As I sit here, in the midst of the worst financial crisis that this country has faced in my lifetime, and I watch President Obama's pathetic attempt to achieve "bipartisanship" as he struggles to solve the nation's economic problems, I think back to 1981, when Ronald Reagan started us down the road to our current catastrophe.
No matter that a new generation of historians is deifying Ronald Reagan; his presidency was a fiscal disaster. When President Reagan took office, the federal debt stood at $994 billion. In 1989, when Reagan was succeeded by George Bush, the debt stood at two trillion eight hundred and sixty-seven thousand dollars. The conservative President Reagan, just short of tripled our national debt in eight years. No President since the Second World War has come anywhere close to that number.
Even as he was tripling the national debt, President Reagan was cutting taxes. His "supply-side" advisors had assured him that, even with the reduction in taxes, he would be able to balance the budget in three years. And it is here that I turn to the testimony of one, David Stockman.
In December 1981, David Stockman first became a national figure. Although he had been director of the Office of Management and Budget for almost two years, he was relatively unknown until he made the great mistake of sharing his innermost thoughts with William Greider, an Assistant Managing Editor of the Washington Post. Greider later shared his insights with all of us in a long article in The Atlantic Monthly--"The Education of David Stockman".
Stockman reveals in the article that the highly promoted Reagan "supply-side" economic theory was merely a cover-up used to justify the reduction of the top income bracket tax rate from seventy percent to fifty percent. In other words; permit the rich to get richer. Stockman told Greider, that the "supply-side" "Kemp-Roth [bill] was always a Trojan horse to bring down the top rate." That's when Stockman became a bad word.
I will interrupt this tale for a moment to recall my days at CNN, while watching President Reagan cut the ribbon on the new ABC news headquarters in Washington, I saw and heard Sam Donaldson emerge from the audience and ask the President what he was going to do about Stockman. I'm about to take Stockman to lunch, the President said, and then take him to the woodshed. I immediately called my Washington bureau, and ordered a camera crew to the White House press room to cover the post-lunch briefing. CNN was the only live network in the room when, to everyone's surprise, David Stockman himself appeared. He was grilled mercilessly by the assembled press, and, thanks to the CNN coverage, he was humiliated before the entire nation, which I am sure is what President Reagan intended when he sent him naked into the pit.
Greider writes, that Stockman was conceding that "the supply-side theory was not a new economic theory at all, but only new language and argument to conceal a hoary old Republican doctrine: give the tax cuts to the top brackets, the wealthiest individuals and largest enterprises, and let the good effects 'trickle down' through the economy to reach everyone else."
From 1965, until 1978, the tax rate for the highest income brackets, i.e. over $200,000 a year (adjusted to over $212,000 in 1979), was between 70% and 77%. During his eight years in office, Reagan reduced that rate first, from 70% to 50% on incomes over $160,000, finally, in 1988, he pushed through what was almost a flat tax-- 28% on all income over $28,750, as close to a flat tax as we'll ever get--a taxpayer earning $30,000 a year paying the same rates as a taxpayer earning $30 million a year.
[If the 70% tax on all income over $212,000 had continued to the present day, there would be no need now to talk about capping bank executive salaries at $500,0000 a year, while stock brokers and investment managers in the same bank would be taking home millions. Nobody wants to take home millions if he's got to give 70% back to the government. A 70% tax on ultra-high income, say over a half million dollars a year, seems to me, to be the best way of preserving America's middle class. Bring it back and put to rest the salary cap debate.]
In 1981, Stockman got his tax cuts, but, despite all his efforts, he could not control expenditure. Congress refused to cut special-interest programs. The budget soared and, Stockman asked, rhetorically, "Do you realize the greed that came to the forefront? The hogs were really feeding. The greed level, the level of opportunism, just got out of control." To make it even worse, President Reagan insisted on a huge increase in the Pentagon budget, including the creation of the infamous "600-ship Navy", which guaranteed a deep deficit in the coming years.
So, Stockman devised what he called the "magic asterisk." Greider writes that "the "magic asterisk" blithely denote[d that] all of the future deficit problems...were to be taken care of with additional budget reductions, to be announced by the President at a later date." All the hard questions were "finessed." (President George W. Bush attained the same results by finessing the costs of the Iraq and Afghanistan wars--addressing them as "off-budget" items.)
Going back to my CNN days, in 1981, it was hard to imagine that any President, particularly Republican, could get away with a massive deficit, merely by putting an asterisk upon it. At that time, I had a source who had worked in the Treasury Department under Kennedy and Johnson, and had written most of the tax legislation under both Presidents. He, and his Republican counterparts, who for decades had worked together to keep the country solvent, were sure that something would be done about the deficit. At one point, he mentioned to me that he and his Republican friends had proposed a Value Added Tax (VAT). Since VAT is not a progressive tax, it appealed to some Republicans, and appeased conservative Democratic budget hawks. The notion remained just a notion because, Reagan policy makers had decided that a tax cut would help them politically, while even a VAT increase would hurt them. "Borrow and spend--elect and elect" became their philosophy, and Stockman went along, although he, and according to Greider, other of "Reagan's policy makers knew their plan was wrong, or at least inadequate..."
Flash-forward to 1993, when President George H.W. Bush earned his place in "Profiles in Courage" by, despite his promise of--"read my lips, no new taxes"-- he upped tax rates to 39.6% on all income over $250,000. By facing up to the deficit problem, he enraged conservatives, brought Ross Perot into the 1992 Presidential race, and lost reelection to Bill Clinton. But, it was his tax hike that permitted Clinton to bring the debt level under control, and in fact, show surpluses by the end of his term.
