per year compared to the 4.7% average over the prior 12 years.
Real interest rates fell by over 40% producing the greatest housing boom ever. Overall economic growth averaged 4.0% per year compared to 2.8% average growth over the 12 years of the Reagan/Bush administrations. Most impressively, Clinton reversed the mammoth deficits of the Supply Side years, turning them into surpluses. He used these surpluses to begin paying down the national debt.
By virtually every meaningful measure-employment, growth, inflation, interest rates, investment, deficits and debt-the economy performed better once the Supply Side experiment was terminated and replaced with a more honest economic policy where we actually pay our bills as we go.
This might all be ancient history if the spectre of Supply Side economics had not reared its ugly head again once Bush II took office. In selling his $1.6 trillion tax cut-half of which went to the wealthiest 1% of Americans-Bush promised in 2001 that it would produce 800,000 new jobs. In fact, the economy has lost 2.7 million jobs since Bush took office, again, the worst economic performance since the Great Depression.
The effects of Bush’s tax cut on the deficit and debt are exactly what we would expect having seen Reagan’s results-only worse. Bush inherited from Clinton a fiscal surplus of $127 billion. In his first year he turned that into a deficit of $158 billion. In this, his second year, he will run a deficit of over $400 billion-a swing to the worse of over $600 billion in only two years.
Now Bush has sold us on still another megadose of this same Supply Side voodoo. Two thirds of his new $350 billion tax cut will go to the top 10% of income earners. Bush’s Congressional ally, Tom DeLay, promises more such cuts for every year Bush is in office.
The long term effects of these policies are profoundly damaging. When Bush took office, the government’s ten year surplus was forecast to total $5.6 trillion. This was critical to building fiscal soundness as the Baby Boomers begin to retire.
Now, the ten year forecast projects a cumulative deficit of $1.1 trillion, a net loss of $6.7 trillion in only two years. With the exception of World Wars, this is the greatest, most rapid destruction of public wealth in the history of the world.
This is $6.7 trillion that is not available to pay for an entire generation’s retirement as we promised. It cannot rebuild the nation’s schools or retrain the technologically unemployed. It cannot shore up a foundering Medicare system or provide insurance to the more than 40 million Americans without it. The interest costs of funding this debt will soon approach half a trillion dollars a year and will retard investment and, therefore, economic growth for decades to come.
All this torrent of debt does-and we shouldn’t underestimate the prodigious potency of this feat-is line the pockets of Bush’s already gorged campaign contributors.
Rarely in public affairs do we have the luxury of such starkly clear, empirically proven, historically sound contrasts. If Bush’s tax cuts do not represent a fiscal process wildly out of control it is hard to imagine what does. And sadly, per Einstein’s insanity dictum, we’ve seen it all before.
Bush wants people to believe these losses are due to a recession he inherited from Bill Clinton. But the economy has grown for seven of the last eight quarters Bush has been in office, hardly a recessionary environment. In truth, the losses owe to a reckless economic philosophy, the failings of which have been conclusively, and now repeatedly, demonstrated.
We need to wake up from our patriotism-besotted, war-induced stupor. Losses and debts of this magnitude threaten our nation’s well being far more than do fictive weapons of mass destruction in the hands of a two bit, third world thug. Destroying our fiscal patrimony at the very moment we need it most-when history shows we should know better-is nothing short of national insanity.
ROBERT FREEMAN writes about economics, technology and education from Palo Alto, CA. He can be reached at: firstname.lastname@example.org