WASHINGTON -- With Congress gridlocked in debates over taxes and spending, the new chair of the Senate Budget Committee, Sen. Patty Murray (D-Wash.), used her first hearing Tuesday to highlight one of the major drivers of the nation's debt: the supply-side tax cuts of both the Reagan and second Bush administrations.
Murray, who was elected to the Senate in 1992 when Bill Clinton won the White House, pointed out that he inherited an economy from President George H.W. Bush that was foundering while the government collected far less in taxes than it was spending -- even after Bush broke his famous "no new taxes" pledge and undid some of the Reagan-era cuts.
At the time, Murray said, government revenue equaled about 17.5 percent of the nation's gross domestic product while government spending equaled about 22.1 percent of GDP.
Clinton raised taxes -- the top income tax rate increased to nearly 40 percent -- prompting predictions of economic catastrophe from many Republicans, Murray noted.
"But as we all know now, it didn't work out that way," Murray said, pointing to an unemployment rate that fell from 7.3 percent to 3.9 percent over Clinton's two terms with the creation of 22 million jobs.
"And the deficit? Well, revenue increased from 17.5 percent of GDP to 20.6 percent. And responsible spending cuts brought federal spending down from 22.1 percent of GDP to 18.2 percent. So a 4.7 percent deficit was turned into a 2.4 percent surplus in eight years, and our nation was on track to completely eliminate the federal debt by 2010," she said.
That was before President George W. Bush urged Congress on to two rounds of tax cuts that his own treasury secretary warned would cause huge deficits, while fighting two wars and pushing through a Medicare drug plan, all of which were financed with debt.
"Many of us Democrats saw the surplus as an opportunity for our country to free ourselves from debt and invest in national priorities," Murray said. "But President Bush and his administration had other ideas. They saw it as a blank check to cut taxes and increase spending. President Bush and Republicans in Congress immediately worked to pass two sets of tax cuts that were heavily skewed toward the rich."
Indeed, those cuts pushed federal tax collections toward historic lows, especially after the financial crisis hit in 2007, while driving income inequality toward historic highs.
Murray was arguing that at the end of the second Bush presidency, the country was in much the same place as at the end of the Reagan-Bush era, only with a worse economy. "By 2008, federal revenues had plummeted back down to 17.6 percent of GDP, spending had shot up to 20.8 percent, we were back to a deficit of 3.2 percent, and all of those projections about the national debt being eliminated were tossed out the window," she said
She concluded that improving the fiscal outlook now, as in the past, required more revenue as well as less spending.
"Our work in the '90s proved that calling on the wealthy to pay their fair share is not incompatible with strong economic growth," Murray said. "In fact, it is strongly associated with the kind of broad-based growth that helps the middle class prosper and expand."
Republicans contend that the recent tax increase restoring the Clinton-era rates on income above $400,000 -- which Congress did in the New Year's Day "fiscal cliff" deal -- is enough, and the rest of deficit reduction should come from spending cuts.
The top Republican on the Budget Committee, Sen. Jeff Sessions of Alabama, differed on the historic impact of Ronald Reagan's economic policy, crediting it with the Clinton-era boom.
"With regard to our present posture and state of the economy, the last big systemic challenge I think maybe our nation faced was when [then-Federal Reserve Chairman Paul] Volcker and Reagan dealt with this continually surging inflation rate. They broke that rise and put us on a path to 20 years of growth," Sessions said. "We're now on a systemically dangerous path of debt. It threatens our future. We're going to have to confront that with the same clarity and courage that they did at that time."
Sessions allowed that the second President Bush "did spend more money than he should," but the senator contended that Democrats helped him along. "I had to cast vote after vote after vote to try to contain the growth of spending," Sessions said.
Sen. Roger Wicker (R-Miss.) said that Murray was giving Clinton and Democrats too much credit for improvements during the Clinton administration.
"The Republican majorities in the House and the Senate got the president of the United States to buy into reconciliation, to buy into welfare reform, and on a bipartisan basis," Wicker argued. "After Republicans took control of the House and Senate majorities, that's when we had budget surpluses -- that's when the budget surpluses began."
The Budget Committee hearing featured Doug Elmendorf, director of the Congressional Budget Office. It focused on Elmendorf's recent reports suggesting that Congress could hurt the recovering economy if it cuts spending too much too soon, but that lawmakers still must tighten fiscal policy over the mid- and long term.
Michael McAuliff covers Congress and politics for The Huffington Post. Talk to him on Facebook.
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