Krauthammer: “Reagan cut taxes to starve the federal gov’t and prevent massive growth in spending.” O RLY?! http://bit.ly/dATC0h #blatantlie
Krauthammer: “Reagan cut taxes to starve the federal gov’t and prevent massive growth in spending.” O RLY?! http://bit.ly/dATC0h #blatantlie
Well, that was his stated intention, yes. Obviously the Democrats weren’t interested in going along with the starvation aspect.
It’d be interesting to add some additional statistical elements to that graph set to compare the Reagan era directly with the Obama era, and that would be to chart total revenue, total spending, and percent GDP growth.
It’s my “stated intention” to give everyone in America a puppy, but that doesn’t mean it’s reasonable to judge me on the basis of something so fucking retarded.
“Starve the beast” was NEVER going to work, with EITHER party in power, and “small government conservatives,” of all people, should have recognized that. But they didn’t care, because in reality, it was never INTENDED to work. It was intended solely to kick the can down the road — to make some future administration, ideally a Democratic one, deal with the long-term consequences of the tax-cutters’ actions, which were designed solely to achieve short-term political gains (because everyone loves tax cuts, but nobody likes spending cuts, and voters are all too happy to be lied to, if the lie is “why yes, you can have your cake and eat it too”).
And hey! Guess what! That shit — the shit Reagan set in motion, giving it the official “conservative” seal of approval no less, and administrations and Congresses of both parties happily acquiesced in — is now hitting the fan, 30 years later! And the hypocrite conservatives are acting like it’s all the Democrats’ fault! So I guess, actually, it did “work.” But not in the way anyone this side of Karl Rove and Dick Morris should be proud of. It was one of the most brilliant, Machiavellian political moves in modern history. It also may have doomed this country to fiscal ruin.
If Reagan was a great conservative leader, as the Right seems to universally believe, he would have led the country in a sustainable direction — not sat around helplessly as the eeevil Democrats ruined his (doomed to fail, indeed pretty much purposely designed to fail) brilliant “starve the beast” plan. But in reality, Reagan was neither great, nor conservative, nor a leader. You need look no further than the numbers to recognize that.
The day I begin to take the “fiscal conservative” Right seriously is the day when you all begin to acknowledge that Reagan’s fiscal conservatism was a giant sham.
total revenue, total spending, and percent GDP growth
Oh, Reagan’s policies produced “growth” all right — by borrowing money from future generations (specifically, yours and my generation, and our children’s) for no good reason. What the hell we were doing in the 80s that required us to start on such a steep upward debt trajectory all of a sudden? The 40s, I understand: we had a World War to win, and a Great Depression to end. 2008-10, I understand: we had a Second Great Depression to try to avoid. But the 80s??? Yes, I know we had to win the Cold War, but the necessary costs incurred there were a mere fraction, which could easily have been offset elsewhere, if we’d had an actual conservative leader in the White House.
I’m increasingly convinced that, in the broad sweep of history, the last 30 years will come to be viewed as one giant bubble. Oh sure, there was real economic growth and progress and innovation. But it was substantially funded by debt we couldn’t sustain, both public and private, and it did little to actually increase wages or improve core quality of life for average Americans — except superficially, with ever more extravagant, debt-financed lifestyles. Economic growth has been fueled by a series of bubbles and unsustainable trends, and the core reason we’re flailing around now is because the market isn’t letting Obama or the Fed successfully create more bubbles to keep the good times rolling for a while longer. They can create mini-bubbles with Cash for Clunkers and the stimulus and housing tax credits and quantitative easing and whatnot, but those bubbles don’t last, because the secret’s out now. Much of the prosperity of the Reagan-Bush-Clinton-Bush era was fundamentally fake, and it’s you and me, and even moreso Loyette and Loyacita and Lil’ Long, who will be paying the piper for a long time to come. And it all started with the conservatives’ God, Ronald f***ing Reagan.
P.S. Fun fact I’d never thought of till now:
“Starve the beast” and the Laffer Curve (or at least its extreme, politicized version) are mutually exclusive!! If Reagan’s tax cuts really were intended to, and did, increase revenue, then how was he trying to “starve” anything? The two concepts are completely mutually exclusive.
Brendan – is it or is it not a fact that Reagan’s tax cuts brought in *more* revenue in absolute dollars ?
