This morning's headlines said it all: The jobs report Obama has been waiting for. "The Republicans just lost one of their most salient talking points against President Barack Obama," said WSJ Marketwatch, for instance. "The unemployment rate dropped to 7.8 percent in September, the first time it's been below 8 percent during his presidency."
No, Romney's pledge in the first presidential debate to lower taxes by something like $5 trillion over 10 years as a way to lower the budget deficit won't work, unless there are additional revenues to balance the cuts. It's not enough to cut spending, in other words, as it reduces revenues. The promise that it will spur additional jobs is hollow, as both G.W. Bush and Ronald Reagan proved, though in different ways.
President Reagan first cut taxes, then had to raise taxes 11 times because of the ballooning budget deficit from increased defense spending. This policy then created 15 million jobs over his term. Whereas G.W. Bush chose to cut taxes and fight two wars without raising revenues, which caused the largest budget deficit since WWII -- $1.4 trillion and 10 percent of GDP in 2009 -- while it created just 3 million jobs during his term, the lowest job total of any recovery since WW11.
So Romney had to reinvent himself in his first presidential debate, claiming:
"...that his tax-cut plan wouldn't actually cut taxes," said MarketWatch's Ken Nutting. "He said that his plan to severely restrict government spending wouldn't damage popular domestic programs such as education, Medicaid or Medicare. He said he'd repeal Dodd-Frank while preserving strong regulation of the banks. And he said he'd repeal "Obamacare" while keeping all the popular parts of it, such as guaranteed coverage for pre-existing conditions."
This promise was as hollow as Bush-Cheney's promise that "deficits don't matter." In fact, we know how to create more jobs. President Clinton provided the blueprint, when he created 23 million jobs and four budget surpluses in his term. He was able to do this by following the formula for Pay-as-you-go budgets that prior Congresses had agreed to. Any increased spending had to be matched by increased taxes, which G.W. Bush ignored, and today's Republicans continue to ignore. That's why Bush-Cheney created the largest budget deficit since WWII during his term, and why Romney's promise to create 12 million jobs over his term is fantastical.
Clinton, on the other hand, raised the maximum tax rate and cut military spending, while Vice President Gore managed to trim overall government spending growth to less than 2 percent per year during their eight years.
That is the only way to narrow or close the budget deficit, without cutting essential services, as Obama said during the debate. Austerity doesn't work, either in Europe or here. Because without sufficient jobs -- and austerity advocates say government payrolls have to be cut further -- then demand continues to fall. We lived through austerity during the Great Recession, which began December 2007, until June 2009 when the economy began to grow again.
All the deficit talk is a diversion, in other words. The albeit huge budget deficit was caused by borrowing to spend, in other words, rather than raising enough revenues to cover increased spending. It's not enough to promise that future growth might increase revenues enough to lower the deficit. That hasn't happened historically, so there's no reason to believe it will happen now, especially when recovering from the worst downturn since the Great Depression that has strapped governments and consumers alike.
Harlan Green © 2012