The gospel of tax cuts: GOP insists on a lopsided debate about deficits

Republicans seem convinced that tax cuts are the answer to everything from a bad economy to cats stuck in trees

November 01, 2011|Thomas F. Schaller

Debates about deficit reduction in American politics have become rather lopsided: We talk a lot about spending cuts but rarely, if ever, about revenue increases. Why the asymmetry?

With the Occupy Wall Street movement gaining traction, suddenly there is some discussion of raising taxes on the top 1 percent. But as the 1 percenters and their media and political defenders correctly note, America's budget woes cannot be solved by focusing solely on the top 1 percent. That just means our revenue problems run far deeper.

Between 2001 and 2009, federal revenues slipped from 19.5 percent to 14.8 percent of U.S. gross domestic product — a significant drop from the 18 percent to 20 percent level at which revenues had hovered for decades. The recession is largely to blame, of course: As personal incomes, capital gains and corporate profits fell, so did the revenues generated from taxing them.

But the overall federal tax burden — courtesy of lowered marginal rates and the proliferation of deductions that economists call "tax preferences" — is lower than it has been in more than half a century. In fact, thanks to the massive tax cuts George W. Bush enacted and Barack Obama later extended, revenues as a share of GDP were already down to 17.5 percent by 2008, before the economic crisis began. Funny, but we didn't see tea partiers three years ago caterwauling in the streets about deficits.

Nor did we hear their cheers during the final years of the Clinton administration, when the federal government actually ran surpluses — an almost unfathomable possibility today. Instead, during the 2000 election, conservatives mocked Al Gore for suggesting that we "lockbox" payroll receipts to plan for long-term Social Security obligations as they trooped to the polls to elect Mr. Bush, who promised Santa Claus-style tax cuts for all.

Mix in the costs of two wars, a Medicare Part D prescription drug entitlement, an economic stimulus package, and the Affordable Care Act during the decade to follow, and pretty soon the situation turned from troubling to dire.

The lessons of this recent history? When the economy is roaring and federal receipts are rising, we hear calls for cutting taxes, but when the economy turns south we are told tax cuts will mitigate our economic pain. The belief that tax cuts are vital to good economies or bad, necessary during either war or peace, and the solution for everything from stimulating growth to saving cats stuck in trees, has led to this lopsided national fiscal discourse.

This asymmetry has also stalled the ongoing negotiations between Republicans and Democrats on the so-called "supercommittee," the board created in August during the (manufactured) debt ceiling crisis. Republicans recently proposed $2.2 trillion in savings over the next 10 years. Democrats are proposing bigger savings, roughly $3 trillion.

But the Democratic plan includes $1.3 trillion in new or increased taxes, which Republicans reject because they believe the budget is a single-sided, spending-only equation. "Add the GOP gospel from the Reagan years that all tax cuts pay for themselves and the newer mantra that — facts be damned — the deficit is a spending not a revenue problem, and it's easy to see how [budgeting] has morphed from 'deficit neutrality' to 'spending neutrality,'" Stan Collender, who writes the "Fiscal Fitness" column for Roll Call magazine, said in an email.

I asked Jared Bernstein, until recently Vice President Joe Biden's top economic adviser, how the fiscal conversation became so tilted.

"The evidence in support of the supply-side tax cut theory has, of course, been conspicuously absent, especially during the George W. Bush years," Mr. Bernstein told me. "Yet it's a zombie idea that can't be killed. If anything, it seems to gain strength despite the clear evidence that supply-side tax cuts simply increase, (a) the budget deficit, and (b) after-tax income inequality."

Pundits searching for parallels between the tea party and Occupy movements should take note of the connection Mr. Bernstein draws. Tea partiers want to get deficits under control; occupiers want to reverse rising income inequality. Both problems are partly if not primarily attributable to the messianic belief in tax cuts as the panacea for everything that ails America.

Too bad only one of the two movements has figured this out.

Thomas F. Schaller teaches political science at UMBC. His column appears every other Wednesday. Email: schaller67@gmail.com.

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