Don’t ruin a perfectly good rant by asking for facts…..
The so called fiscal conservatives did the same thing to CA with the property tax freeze – property taxes froze at their current level, or were fixed at the level you bought your house. Those in power were able to tap dance around that for a while, but at this point the tax structure and obligations on the government are so screwed up basically everyone is up shit creek. And you know who helped push that proposition through… Of course you do…
The Republican party is for selfish little children that haven’t managed to grow up an start crying when they are asked to share their toys. It’s pathetic.
The so called fiscal conservatives did the same thing to CA with the property tax freeze – property taxes froze at their current level, or were fixed at the level you bought your house
1) Bullshit. My property taxes do go up. Prop 13 merely limits how quickly they go up.
2) The problem in California is not that taxes are too low, it is that the state assembly spends too much.
The Republican party is for selfish little children that haven’t managed to grow up an start crying when they are asked to share their toys. It’s pathetic.
The Democratic Party is for selfish little children that haven’t managed to grow up and demand that they be allowed to play with everyone else’s toys instead of getting their own.
gahrie #10 – now who is ruining typical Dem knee-jerk rant with facts ? (grin)
Of course, you and I are actually *paying* property taxes in California … dcl and the like pretty much want to *spend* ’em …
In classic engineering terms, having a situation where less than 50% of an electorate pays income tax while having democratic {the real word, not the weasel party} voting on taxation and spending is called an unwise feedback mechanism …
dcl, have you happened to notice that, despite Prop 13, California still has a very high tax burden? Blaming California’s mess on Prop 13 is rather ludicrous. I don’t even like Prop 13 — it has a host of unintended side effects, chief of which is unnecessary inflation of housing prices — but it passed with a very solid majority and continues to be immensely popular. Why? Because you can’t trust Democrats to not raise taxes!!!
I don’t think you (or Brendan) are in a position to throw stones at Prop 13 here, given that Colorado has the 38th worst tax burden, while Virginia is 41st. California is 15th. And, oh would you look at this — an example where cutting spending helps accelerate an economic turnaround! Of course, I give far more credit to the steady hum of federal expansion in the Northern Virginia area than I do Gov. McDonnell, but just look across the border at Maryland and their genius “millionaire tax” which sent taxpayers fleeing and caused state tax revenue from millionaires decline as a result. Maryland benefits from federal largess as much as Virginia does, but guess which one is turning itself around faster?
As for Brendan’s amusing open broadside on Reagan, well, let’s assume he’s operating on good faith and not on memos from Paul Krugman.
This is a very cynical interpretation popular on the Left, but a few things ought to be considered. First and foremost, we’re all operating with the benefit of hindsight here. The fact is, prior to Reagan, whether with the best of intentions or with pure cynicism, nobody had ever tried the “starve the beast” approach. Declaring his approach cynical with the vision of hindsight strikes me as a demonstration of unnecessary bad faith. It’s almost as bad as lambasting the Founding Fathers for signing up to the three-fifths clause, or Truman for dropping the bomb on Hiroshima and Nagasaki to end WWII.
Second, “starve the beast” and supply-side economics went hand-in-hand. Reagan’s economic program involved jacking up interest rates to clamp down on inflation, and cutting taxes to spark growth. Federal budget picture aside, no one can argue that it wasn’t a success in spurring the greatest expansion of GDP in the last quarter century. In Reagan’s eight years, GDP grew by a full third.
So now that we can agree Reagan’s economic program revived the economy, now we can examine the other side of the supply-siders’ argument: Did federal revenues grow as well, and by what amounts? The answer is a clear Yes. Just as supply-siders predicted, federal revenue dipped when the tax cuts enacted (phased in 1981 through 1983), but as the economy picked up steam, federal revenue growth followed, and by 1989, eight years after the Reagan tax cuts, federal revenue was a full 20% higher than 1981 revenues (the last year before the tax cuts went into effect) adjusted for inflation. Even more astounding is, if you measure from 1983, which is the last implementation year of Reagan’s tax cut program, and 1989, when Reagan left office, federal revenue grew at an average annual rate of 5.1% a year, and 1989 revenues were a full 35% increase over 1983 (again, adjusted for inflation).
