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This Tea Party Sides with the British

July 27, 2011

From the beginning, the Tea Party has had it wrong on virtually every matter of fact - and history. Far from being Taxed Enough Already, over 95% of working Americans received relief from President Obama even as the total federal tax burden as a percentage of the U.S. economy plummeted to its lowest level in 60 years. But after receiving no taxation with representation, Tea Party leaders and their new Republican automatons in Congress are demanding draconian spending cuts that will cost jobs and weaken the fragile American economic recovery. For proof, the Tea Partiers only need look to the hopeless of austerity now unfolding in the UK.
For Tea Partiers chanting "shut it down," no to an increase in the debt ceiling and to "cut, cap and balance," the latest economic news from London should provide a cautionary tale. Now well into Tory Prime Minister David Cameron's painful austerity program, British GDP grew by only 0.2% in the second quarter. After a half-point decline in Q4 and a meager 0.5% gain in the first three months of the year, the UK economy is flat-lining. As the Wall Street Journal summed it up:

The U.K.'s Office for National Statistics said gross domestic product grew 0.2% between April and June after expanding by 0.5% in the first quarter. The year-on-year growth rate slowed to 0.7% from 1.6% between January and March as the economy failed to get moving in the quarter.

While the Q2 performance was held back by one-time factors including the Japanese earthquake and the royal wedding, the picture for the next three months looks like bleak as well. As the Journal also lamented:

Barely a day after the U.K.'s dismal growth figures for the second quarter and already the first signs of what lies ahead are emerging. In summary: It doesn't look good.
In one of the first data releases for July, the first month of the third quarter, the Confederation of British Industry's monthly survey of industrial activity pointed to a slowdown across the board. Order books declined and manufacturers' expectations for output in the coming three months slowed sharply. Overall sentiment turned negative for the first time in two years. Investment intentions are down and companies plan to shed staff. This, after the GDP figures showed industrial output already shrank 1.4% in the second quarter.

Those grim forebodings followed the spring of England's discontent. In March, hundreds of thousands of demonstrators took to the streets of London to protest deep spending cuts. In April, the BBC reported "UK economy faces 'worrying' times" as the OECD lowered its UK growth forecast for the rest for year. Meanwhile, the Guardian warned David Cameron's Tory government:

Some of the UK's most prominent business leaders, including individuals who gave their personal stamp of approval to the chancellor's aggressive spending cuts, have said they have growing concerns about the state of the economy, warning of weak growth and rising inflation ahead.

As the New York Times explained earlier this year, policymakers on this side of the Atlantic will be looking for the lessons learned at 10 Downing Street:

In the United States, the debate over how to cut the long-term budget deficit is just getting under way.
But in Britain, one year into its own controversial austerity program to plug a gaping fiscal hole, the future is now. And for the moment, the early returns are less than promising.
Retail sales plunged 3.5 percent in March, the sharpest monthly downturn in Britain in 15 years. And a new report by the Center for Economic and Business Research, an independent research group based here, forecasts that real household income will fall by 2 percent this year. That would make Britain's income squeeze the worst for two consecutive years since the 1930s.

Sadly, Washington seems to be learning all the wrong lessons from the British experience.

Undeterred by the UK's economic coma, all but four House Republicans passed the Paul Ryan 2012 budget plan. 235 House Republicans and 40 GOP Senators voted to slash $6 trillion in spending over the next decade, largely by gutting Medicaid and ending Medicare as we know it. (Still, Ryan's plan delivers $4 trillion in tax cuts, including $1 trillion in yet another windfall for the wealth, while still adding $6 trillion in debt over the next decade.) As the Washington Post's Ezra Klein explained, the Ryan plan Republicans voted for fails every GOP balanced budget amendment proposal and all Republican schemes to cap spending as part of the "Cut, Cap and Balance Act" they claim to support.
Former McCain economic adviser Mark Zandi, who credited the Obama stimulus and other recovery programs with preventing "Depression 2.0," in April quantified the pain the Republicans austerity plan would produce:

Real GDP in 2012 under the Ryan plan is $123 billion lower than in the president's plan and there are 900,000 fewer payroll jobs in the U.S. By 2014, real GDP is almost $200 billion lower and there are 1.7 million fewer jobs under the Ryan approach than is the case under the president's.

But that fiasco would pale in comparison to the steep cuts in FY 2012 demanded by the Boehner debt plan or, worse still, failure to raise the debt ceiling in time. An analysis by the Bipartisan Policy Center concluded that failure to boost the debt ceiling by the August drop-dead window would force the U.S. Treasury to immediately slash spending by 44%. As The Hill reported, "On an annualized basis, the cut in spending alone is a 10 percent cut in GDP, BPC scholar Jay Powell told reporters." And just two weeks ago, as the National Journal reported, Powell took his message to the entire House Republican membership:

In a presentation to the House Republican Conference on Friday, Jay Powell, a former Under Secretary at the Treasury Department under George H.W. Bush and a visiting scholar at the Bipartisan Policy Center, laid out just what would happen if a deal isn't reached.
On August 3, according to Powell's presentation, the federal government would be on the hook for $32 billion in committed spending, including $23 billion in Social Security checks, $500 million in federal worker salaries, $1.4 billion owed to Defense Department vendors and $100 million in refunds the IRS owes to businesses. On the same day, the government will take in only $12 billion in revenue, giving the government a $20 billion cash deficit. By August 15, when the federal government is on the hook for a $29 billion interest payment, the cash shortfall will have grown to $74 billion--and possibly more, if interest rates on U.S. debt rises.

Still, Speaker Boehner is struggling to get his House Republicans, up to 60 of whom he fretted two weeks ago "won't vote to raise the debt ceiling under any circumstances," to support his GOP debt plan.
To be sure, the economic pictures in the UK and the U.S. are far from identical. While the depth of the recession was worse here, as a percentage of GDP London has much higher taxes, spending and debt. Compared to the relatively paltry $39 billion in spending cuts secured by this spring's budget agreement in Washington, Prime Minister David Cameron's austerity budget announced in October seeks to close the budget gap within five years by slashing spending, raising taxes and sacking 490,000 government workers. Left unmentioned by American conservatives is the fact that the British plan counts on value-added and income tax increases - including a top rate of 50% for the wealthiest in the UK - to reduce its national debt. The UK economy has yet to return to pre-recession output, while the U.S. passed that milestone in January. And while GDP forecasts are being lowered in the U.S. as well, across the pond the picture is much bleaker still.
Sadly for the British, as Paul Krugman sighed in April, "contractionary fiscal policy is, well, contractionary."
If the Tea Partiers now controlling the Republican Party succeed, Americans will learn that lesson the hard way. Thanks to the same Tea Partiers who placed Lexington and Concord in New Hampshire and claimed Paul Revere's midnight ride was designed to tip off the redcoats, the British are coming.


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

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