We Should Have Known Better

I was watching President Obama's State of the Union address the other night, and as he talked about all of the various things he wanted to see done about our economy, education, and debt, I couldn't help thinking that there was a time that I would have immediately been against a lot of what he was proposing. When I was younger, I stood shoulder to shoulder with most Republicans in thinking that there was no way you could tax and spend your way out of trouble. I still believe that on the spending end, but I have broken with party orthodoxy (and ultimately with the party itself) on taxes.

I have said on this blog in the past that we need to both cut spending AND raise taxes to fix our debt problems. I was for the Bush tax cuts expiring on everyone, not just the top 1 percent, and I was intrigued to see David Gregory propose exactly that to David Axelrod on "Meet the Press" today. Axelrod squirmed a bit at the mere notion of raising taxes on the middle class, and he tried to wriggle away from giving a definite answer, but it does meet the very definition of "shared sacrifice" that we all have to make, and Gregory said as much. Looking back over the past 10 years, to try to figure out how we got from balanced budgets in 2000 (for which Newt Gingrich is currently patting himself on the back while on the campaign trail, one of the few things I appreciate about him) to a $16 trillion debt in 2012, it goes beyond the simple clichés of "it's Bush's fault" or "we spent too much." I think we're slowly having a mass epiphany that the good ideas we had in the 90s went too far in the 2000s.

For instance, let's just look at the biggest elephant in the room (no GOP pun intended)... the Bush tax cuts. These get the lion's share of the blame for, as the Left loves to say, "turning a $1.5 trillion surplus into trillions in deficits." Of course, the truth is THERE NEVER WAS A $1.5 TRILLION SURPLUS. It was an estimate provided by the Congressional Budget Office when President Bush took office in 2001, and by that time, it was already becoming inaccurate, because we were in a recession brought on largely by the dot-com bubble bursting. Recessions mean that less tax revenue is coming in, certainly less than was projected, therefore bye-bye $1.5 trillion surplus.

However, at the time, we bought the numbers, so it made sense when Bush proposed that we take a third of that $1.5 trillion to pay down our debts, a third to shore up/reform Social Security and Medicare, and a third for an across-the-board tax cut. Unfortunately, soon after those rebate checks went out to everyone, it became abundantly clear that the other two thirds of that $1.5T were already gone. But our Congress, with Republicans in charge of the House and Democrats regaining the Senate due to Jim Jeffords' midterm flip, decided to keep spending as if that $1.5T was still there. I won't even get into the trillions spent on war, because the money is only part of the larger debate about the wars in Iraq and Afghanistan and I don't want to go there this time. The prescription drug benefit (Medicare Part D)? Yeah, let's talk about that... I've said here before that Bush and the Republicans unfairly get trashed for spending so much on the prescription drug benefit, considering that the alternative plan pushed by House Democrats would have cost TWICE AS MUCH. However, at that particular time in 2002 when this debate was taking place, we were already crossing over into red ink. Have that debate in 2012 and it becomes about having no Part D at all. But in 2002, House Republicans were willing to spend hundreds of billions because it wasn't trillions. So now we see why the Tea Party blames both sides for our debt issues.

Another reason came shortly before that, when the 2002 Farm Act was up for debate. By that time, the CBO had realized that $1.5 trillion in surplus was not coming our way, and had revised its projections down to a modest $100 billion surplus over the ensuing 10 years (factoring in deficits the first few years and economic recovery after that). How much did this Farm Act cost? Ironically... $100 billion. Today, having realized the error of our ways, we have come to term the subsidies and programs in this act to be what they truly are... a form of corporate welfare. However, I was calling this "farm welfare" in 2002, and calling for the act to be shot down to save what was left of our quickly shrinking surplus. I'm sure it was pretty much me and Ron Paul on this one, because it passed easily. Hello deficits, hello more debt.

Let's fast forward to the last couple years, as we started to get serious about tackling the debt that has swelled by over $10 trillion since that perfect storm of recession, 9/11, tax cuts, and overspending put the wheels in motion. The Left's doublespeak unfairly characterizes the Bush tax cuts as only helping the richest 1%, while people like Axelrod have to admit that the middle class got cuts too so as to oppose seeing those cuts expire. At the time, it seemed like a good idea, and we did have some pretty good economic times from 2002-2007. However, other forces imploded the economy once again, and here we are. Cutting government spending, eliminating waste and bloated bureaucracy... all good thing, but there is belief among people in Washington that there has to be a "magic bullet" approach to getting people back to work. For Republicans, that means they want to further cut taxes, or at the very least, they oppose any tax increases, especially on the rich. This holds fast to the ideology they have had since Ronald Reagan. 30 years of GOP dogma and mostly positive results tell them not to hike taxes.

Here's the problem, and it's a little thing called "the law of diminishing returns." If you're taking office in 1981 and the economy is in the crapper and the top tax rate is 70%, then it's a great idea to boost the economy by cutting taxes. Over time, that's what the Republicans did, and it led to a 25-year period in which things went very well for the U.S. economy, with the exception of brief recessions in 1990-91 and 2000-01. However, eventually you reach a point where "priming the pump" with tax cuts starts to do more harm than good. The lag time between the initial cut in revenue and the point where tax revenues ultimately rise due to economic growth becomes more than a government with a 14-figure national debt can handle. People on the Left like our old friend Paul Krugman are wrong when they say that Reaganomics ultimately failed... it didn't fail, it just reached the point where it cannot work anymore. That's where we are now. Although our corporate tax rates are too high, and I agree with the president that we can bring those rates down while forcing the GE's of the world to actually pay what they owe, thereby negating a net loss in revenue, our income tax rates are not too high. If anything, they are too low, given the size of our debt. And since we're not going to a flat tax or a 9-9-9 situation any time soon, we have to reassess things. There needs to be push and pull. We had 30 years of push, now we need to pull.

The two things standing in the way are ignorance and denial. Buoyed by 30 years of mostly positive results, the Right ignores the law of diminishing returns. The denial comes from another part of GOP orthodoxy that turned me off to being a Republican: that you must NEVER, EVER admit when you've made a mistake. Have you seen ANY Republican member of the House from 2002 say that it was wrong to pass Part D? This may be the harder of the two things to overcome. You may be able to convince someone that eventually you reach the point with our current system where tax cuts just don't work anymore, but you'll have a much harder time trying to convince them that they went too far.