So what ironclad conclusions can we draw from this? 1. Reagan’s economic program grew the economy by 33% from the time he became president to by the time he left office. 2. Reagan’s tax cuts increased federal revenue by 20% in that same time frame, and revenues went up 35% from when all the tax cuts were fully implemented in 1983. It’s safe to say from these facts that Reagan turned the economy around, and the beast was definitely NOT starved!!!
So now let’s turn to spending, which is the third piece of the puzzle. Did spending grow under Reagan? Undoubtedly. But here are a few facts to consider:
First, Congress spent more than Reagan’s proposed budget every year but in 1984, with an average increase of 2.8% over the president’s budget. Compounded over Reagan’s term, that increase was 24.5%. Had Congress not spent more money than Reagan requested, the federal budget would’ve been $280 billion dollars less and showing a net surplus in 1989. Can you imagine if we had a balanced budget in 1989?
Second, Reagan’s spending was by-and-large directed towards military spending, and his budgets typically proposed net neutral or cuts in discretionary and entitlement spending. As a result of this arms buildup, or coincidentally, whichever you prefer, the Cold War ended shortly after Reagan left office, and George H.W. Bush and Bill Clinton — and America as a whole — were able to cash in on the so-called “peace dividend” and explosion of the “knowledge economy”. The simultaneous tapering off of military spending combined with the stock market bubble and Clinton’s tax hike led to great growth in tax revenue, and consequently the budget was finally balanced in 1998. It also bears noting that many analysts cite the explosion in defense and aerospace research and spending in the 1980s as a major catalyst for the knowledge economy (undoubtedly Cold War spending on things like satellites, lasers, electronics, communication equipment, computers, metal alloys, plastics and composites, and energy technologies helped advance the knowledge economy for the benefit of many far beyond just the DOD).
In conclusion, whether or not there were short-term political benefits to the tax cuts, it is clear that Reagan’s policies had a clear effect on the economy, and the claim that his intentions were cynically designed to “starve the beast” and “kick the can down the road” as Brendan claims are simply spurious. The Reagan record is thus:tThe tax cuts Reagan enacted led to 33% growth in GDP over eight years; unemployment went from 8% to 6%; per capita GDP went from under $17k to almost $20k; inflation dropped rapidly from 10% to near 2% and only crept back to just over 4% near the end of his term; and federal revenue grew by 20% (35% if measured from when the tax cuts occurred).
As for some of Brendan’s other ridiculous, fantasy-based comments:
So how do you explain the fact that we could’ve had a balanced budget in 1989 if Congress had enacted Reagan’s budgets? How do you blame Reagan for anything after 1997 if we had federal surpluses from 1998 to 2001? Heck, in the late 1990s, Alan Greenspan was warning political leaders that the Fed was going to be forced to buy assets because of the surpluses and the shrinking need to issue public debt. Not to mention, Reagan had to fix Social Security during his first term, and he continually proposed cuts to entitlement spending thereafter. You can’t blame Reagan for Clinton and Bush failing in their efforts to fix Social Security during their respective presidencies! Really, if you want to blame a previous administration for our current predicament, the buck logically stops with LBJ and FDR.
As I’ve shown in the previous comment, you have to drill much deeper into the numbers than the simple debt-as-a-%-of-GDP graph to see the root causes of the explosion in federal debt, and once you’ve done that, the folly of pinning the blame for our debt problem on Reagan, supply-siders, or conservatives quickly becomes apparent. Even taking the public debt trends at face value, while debt under Reagan climbed to just over 50% of GDP, the ratio of debt-to-GDP actually stabilized fell for a good seven years or so, and even when it began to grow again under Dubya, it didn’t reach 1992 numbers until well after Democrats took control of Congress, and the skyrocket to new records didn’t take place until Obama came into office. The fact that we went upwards of 15 years with relatively stable debt numbers before the train came off the tracks completely shows the absurdity of laying the blame for our current problems at the feet of Reagan.
Again, since the budget could’ve been balanced in 1989 had Congress accepted Reagan’s budgets, and since it finally was balanced in 1998, the most you can say is Reagan “borrowed” from one generation. And given that this meant the end of stagflation, unprecedented economic growth, and the end of the Cold War, even if one disagrees with the very principle of borrowing from future generations, we must acknowledge that at least we got a pretty good return for our investment!
