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Deficit Hawks, Peacocks and Virgins

January 29, 2010

Shaking his head at the bad economics and worse politics of the White House's proposed spending freeze, Paul Krugman deemed President Obama not a deficit hawk, but a "deficit peacock." "You can identify deficit peacocks," he wrote, "by the way they pretend that our budget problems can be solved with gimmicks like a temporary freeze in nondefense discretionary spending." But while Krugman is right to take Obama to task, he omitted an even more cynical player in the fiscal discipline kabuki dance, the Deficit Virgin.
Or, more accurately, the Born Again Deficit Virgin.
Like the those other born again virgins, this large group of Republican deficit grandstanders is also among the conservative movement's most esteemed members. Having already violated the moral strictures they claim to hold dearest, each now asks the American people to join them in pretending their sin never happened. But unlike a generation of Republican leaders who built a mountain of national debt for the United States, the secondary virgins only screwed themselves.
The Republicans' shameless cynicism was perfectly captured by Vice President Dick Cheney, who in 2002 proclaimed, "Reagan proved deficits don't matter."
Not, that is, if a Republican is in the White House. But when Barack Obama stepped into the Oval Office and the $1.2 trillion deficit George W. Bush left for him there, the GOP quickly changed its tune. While the national debt tripled under Ronald Reagan and doubled again under President Bush, House Minority Leader John Boehner in February decried the $787 billion emergency economic recovery spending as "one big down payment on a new American socialist experiment." By June, Boehner warned of the "crushing debt Washington Democrats are running up." And Senator Judd Gregg (R-NH), Obama's aborted choice for Commerce Secretary, slapped the President last fall, "we're basically on the path to a banana-republic-type of financial situation in this country." And, Gregg added:

"You can't keep throwing debt on top of debt."

Of course, throwing debt on top of debt is precisely what Gregg and his GOP allies have done for over a generation.

The Republicans' fiscal rot didn't begin with George W. Bush, but with Ronald Reagan. It was the legendary Gipper whose financial recklessness and tax-cutting fetish came to define the modern GOP.
The numbers tell the story. As predicted, Reagan's massive $749 billion supply-side tax cuts in 1981 quickly produced even more massive annual budget deficits. Combined with his rapid increase in defense spending, Reagan delivered not the balanced budgets he promised, but record-settings deficits. Even his OMB alchemist David Stockman could not obscure the disaster with his famous "rosy scenarios."
Forced to raise taxes twice to avert financial catastrophe (a fact conveniently forgotten in the conservative hagiography of Reagan), the Gipper nonetheless presided over a tripling of the American national debt. The $998 billion debt he inherited in 1981 exploded to $2.9 trillion by the end of his second term. By the time he left office in 1989, Ronald Reagan equaled the entire debt burden produced by the previous 200 years of American history.
For his part, George H.W. Bush hardly stemmed the flow of red ink. For starters, in 1989 he ignored the recommendations of his own deficit commission. And when Bush the Elder broke his "read my lips, no new taxes" pledge to address the cascading budget shortfalls, his own Republican Party turned on him. While Bush's apostasy helped ensure his defeat by Bill Clinton, it was Clinton's 1993 deficit-cutting package (passed without a single GOP vote in either house of Congress) which helped usher in the surpluses of the late 1990's.
Alas, they were to be short-lived. Inheriting a federal budget in the black and CBO forecast for a $5.6 trillion surplus over 10 years, President George W. Bush quickly set about dismantling the progress made under Clinton. Bush's $1.4 trillion tax cut in 2001, followed by a second round in 2003, accounted for the bulk of the yawning budget deficits he produced.
Like Reagan and Stockman before him, Bush resorted to the rosy scenario to claim he would halve the budget deficit by 2009. Before the financial system meltdown last fall, Bush's deficit already reached $490 billion. (And even before the passage of the Wall Street bailout, Bush had presided over a $4 trillion increase in the national debt, a staggering 71% jump.) By January 2009, the mind-numbing deficit figure reached $1.2 trillion, forcing President Bush to raise the debt ceiling to $11.3 trillion.

But despite studies showing that the payday for the richest Americans accounted for half of the mushrooming budget deficits both of the Bush years and the decade to follow, Judd Gregg in an interview with Forrest Sawyer on PBS Frontline tried to maintain the tried and untrue GOP talking point that tax cuts produce revenue gains for the Treasury:

SAWYER: Way back in 2000, there were surpluses projected, and that had come after some good luck with the economy and some hard work. And then came along this massive tax cut. Was that in retrospect a mistake?

GREGG: No, absolutely not. The surpluses that were projected weren't lost because of the tax cut. They were lost because of...the fact that we went into a recession as a result of 9/11 and the Internet bubble bursting...much like the real estate bubble we are going through today...The surpluses which we were running, which we thought we were going to run for a long time, simply weren't realized as a result of those two events.

Sadly for Gregg, his revisionist history is both transparent and wrong.
As David Leonhardt documented in the New York Times in June, "President Obama's agenda, ambitious as it may be, is responsible for only a sliver of the deficits, despite what many of his Republican critics are saying."