Bush, Jr. reversed all that and cut the tax rate to 35% for all income over $358,000. Over the next eight years, that tax cut increased our deficit by, according to Paul Krugman, two trillion dollars. Just as President Reagan failed to cut spending while cutting taxes, George Bush's tax cut was accompanied by a budget increase over those eight years from $1.9 trillion to $3.1 trillion.
Although it was President Reagan who tripled the national deficit (its greatest percentage increase since the Second World War), it was George W. Bush who added, by far, the most dollars to the deficit, approximately five trillion dollars and still counting--contributing to what is certainly the worst economic crisis in the last seventy years. As President Obama and the rest of us now grapple with the problem, the last thing we need to hear is prayers for a return to "Reaganomics".
I heard Senator Mitch McConnell lecture us this week about how much money a trillion dollars was, ever since I wondered why I hadn't heard that lecture when President Bush was asking for a three-quarter of a trillion dollar bank bail-out four months ago-- why McConnell hadn't warned us about that when Bush was adding five or six-trillion dollars to the national debt over the last eight years--why, for that matter, back in 1982, I hadn't heard Republicans tell Ronald Reagan and David Stockman when they were adding two trillion dollars to the national debt, that even "one trillion dollars was a lot of money", (and a trillion dollars was a hell of a lot more money than it is now).
As I write this--three Republican Presidents, Reagan and the two Bushes, have added eight-trillion two-hundred and sixty-four billion dollars to the national debt over the twenty years when they held the Presidency. The George W. Bush debt won't be fully accounted for until July first of '09. (Wikipedia)
It has been the Republican Presidents who have borrowed and spent as if there were no limits to what Americans can afford. It is the Republican Presidents who have not spoken out about the interest burden that we have placed on our children and grandchildren. It is an act of hypocrisy for the McConnells, McCains and Romneys to suddenly point out now that a trillion dollars is a lot of money--for them to decry the "excess spending" in President Obama's stimulation package when no one really knows what spending is excess and what is absolutely necessary. It is inexcusable that the ex-politicos who now inhabit our cable-television studios do not call the McConnells, McCains and Romneys to account for their hypocrisy.
Twenty years of Republican administrations have brought our economy to its current condition. We are now both broke, and deeply in debt. To hearken back to David Stockman, it was he who said, back in 1981, ""I'm just not going to spend a lot of political capital solving some other guy's problem in 2010." It's now 2009, and Republicans are refusing to spend any political capital "solving some other guy's problem in 2010". The "other guy" is, of course, Barack Obama, and it's about time Republicans got out of the way, and started trying to help all Americans solve our problems. It ill-becomes the people who created the problems to tell us how to fix them. (In that number I include every Republican Congressman or Senator who obstructs the new administration in its attempt to save the economical lives of all of us.)
Returning to CNN, in 1982, we arranged a live interview with Georgi Arbatov, a Kremlin adviser and propagandist. Arbatov's message to the American people was that the arms-race was destroying both our countries' economies. Arbatov denounced the Reagan military build up, the 600-ship Navy, and the development of new weapons. Arbatov said increased defense costs would bankrupt both nations. His was right about Russia--the Ruble was devalued and devalued again.
Republicans proclaim that the Obama stimulus bill will devalue the American dollar, we will bankrupt ourselves, and yet, the Republicans don't care. They argue, just as Stockman did, that tax decreases, providing less revenue to the US Treasury, will save our national economy. It's a ridiculous argument, and they know it, just as Stockman did when he told Greider, "I've never believed that just cutting taxes alone will cause output and employment to expand." Greider goes on to write that, "For his part, Stockman began to disparage the grand theory [of tax cuts] as a kind of convenient illusion- new rhetoric to cover old Republican doctrine."
When Stockman confessed to Greider that, "It's kind of hard to sell trickle-down, so the supply-side formula was the only way to get a tax policy that was really trickle-down.", he was really admitting that, so far as taxation went, he was playing politics, not economics. Right now, Republican Senators are doing the same thing.
If you've lived this long and/or read this far, you know how trickle-down worked. Does your dollar go as far now as it did in 1980? Are the unemployment numbers as good as they were in 1980? In 1980, the US national debt was $930.2 billion. Now it's more than ten times that. How many more of your tax dollars go to paying interest on the national debt than they did in 1980? For most of us, trickle-down has been pissed away on sub-prime securities and unpaid-for wars.
More of us will suffer when more mortgages are foreclosed, and when credit card and student loan debts are called in; when state and municipalities go bankrupt, while our infrastructure crumbles, and unemployment goes higher, and stocks tumble.
Paul Krugman wrote Sunday that "36 out of 41 Republican Senators voted to replace the Obama plan with $3 trillion, that's right, $3 trillion in tax cuts over the next 10 years." The Republicans aren't in power now, so they don't have to worry about the consequences of their actions. Two years from now, when the economy still hasn't recovered, and it would take a miracle to make that happen, they'll be out campaigning that Obama's plan has failed, and their are $3 trillion tax reduction would have worked. They've learned that promising the moon at no cost has won election after election. Maybe this time voters will have wised up to that sucker-pitch, but maybe they won't.
Why do I call President Obama's attempts at bipartisanship pathetic? Because he presumes that men of good will can get together to save our economy, when, in fact, there is no good will on the GOP side. They are simply trying to win the 2010 election.
So, I suggest when they make their $3 trillion tax cut pitch, that you reflect on President Reagan's trickle-down pitch and how little you got out of it. Go to www.theatlantic.com and read the full Stockman article. Remember the Reagan hypocrisy. If trickle-down, supply-side tax reductions didn't work then, why will they work now? And please consider the down side. Although I hate to cite Arbatov about anything, he was right when he said that spending beyond capacity would bankrupt the USSR. If we don't soon pay attention to the Krugmans of the world, the $3 trillion tax cut will bankrupt and destroy us, too.