While Republicans and others continue their tax reduction mantra as the only way towards economic growth, two of President Reagan’s top financial advisers oppose this Republican ideology, with very good reasons and going so far as to say Republicans are idiotic.
Remember David Stockman? He was President Reagan’s Budget Director and promoter of “Supply Side Economics.” Now after a couple of decades on Wall St., he’s come out against the behavior of Wall St and favors tax increases as the only sensible way to decrease the federal deficit. Here is part of his interview with PBS’ Paul Solman:
PAUL SOLMAN: So, you like the Obama banking proposal. Why?
DAVID STOCKMAN: I would give the administration credit for trying to move us back to something that’s a lot saner than trillion-dollar banks being propped up by the taxpayers, which is exactly where we are today.
The fact is, Wall Street is entirely involved in capital markets activity, which is fine. But that’s free market activity. They shouldn’t be involved in it if they have got deposit insurance and if they have got the Fed window behind them. That’s for deposit banks, not for gunslingers and for hedge funds and for capital market players.
PAUL SOLMAN: But you were a gunslinger, right?
DAVID STOCKMAN: Yes. But I didn’t ask for any — I didn’t ask for any deposit insurance that the taxpayer is going to back up.
Please, Wall Street banks, don’t come and ask the taxpayer of this country who’s out in Green Bay Wisconsin, can’t pay his mortgage, can barely put food on his table, to have the safety net of the Fed and the Deposit Insurance and the Treasury of the United States. It’s an outrageous ask, and they ought to be ashamed of themselves.
PAUL SOLMAN: Almost everyone I talk to says too big to fail is a bad idea, and, yet, in Republican and Democrat administrations alike, it has been the de facto policy. Why?
DAVID STOCKMAN: I think part of the problem is that Wall Street has this tremendous army of lobbyists, who strangle in the cradle any decent idea before it can even see — see the light of day.
PAUL SOLMAN: Which sounded a lot like Stockman’s political polar opposite, Paul Krugman.
PAUL KRUGMAN, columnist, The New York Times: This is as raw an incidence of the power of money in preventing us from doing something that everybody knows we should do that I have ever seen.
PAUL SOLMAN: And now both men favor a new tax on risk-taking financial institutions, which prompted one last question for Ronald Reagan’s budget director, famous for the starve-the-beast argument, that tax cuts would force government to cut spending.
Do you still feel that way?
DAVID STOCKMAN: I think the lesson of the last 25 years is that it doesn’t work. You can keep cutting taxes until you reach the point where this year — or the year just ended, we spent $3.6 trillion, and we only collected $2.2 trillion.
So, we are now so far out of kilter that it’s irrelevant. Taxes are going to have to be raised. And the beast needs to be trimmed back. But it can’t be starved enough to even begin to cope with our fiscal problem. And this is where I think all the politicians are faking in both parties, but the Republicans especially.
The Republicans think their mission in life is to cut taxes. Sorry, game — game over. We’re now in the tax-raising business. And we’re going to be in the tax-raising business for the next decade.
Then there’s Bruce Barlett. Barlett was a domestic policy adviser to President Reagan, helped draft the Kemp-Roth tax bill, which ultimately formed the basis of Ronald Reagan’s 1981 tax cut, and a Treasury official under President George H.W. Bush. A life long Republican, who at one time worked for Rep Ron Paul of Texas, he left the Republican Party to become an Independent because of what he sees as the abysmal failure of Republicans to govern honestly and effectively. In numerous articles for Forbes.com, he’s been critical of Republican failures to attempt to solve the nation’s problems, including this one. In addition, his last two books, Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy and The New American Economy: The Failure of Reaganomics and a New Way Forward, chronicle the failures of the Republican Party and their policies.
On the issue of taxes and the economy, he confirms that the Obama Administration’s stimulus was necessary and explains that the bill’s nearly 40% in tax cuts, demanded by Republicans who then failed to vote in favor of it, did nothing to stimulate the economy.
Indeed, one can argue that the failure of the stimulus to create or save more jobs occurred largely because Obama included too many non-stimulative tax cuts in the stimulus package. These tax cuts, such as the Making Work Pay Credit, accounted for more than 40% of the cost of the $787 billion stimulus package. Based on the CBO analysis, I don’t think there is any question that the economy would be much worse off today if Republicans had gotten their wish and 100% of the stimulus had been in the form of tax cuts.
Those who disagree should keep in mind that in fiscal year 2009, which ended on Sept. 30, federal revenues came to just 14.9% of GDP, compared to 17.7% in 2008 and 18.8% in 2007, according to the CBO. In effect, we’ve had a tax cut equal to 4% of GDP over the last two years. By comparison, the Kennedy-Johnson tax cut of 1964 was only 1.6% of GDP and the Reagan tax cut of 1981 was 1.9% of GDP in its first two years. (See this Treasury Department study.)
Nevertheless, Republicans continue to trumpet tax cuts as the one and only cure for whatever ails the economy, as House Republican Whip Eric Cantor, R-Va., did in a Dec. 2 speech. Nowhere in it, however, is there any statement of the theory by which more tax cuts will stimulate growth when taxes are already at their lowest level in three generations, and when there is no evidence that the tax cuts enacted in February or last year’s tax rebate–which the Bush administration promised would stop the recession in its tracks–have had any meaningful stimulative effect. (On failure of the Republican rebate, see this CBO analysis.)
The point to be made here is that Republicans are being dishonest in claiming that their ideas will lead the nation back to economic health. When Reagan’s own economic advisers call Republican policies irresponsible, how can anyone else believe them? But Republicans continue to play political games, using fear tactics and misinformation, in a clear attempt to regain control of both Congress and the White House. In my opinion, confirmed by both Stockman and Barlett, the Republicans care less about solving the nation’s problems and regaining national economic viability than becoming the top dogs in Washington and, thus, the top lobbyist money winners.
What surprises me is that so many Americans believe what the Republicans are saying. After the worst governance and reckless spending of the last century, how can anyone trust what they say, let alone put their lives and fortunes again in the hands of the very party that caused the problems we now face?