The Broken Record of Supply-Side
Like an aged phonograph playing a scratched record, the same old Supply-side Tune keeps playing over and over again in the political arena.
The centerpiece of the 2012 presidential election is the economy and how to best manage it by reducing budget deficits while increasing jobs. For 40 years the Republicans have preached Supply-side economics as the answer, but the record demonstrates that Supply-side economics answers best to the wealthy while devastating everybody else, including recurring deficits every time a Supply-side president takes office.
In that regard, the recent presidential debate was meaningless, other than as a sideshow of which candidate demonstrated the most moxie on television, and Romney won on that score. He was obtrusive, interrupting Obama in mid-sentence more than once, and Jim Lehrer just sat there in a complete stupor. The moderator was an empty chair, following the idea of Clint Eastwood from a few weeks ago.
Romney is all about Supply-side economics, which is a failed policy time and again and again and again. As for Obama, he has rediscovered, a little late, Clinton’s magic by calling for higher taxes on those who can most afford it. The issue going into the November presidential vote is this: How many times will the American public fall for the same old story from worn out, tired Supply-siders? Cut taxes, and the economy will hum, creating new jobs like there is no tomorrow… Blah, blah, blah, blah!
If the voters fall for the Supply-side economic fix again, it is probable the economy will experience a replay/continuation of massive budget deficits started under President Reagan, continued by George HW Bush and accelerated by George W Bush, and unfortunately continued under Obama, who is now, however, finding new religion. The essential question of this election should be: Can the U.S. economy handle more Supply-side economics?
In an interview on Bloomberg the morning after the presidential debate, Mark Gallogly, Cofounder of Centerbridge Partners, L.P. made the following point: Every bi-partisan group imaginable, including Peter G. Peterson’s Foundation agree a balanced approach is required to balance the budget, which is Obama’s new plan, but according to Gallogly, Romney’s approach to the deficit will “work terribly.” We’ve seen this movie before under George W. Bush: (1) Cut the top marginal tax rate (Romney’s tax plan creates a $5 trillion dollar hole to fill), and (2) add ($2 trillion is Romney’s number) to defense spending and (3) we’ll grow our way out of the deficit… not to worry! Reagan had a similar message thirty years ago. This is the same ole Supply-side trap that does not hold up as advertised, i.e. if you remove tax burdens from the private sector, everything will be just fine. The historical record shows a long trail of excessive budget deficits under every Supply-side presidency, including Obama’s.
Bloomberg also interviewed Robert Kaplan, professor at Harvard Business School and former Goldman Sachs Vice-Chairman, who agreed with Gallogly, saying, “We’ve tried this twice in the past with Reagan and again in 2001-08 and it didn’t work… History has shown that growth has never been sufficient to offset these tax rate cuts… History has shown this approach actually created a bigger problem rather than solving the problem.”
And, according to Maya MacGuineas, President of the nonpartisan Wasshington, D.C.-based Committee for a Responsible Federal Budget, “the good news is they talked about the budget.” The bad news is “Romney’s tax cuts would cost $5 trillion but he has not explained how he would handle this… It is still difficult to evaluate his tax plan.”
Supposedly, the tax cuts will inspire the economy to grow and create new businesses and new jobs. This is what Reagan, Mister Supply-sider, said in the 1980s just before he took the United States to the woodshed by setting new all-time records for deficit spending, and America became the world’s biggest debtor nation under his watch, e.g., Reagan was the first president to take the budget deficit over $100 billion in ‘82 and unbelievably, he doubled the deficit to over $200 billion within one year in ’83, and he never ran a surplus. He was the “Great Deficit President.” This was the result of Supply-side economics, which is what Romney preaches today, although on steroids when compared to Reagan, who did, to his credit, manage to create 16 million new jobs.
It took a moderate Democrat, Bill Clinton, to finally get the U.S. budget back into surplus by adopting tax policies opposed to Supply-side economics, commencing with the ’98 budget turning a surplus of $69 billion and by the time he turned over the presidency to the next Supply-sider, George W. Bush, the budget surpluses were running at $100-200 billion per year. Clinton created 22 million new jobs.
During Clinton’s first year he pushed through a large tax increase which fell almost exclusively on upper-income taxpayers, contributing to budget surpluses in future years. Additionally, his surpluses benefited from Social Security surplus taxes during the period; however, even if the Social Security benefit is removed from the equation, Clinton ran budget surpluses (Source: The Budget and Deficit Under Clinton, Annenberg Public Policy Center, Feb 3, 2008.)
It only took Bush a year to burn through Clinton’s budget surpluses and into budget deficits, similar to Reagan’s course of action. In fact, he did a $285 billion flip-flop within one year, turning Clinton’s final budget surplus of $128 billion in 2001 into a budget deficit of $157 billion. Bush only created one (1) million new jobs in eight years. What did he do differently than Clinton? Like Supply-sider Reagan, he cut taxes. This exercise in enriching the rich at the expense of the national purse is a recurring theme of the Supply-siders. They have a disease called tax-cuts-forever that lethally increases federal debt, and it destroys annual budgets.
The Supply-side approach under ‘W’, and including several years of financial deregulations pre-Bush, resulted in the biggest catastrophe since the Great Depression. President Obama alluded to these failures during the debate, but his tone, style, and body language did not live up to explaining the task at hand, which is plain and simple: Supply-side economics is a charade that lines the pockets of the rich at the expense of the middle class and increases the national debt and widens budget deficits.
And, most importantly, higher tax rates do not impede business or gross domestic product growth, but they do balance the budget. President Clinton is the best recent evidence of this fact; interestingly, he was squeezed in between the Bush presidents. The contrast is dramatic in terms of GDP growth rates, budget surplus/deficit and jobs. Clinton beat the two Bushes, combined, on all counts. Also, President Lyndon B. Johnson’s economy experienced the fastest rate of GDP growth since WWII with top marginal tax rates of 70%, and his average rate of job creation was 50% higher than President Reagan’s. This is a matter of factual history. LBJ, the liberal democrat, certainly was not a Supply-side president.
How can Supply-side presidential candidates continue the Broken Record Syndrome of a policy that has historically proven to destroy annual budgets and skyrocket federal debt? And, how much longer will the American public buy into this ruse?
The Obama problem with budget issues is this: He inherited W’s Supply-side policies and kept them rather than take President Clinton’s course of action, i.e., raising taxes to accommodate federal spending programs, like FDR’s, which programs serve as an impetus to the national economy the same as private business expenditures increase the economy. Obama’s taxation policies are a continuation of Bush’s taxation policies, which policies aggravate budget deficits. However, based upon Obama’s recent rhetoric it appears he now favors Clinton’s policies of adopting a balanced, pragmatic approach by raising taxes on the wealthy while cutting expenditures.
Amazingly, for 40 years, the Supply-side politicians have sung the same old song. Meanwhile, the federal government slowly dies on the vine because of the Ronald Reagan-inspired doctrine of “starving the beast,” which is a political strategy of cutting taxes to deliberately force the federal government to reduce spending. However, Reagan never really leveled with the public about the collateral benefit of his policy, which is massive enrichment for the wealthy, regardless of whether the tax cuts lead to reduced governmental expenditures. And, on this score, there is plenty of documented evidence of the wealthy gaining enormous additional wealth throughout the Supply-side era (Source: Forbes Magazine) while the middle class gradually evaporates.
The Supply-siders have already accomplished their mission for their primary beneficiaries, and now super duper Supply-sider Romney is asking the public to give him another shot at playing that same old worn-out record!
Robert Hunziker earned an MA in economic history at DePaul University. He lives in Los Angeles.