Back in 1992, Senator Warren Rudman, a Republican from New Hampshire, and Democratic Senator Paul Tsongas of Massachusetts, formed a non-profit called the Concord Coalition. The bi-partisan group was meant to cast light on a simmering crisis that could ruin the US economy if allowed to fester unattended… deficit spending. Rudman spoke in apocalyptic terms of a debt bomb that could paralyze US and world markets and destroy entitlements like Social Security and Medicare.
Since the founding of the country, balancing the budget has been a given as a primary responsibility of both the Legislative and Executive branches. While there has been a public debt since America’s founding, responsible governance was defined for more than 200 years as striving to match spending with revenues,. Government programs needed to be paid for, which meant higher taxes if necessary, pretty simple stuff. Substantially exceeding available revenues was strictly for emergencies like war and depression. Thus, while FDR increased the debt by 1048% from what he inherited from Hoover, he tackled the Great Depression and paid for WWII. Few held it against him or his legacy.
Indeed, the generation of US economic preeminence WWII ushered in kept deficits at bay until LBJ lurched into Vietnam while creating the Great Society. Even so, Democrats, firmly in control of Congress, were not shy about demanding the upper brackets contribute their fair share, so red ink remained manageable. When Ronald Reagan swept into the White House in 1980, Jimmy Carter had actually reduced the deficit, albeit while also passing on a recession with monstrous interest rates and near double digit unemployment. Moreover, fat cats had run out of patience when it came to progressive taxation, and Reagan was their guy.
Reagan came into office with one priority and one priority only…. slash tax rates for the upper brackets. “Supply-side” economics, created and promoted with evangelical fervor by a club of GOP true believers led by Jack Kemp and incoming OMB Director David Stockman, was supposed to contain two elements, each fully dependent on the other for the theory to succeed. Cutting spending would make slashing tax rates possible, and the tax cuts would stimulate the economy, creating more revenues with lower tax rates, which could then “trickle down” to revive programs initially chopped to facilitate the tax relief. At least that was the theory. Practice would prove a bit more complicated.
David Stockman worked feverishly under the premise that landmark tax reform, being rushed through both chambers on the Hill, would be followed by swift spending reductions that would bring the budget back into equilibrium and enable the Supply-side formula to shine and propel the economy out of the rut it had been in for too long. In August of 1981, the Economic Recovery Tax Act (ERTA) passed without much of a peep from Democrats unenthused about becoming impediments to the tax relief Reagan spent his campaign promising and provided the US upper brackets with 20 points of love. The top marginal rate was reduced from 70 to 50 percent. That figure would eventually go as low as 28% before stabilizing between 35-40%, a gigantic gift the wealthiest Americans continue to enjoy.
But something happened on the way to Supply-side nirvana; the Reagan White House decided being the budget cutting boogie man was not a good role for the Gipper. Instead of following through with the second pillar of the theory, Reagan’s troika of handlers, James Baker, Mike Deaver and Ed Meese, decided to simply fake trying to cut the budget. Claim to want to do it, but blame House Speaker Tip O’Neil and the Democrats for blocking our honest efforts…. we tried. In fact, under Reagan, government debt rose from $997 billion to $2.85 trillion, with the military budget surging 30% within the confines of Reagan’s amped up Cold War rhetoric and “star wars” fever dreams. Thus, two momentous events occurred together: first, the deficit spending genie was let out of the bottle; second, policy messaging was developed, not to convince the entire electorate, but merely the GOP. Today, we suffer mightily for both of these watersheds.
Anyone wishing to learn more from one present at the creation should read David Stockman’s tale of how he and other true Supply-side apostles were betrayed by their leader. Principled governance is not what comes to mind perusing Stockman’s account of the Reagan White House’s decision to begin using the nation’s credit card in earnest.
It’s clear both the White House and GOP leaders like Bob Dole knew what they were doing. In a fit of conscience they actually passed legislation on the down low to rescind some of the ERTA’s most substantial rate reductions in order to boost revenues. Yet and still, the die was cast; deficit spending was now more than an emergency measure, it was good politics. As running a tab of more than a $1 trillion had its expected impact on economic performance, the GOP and later Fox/AM lionized Reagan as an economic visionary, the father of the Supply-side miracle. Cottage industry plagues from Grover Norquist to the Koch brothers sprang forth to make certain the new brand became orthodoxy no Republican lawmaker could swim against without being treated as an apostate. Supply-side lost one of its legs and was redefined as merely a synonym for cutting taxes and assuming Democrats would sabotage spending reductions. No matter, the cuts alone were all that counted as far as political viability within the GOP.
The rest is sad history which created our nightmarish present circumstance. From Reagan’s more than doubling of the debt he inherited to W’s shameful decision to increase his poll numbers by blowing a $1 trillion surplus he inherited with the mantra of “returning it to hardworking taxpayers” to Trump’s unfathomable $1.5 trillion gift to the upper brackets at full employment, hypocrisy doesn’t get more blatant than Republican attacks against Democratic “tax and spending.” The very trope itself underscores the critical difference between parties…. at least Dems admit the piper needs to be paid.
It’s important to note, as Trump heads to the G7 summit ready and willing to embarrass us before the world yet again, that the day he delivered perhaps US history’s ugliest inauguration speech, the nation’s jobless rate was at 4.7%, which is considered full employment. He is on schedule to deliver more than $6 trillion in additional debt under circumstances his predecessor, who, even with a dire economic crisis produced about the same amount of red ink, would have thanked heaven to have. Trump’s spending spree has been fully blessed by the GOP, who scraped and clawed to pass tax relief only billionaires and corporations celebrated. Of course, they called it Supply-side economics.
To be clear, Democrats don’t wear virgin white in all of this. Promising the stars to provide target rich shooting for GOP-Fox/AM hypocrisy is what they do best. Elizabeth Warren has surged into contention for the 2020 nomination promising a list of goodies she insists the 2% will pay for. Her numbers don’t add up, even if the tax justice could somehow pass. Unlike Trump and the GOP, a Warren Presidency will quickly run into the limits responsibility forces on campaign promises, an obstacle the Trump GOP has ignored from the start. Either way the card is maxed out, with the doom Rudman warned of near 30 years ago just over the horizon. Back in 92’ Rudman spoke of the ominous specter of interest payments on as much as $10 trillion in debt. We’re now at more than twice that figure and, even at record low rates, interest on the national debt hobbles us. What happens if rates surge into the double digits? A couple of generations will quickly learn how destructive inflation can be. The housing market is now barely holding its own with buyers able to get a 3.65% 30-year fixed rate. What happens when that rate is, say, 12 %? Ditto car purchases.
Successful anything requires options. The more avenues, the better plan that can be created and employed. We are running out of options to fashion winning economic strategies. This Administration has moved aggressively to destroy as many as it can, everything from capitalizing on the prerequisites for addressing climate change, to needlessly aggravating a critical debt problem Trump promised to resolve “in a couple of years.”
The chickens of arbitrary tariff madness are coming home to roost. Recession is nigh. What will be available to help pull us out of the hole Trump now furiously burrows is little and none…. and little is blowing town. The mess a Democrat will be faced with if we’re determined enough to send Trump packing is likely to make what Obama inherited from W look pleasant. It’s the end of the red brick road the Reagan Revolution set us on. BC