(Click to see the full image.)
In that jaw-dropping chart illustrating how today's trillion-dollar deficits were created, the Times concluded that even before the Bush recession commenced in December 2007, Dubya's dangerously irresponsible tax cuts and unfunded spending produced an ocean of red ink that dwarfed the impact of President Obama's stimulus and other spending programs:

"The economic growth under George W. Bush did not generate nearly enough tax revenue to pay for his agenda, which included tax cuts, the Iraq war, and Medicare prescription drug coverage."

Looking at the fiscal year 2009 data, former Reagan Treasury official Bruce Bartlett last fall destroyed the mythology of the born again Republican deficit hawks:

Now let's fast forward to the end of fiscal year 2009, which ended on September 30. According to CBO, it ended with spending at $3,515 billion and revenues of $2,106 billion for a deficit of $1,409 billion.

To recap, the deficit came in $223 billion higher than projected [in January], but spending was $28 billion and revenues were $251 billion less than expected. Thus we can conclude that more than 100 percent of the increase in the deficit since January is accounted for by lower revenues. Not one penny is due to higher spending.

It should be further noted that revenues are lower to a large extent because of tax cuts included in the February stimulus. According to the Joint Committee on Taxation, these tax cuts reduced revenues in FY2009 by $98 billion over what would otherwise have been the case. This is important because the Republican position has consistently been that tax cuts and only tax cuts are an appropriate response to the economic crisis...

I think there are grounds on which to criticize the Obama administration's anti-recession actions. But spending too much is not one of them. Indeed, based on this analysis, it is pretty obvious that spending - real spending on things like public works - has been grossly inadequate. The idea that Reagan-style tax cuts would have done anything is just nuts.

And to be sure, making the Bush tax cuts permanent would make the federal government's fiscal picture worse - much worse. As the AP detailed in October, continuing President Bush's massive tax windfall for the wealthiest Americans who need it least constitutes a grave threat to the nation's fiscal stability:

Of course, that is exactly what the leading lights of the Republican Party, most of whom helped preside over a generation of red ink, are now proposing. Their formula is simply more of the same dogma that produced the deficit catastrophe in the first place.
Take, for example, John McCain.
A supply-side convert just in time for the 2008 Republican primaries, McCain advocated extending and expanding the Bush tax cuts. (According to ThinkProgress, that would have blown another $2 trillion hole in the budget while delivering 58% of its benefits to the wealthiest 1% of American taxpayers.) After echoing the right-wing myth that "tax cuts, starting with Kennedy, as we all know, increase revenues," McCain this week rejected the notion of a deficit commission for the same reason:

"I want a spending commission, and I worry that this commission could have gotten together and agreed to increase taxes. Spending cuts are what we need. We don't need to raise taxes."

Then there's former Alaska Governor Sarah Palin. Butchering history and the truth, Palin regurgitated the Republican recipe during a speech in Hong Kong and again (in almost identical language) in her book:

Ronald Reagan, he was faced with an even worse recession, and he showed us how to get out of here.
If you want real job growth, you cut taxes! And you reduce marginal tax rates on all Americans. Cut payroll taxes, eliminate capital gain taxes and slay the death tax, once and for all. Get federal spending under control, and then you step back and you watch the U.S. economy roar back to life. But it takes more courage for a politician to step back and let the free market correct itself than it does to push through panicky solutions or quick fixes.

Which brings us full circle to born again virgins whose chastity, whether physical or fiscal, has already been compromised. Palin's daughter and unwed mother Bristol has emerged as an ambassador of sorts for teen abstinence, recently announcing, "I'm not going to have sex until I'm married. I can guarantee it." In a testy response to MSNBC's Contessa Brewer about how he would slash the deficit he only now finds so objectionable, Bristol's budgetary equivalent Judd Gregg could have spoken for them both:

"How do you get off saying something like that?"

2 comments on “Deficit Hawks, Peacocks and Virgins”

  1. Excellent post!
    It illustrates perfectly what I call The Reaganomics Strategy: borrow money from our children and abroad, and use the money to buy votes here with the "I'll cut your taxes" pander.
    All with the ideological cover of "Starving the Beast."
    It's worked spectacularly well for thirty years.
    But now even David Stockman, Reagan's budget director, has fully disavowed it:
    "It doesn't work. Game over."
    http://www.asymptosis.com/david-stockman-on-starving-the-beast-game-over.html

  2. Tax cuts do not cause deficits. Under the Reagan, Contract with America, and Bush 43 tax cuts government revenues rose more than inflation every year. Over spending causes deficits.
    Reagan increased military spending to destroy the Soviet economy - it worked. He also made a deal with Democrats to cut other spending as an offset, but when the time came the Democrats reneged.
    Clinton cut military and security spending and that resulted in improved deficits (mythbuster - there were no surpluses), but they also resulted in 9/11.
    Bush inherited an economic mess from the Clinton years which turned around with his tax cuts, but he also increased spending which contributed to higher deficits.
    Obama never voted against any spending increase by Bush. Since coming to office Obama's spending has made Bush look like a piker. Unsurprisingly the deficit is going through the roof.


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Jon Perr
Jon Perr is a technology marketing consultant and product strategist who writes about American politics and public policy.

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