As recently as April, CBO had forecast the federal government would return to trillion-dollar annual budget deficits beginning in 2020. Now, Uncle Sam will hit that dismal figure in fiscal year 2019 which starts on October 1. (By way of comparison, Barack Obama inherited a $1.4 trillion deficit for fiscal year 2009 and left office with a projected FY2017 shortfall of $665 billion.) The reasons why are no mystery. The GOP tax cuts combined with the lifting of mandatory spending caps (or sequestration) have boosted outlays even as tax revenue has flatlined. As The Fiscal Times explained:
Overall revenues in the first 11 months of the fiscal year were up by 1 percent while spending increased by 7 percent. Corporate income tax receipts fell 30 percent, due to the lower tax rate and new rules that allow immediate expensing of equipment purchases. Individual and payroll tax receipts increased by 4 percent during the period, but much of that increase was due to higher-than-expected tax payments in April for the previous calendar year.
Spending on the three largest mandatory programs – Medicare, Medicaid and Social Security – grew by 4 percent during the period, while defense spending rose by 6 percent. Spending on net interest on the public debt jumped by 19 percent.
Now, if you have the sickening feeling you’ve seen this movie before, that’s because you have.
That’s because back in 2010, then-Minority Leader Mitch McConnell (R-KY) used the same “tax cuts pay for themselves” talking point to defend the extension of the Bush tax cuts of 2001 and 2003 for the richest Americans. Defending that windfall for the wealthy that would drain $70 billion annually from the United States Treasury, the No.2 Senate Republican Jon Kyl of Arizona proclaimed, “You should never have to offset the cost of a deliberate decision to reduce tax rates on Americans.” McConnell rushed to Kyl’s defense, announcing that his fiscal fraud was in fact now Republican orthodoxy:
“There’s no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue because of the vibrancy of these tax cuts in the economy. So I think what Senator Kyl was expressing was the view of virtually every Republican on that subject.”
But then as now, Republican agreement on that view doesn’t make it a fact. History tells us so. And that history starts, it turns out, with Ronald Reagan’s arrival in the White House in 1981.
As most analysts predicted, Reagan’s massive $749 billion supply side tax cuts in 1981 quickly produced even more massive annual budget deficits. Combined with his rapid increase in defense spending, Reagan delivered not the balanced budgets he promised, but record-setting debt. Even his OMB alchemist David Stockman could not obscure the disaster with his famous “rosy scenarios.”
Forced to raise taxes 11 times to avert financial catastrophe, the Gipper nonetheless presided over a tripling of the American national debt to nearly $3 trillion. By the time he left office in 1989, Ronald Reagan more than equaled the entire debt burden produced by the previous 200 years of American history. It’s no wonder that three decades after he concluded “the supply-siders have gone too far,” former Arthur Laffer acolyte and Reagan budget chief David Stockman lamented:
[The] debt explosion has resulted not from big spending by the Democrats, but instead the Republican Party’s embrace, about three decades ago, of the insidious doctrine that deficits don’t matter if they result from tax cuts.
The history of the Bush years, too, shows that the arc of the Laffer Curve is short but bends toward fiscal catastrophe. After Ronald Reagan tripled the national debt, George W. Bush nearly doubled it again.
Inheriting a federal budget in the black and a CBO forecast for a $5.6 trillion surplus over 10 years, Bush quickly set about dismantling the progress made under Bill Clinton. In 2001, Bush signed a $1.4 trillion tax cut, followed by another $550 billion round in 2003, the first war-time tax cut in modern American history. (It is more than a little ironic that Paul Ryan at the time called the tax cuts “too small” because he believed the estimated surplus Bush would later eviscerate would be even larger than predicted.) In keeping with Republican orthodoxy that “tax cuts pay for themselves,” Bush confidently proclaimed:
“You cut taxes and the tax revenues increase.”
As it turned out, not so much.
Federal revenue did not return to its pre-Bush tax cut level until 2006. As a share of American GDP, tax revenues peaked in 2000—that is, before the Bush tax cuts of 2001 and 2003. Analyses in 2010 by the Center on Budget and Policy Priorities concluded that the Bush tax cuts accounted for half of the deficits during his tenure and if made permanent, over the next decade would cost the U.S. Treasury more than Iraq, Afghanistan, the recession, TARP, and the stimulus—combined. By the time he shuffled out of the Oval Office in January 2009, Bush bequeathed a $3.5 trillion budget and a $1.2 trillion annual deficit to his successor, Barack Obama.
Arriving at the White House in the midst of the worst economic disaster since the Great Depression, President Obama nevertheless succeeded in turning around America’s fiscal fortunes. On January 7, 2009, CBO warned that FY 2009 spending would hit $3.54 trillion dollars, while tax revenue would plummet to just $2.36 trillion. Ultimately, the FY 2009 deficit was even worse, as tax receipts plunged to just $2.1 trillion. But thanks to the success of Obama’s economic stimulus measures and the reversal of the upper income Bush tax cuts, tax revenues sharply rebounded to $2.94 trillion in 2009 dollars by Obama’s final year in office. Spending, however, was virtually flat. As the Office of Management and Budget (OMB) historical table 1.3 shows, inflation-adjusted spending was virtually unchanged ($3.53 trillion) 8 years later in FY 2017.
Nevertheless, the 2016 GOP Platform rewrote the history of the Obama years:
The Administration’s policies systematically crippled economic growth and job creation, driving up government costs and driving down revenues. When Congressional Republicans tried to reverse course, the Administration manufactured fiscal crises — phony government shutdowns — to demand excessive spending.
Now, Donald Trump and Capitol Hill Republicans, like Reagan and Bush before them, are once again undermining the federal government’s fiscal health. America doesn’t have an immediate debt problem; it does have a looming age problem. And the hemorrhage from the United States Treasury doesn’t result from spending too much but taxing too little to fund the government Americans want. (After all, the only area in which a majority wants to cut spending is on foreign aid, which accounts for less than half a percent of federal outlays.) The remedy, as I’ve documented elsewhere, is pretty straight-forward. Raise or eliminate the cap on income subject to payroll taxes and reduce healthcare costs by having the government set rates for all procedures, tests, doctors’ visits, and hospital stays. And one other thing. As Walter Mondale explained in accepting the Democratic nomination for president in 1984:
Let’s tell the truth. It must be done, it must be done. Mr. Reagan will raise taxes, and so will I. He won’t tell you. I just did.
Mondale got crushed that year, but eight years later in 1992 Bill Clinton turned the tables. The next year, he ignored GOP jeremiads about the “job-killing” impact of raising taxes, instead balancing the budget and ushering in the longest post-war economic expansion. Until this one. As the Washington Post concluded, “The dynamic is much different now.” Instead of using a period of prosperity to improve America’s budget picture, Donald Trump and his GOP allies are making it worse. That must stop. Or, to put it another way, it’s past time to squash this swarm of Spend-and-Not-Tax Republicans for good.