04/09/2010 05:12 am ET Updated May 25, 2011

The Tax Debate

On the PBS News Hour, February 5, 2010, David Stockman, Budget Director for President Ronald Reagan, speaking of the age-old Republican scheme of "Starve the Beast"--cutting taxes to prevent domestic spending increases--declared: "Game over!"

The Congressional Republicans and the Tea Party Movement appear to be more committed than ever to continue efforts to prevent any tax increases. In the face of this, however, Stockman stated on the News Hour:
"I think the lesson of the last 25 years is it [starve the beast] doesn't work. You can keep cutting taxes till you reach the point this year where we spent $3.6 trillion and collected $2.2. So we are now so far out of kilter that it is irrelevant. Taxes are going to have to be raised. And the beast needs to be trimmed back but it can't be starved enough to even begin to cope with our fiscal problem and this is where all politicians are faking it in both parties but the Republicans especially. The Republicans think that their mission in life is to cut taxes. Sorry, game over. We are now in the tax raising business and we are going to be in the tax raising business for the next decade."

This statement, coming from a former leading tax cutting ideologue, may be a minor breech in the solid wall of right wing opposition to tax increases. Perhaps small, but this is a breech through which the Democrats and the country must surge if there is to be any hope that the United States can get its house back in order.

Stockman speaks with intimate knowledge of the history. Since the 1970s in the United States, the Right has systematically and successfully attacked high taxes as the bane of the modern economy, THE barrier to growth and to personal freedom. The election of President Reagan in 1980 marked the triumph of that assault. Stockman, then the new budget director, armed with the spear of Supply Side economic theory, set the country on the course of tax cuts and resulting fiscal insanity.

The consequences of that triumph have been nothing short of catastrophic if hardly surprising. In fact, Reagan's vice president, George H.W. Bush, described the underlying ideology as "Voodoo Economics," (and lost in the primaries in 1980 to Reagan) and he was quite right. Sorry Haitians, but Voodoo does not work.

If one looks at a chart of 80 years of national debt as a percentage of GDP, the conclusion is obvious. While debt soared as a result of World War II, it remained very much under control after the war until 1981.
In fact in almost every year (including every year in the late '60s, despite Vietnam and the War on Poverty) the percentage of debt to GDP dropped. It cascaded from the 1945 level of 121% to 32% in 1981. After 1981 the pattern of debt/GDP is clear: Reagan 1981-1989, 32 to 52%; Bush, 1989-1993, 52-67%, Clinton, 1993-2001, 67-56%; Bush, 2001-2009, 56-83%. (Figures rounded) All three Republican presidents substantially increased the debt ratio: Reagan/Bush up 35%; GWB up 27%. Clinton, admittedly with a Republican Congress, down 11%. Bush/Reagan averaged an increase of about 3% a year; GWB, an increase of almost 3.4%; Clinton, an annual decrease of 1.5%

Every post-war president saw a drop of the ratio of debt to GDP during his term or terms, except Reagan, Bush and Bush.

This record of ever increasing debt is the product of the victory of Voodoo economics.

Yes there may be additional factor: loss of manufacturing to Asia, inevitable declines of "advanced" economies, and unfunded, endless, pointless wars. Common to the past 60 years, however, is the ever declining marginal tax rates over the course of years from Eisenhower (90%) to Kennedy (72) to Reagan (50) to GWB (35!). These have resulted, not in "supply side" increases of revenue and increased growth, but in declining revenues, stagnant levels of growth (particularly 2001 to 2008) and huge, unprecedented increases in the national debt. And the grand recession left by Bush has made current fiscal policy utterly unsustainable and that ratio climb dramatically.

The tax debate must be undertaken and won. The Democrats, the White House and Congress, cannot hide from it. The arguments for increased taxes are compelling: (and I plan to advance them) not solely the fiscal history of the past 30 years, but the threats to the dollar and national security needs, but the experience of the states, with high and low tax rates (see California), the experience of other countries, and the need for social well-being and national cohesion. Higher taxes do not kill economies. All of the world's richest economies and America's richest states have high taxes and they remain rich--but more of that to come.

Take shelter if you must behind David Stockman, but it is time to stand up and take the ideological mantel back from the tax phobic. Yes, we have to raise taxes and we have to convince the American people of the need and the value of doing so.