John McCain has proposed to enact fresh tax cuts, on top of extending the Bush tax cuts, as the center of his economic policy. It's time for Americans to yell from the rooftops that we can no longer afford economic policies which center on tax cuts. To understand why, just look at what happened under the Bush and Clinton presidencies.
During its first year, the Clinton administration and Congress, with a one-vote margin, enacted stiff tax hikes on the highest income brackets. Adjusting for inflation, the economy then expanded by about 4 percent per year through 2000.
Total tax revenues grew by 5.5 percent annually in real terms. The ballooning budget deficits that Clinton had inherited transformed into massive surpluses for the first time in four decades.
By contrast, the Bush presidency drove sharp tax cuts through Congress during its first year in office. It claimed that reduced taxes would boost economic activity and growth and, consequently, also tax revenues. Bush and company tout six years of solid economic growth.
In fact, the economy has grown by about 3 percent per year, adjusted for inflation, about 21 percent over the period. Contrary to what the Bush administration and supply-siders promised, the annual growth rate of our economy did not increase, it didn't even stay the same, but instead declined from 4 percent to 3 percent. The real median income of American families is actually lower now than in 2001.
Just as important is what has happened to the federal budget. Adjusted for inflation, federal tax revenues have inched ahead at a rate of beneath 1 percent annually as compared to 5.5 percent per year under Clinton. That is, real government revenues have remained virtually static for the past seven years despite the economy's 21 percent real growth.
The result: huge budget deficits, averaging more than $300 billion annually since implementing the tax cuts. Had federal tax revenues merely kept pace with the economy's moderate growth over the Bush years, today's deficit would be gone. It would be zero.
George W. Bush, of course, was merely following the example of Ronald Reagan, whom all Republicans canonize. Reagan was the first president to argue that reducing taxes would generate increased government revenues. Throughout the 1980s, as a consequence, deficits suddenly doubled and tripled pre-existing ones from the Carter presidency, borrowing that continued at the same rate through the successive presidency of George H.W. Bush.
After 220 years and 43 presidents, the nation has been left with $9.5 trillion in unpaid federal debt. About $7 trillion of that debt--70 percent of it--was amassed under just three of the 43 presidents: Reagan, Bush I, and Bush II.
That debt has saddled us with a steep bill. Just for starters, our taxpayers have got to shell out nearly $3,500 per American family each year simply to finance the interest on the $7 trillion in unpaid debt accumulated under those three presidents. That takes $300 out of the pockets and spending of the average family, every single month of the year.
In addition, we have consumed all of the Social Security surpluses over those years--amounting into the hundreds of billions of dollars-- in order to prevent the deficits from ballooning further still. That money, no longer able to finance Social Security payments, must now be taken from elsewhere.
Finally, to pay back the $7 trillion in principal borrowed under the three presidents will require future governments to raise an additional $60,000 per family in federal revenues.
On top of this, according to projections from respected external estimates, Senator McCain's economic proposals threaten to pile anywhere from $2 trillion to $5.7 trillion more onto the federal debt over an eight-year term, even when all of McCain's proposed spending reductions are taken into account.
There is no free lunch. American families are paying dearly, already, for decades of economic policies that have focused on tax cuts. None of us, neither our families nor the nation at large, can afford the escalating bill any longer.
John E. Schwarz is professor emeritus of political science at the University of
Arizona and distinguished senior fellow at Demos, a national public policy
center based in New York. He is the author, most recently, of "Freedom
Reclaimed: Rediscovering the American Vision."