Wow, with that kind of a statement, I have to assume your head is so far up your ass you can see what you ate for yesterday’s lunch! “A mere fraction”? Reagan increased military spending from just above 3% to over 6% as a percentage of GDP — that is NOT insignificant! And yet, despite this, we could have had a balanced budget in 1989 had Congress not overspent on Reagan’s budget requests by a cumulative 24.5%! The fact is, Reagan did propose offsetting cuts for his military spending (as any good conservative would)… and Congress rejected them!
AMLTrojan #15 … can you remind me who controlled Congress back then ? (grin) I would ask Brendan, but I don’t want his head to explode …
Finally Brendan abandons his misstatement of facts and statistics to reveal the true source of his consternation and hatred of Reagan, which is that he thinks the last thirty years were in fact probably just one giant bubble, and somehow, this is all Reagan’s fault. And what are the facts that support Brendan’s new pet theory? I sure would like to know!
Look, I have heard a small subset of pundits increasingly cast skepticism on the last thirty years and insist that it was all a sham, and some of them have put forth some interesting and feasible arguments in support of this theory. I actually think there may be some truth to it. For instance, you could broadly generalize as follows:
1. 1980s bubble — Economic growth was based on low taxes and high government (especially military) spending.
1a. Recession followed when the Cold War ended and military spending dropped.
2. 1990s bubble — Growth fueled by massive expansion of stock market and corresponding explosion in tax receipts.
2a. Recession followed due to triple whammy of economy running out of steam, terrorist attacks, and stocks returning to more realistic valuations tied to actual corporate profits.
3. 2000s bubble — Economy recovered as a result of artificially low interest rates and easy credit fueling consumer spending and massive growth in real estate prices.
3a. Bust occurs when rising interest rates and falling home prices trigger financial imposion and economic collapse.
The theory generalizes that after each bubble popped, the next bubble formed in another sector, and as of 2010, we’ve run out of other sectors for bubbles to form, so we’re in the economic doldrums and staring into the abyss because the last 30 years of growth were all based on one sham after another.
The problem with this theory is it collapses under its own weight when applied against Occam’s razor.
Let’s start with the Reagan era and what sparked economic growth in the 1980s. The answer can realistically be one or more of the following three things: Reagan tax cuts; increased government spending; and dropping interest rates as a result of stagflation coming to an end. Whatever combo you choose, the economic growth was substantial, and whatever damage was done to the public debt, the numbers only marginally caused interest rates to rise, and the dollar remained strong, signaling global investor confidence in the American economy as well as in government finances (European countries typically have carried greater amounts of debt as a percentage of GDP than we have, and for far longer periods). But spiking economic growth and collapsing inflation do not go hand-in-hand according to Keynesian models. Clearly, Volcker monetary policy had a massive impact on killing stagflation — at least on the inflation half of it. But the combination of high interest rates alongside spiking GDP growth indicates that Reagan era fiscal policies can hardly take credit for much of that expansion; clearly a good portion of the economic growth must have been organic once the shackles of stagflation were broken by Volcker monetary policy.
So then, let’s assume some of the economic growth in the 80s was organic, and some was bubble-esque as a result of Reagan’s policies. Come the 90s then, we should see the economy slow down as a result of piled-up debt and a return to a more balanced fiscal approach. In fact, we did have a minor recession tied to the end of the Cold War period. As well, Bush and Clinton both raised taxes, and deficits slowed down. Simultaneously, interest rates began dropping, and the leaps in productivity alongside tempered inflation and expanding credit pools fueled an unprecedented expansion of capital in the stock market. Deficits disappeared and debt started dropping. But was this a total illusion? Common sense says that, again, some of this growth must’ve been organic — the age of the Internet had a very real effect on economic growth, as evidenced by the gains in productivity. Thus, we must conclude that even if the resulting surpluses were somewhat fictitious and based on the bubble, the topping out of debt as a percentage of GDP was real.
Taken together then, this indicates that whatever problems Reagan-esque deficits posed to the economy, that was solved in the 90s — bubble or no bubble — and we can thus exclude the Reagan era from this theoretical “30-year bubble”.
I won’t bother to try to further debunk this theory except to note that there are far better reasons for our current malaise:
1) The net present value of our looming entitlement debt has increased to the point where action must finally be taken; we can kick the can down the road on this no further. The fact is, both Medicare and Social Security are structurally flawed from a financing standpoint, since outlays for both are totally reliant on the taxpayers. That worked fine when we had 10 or even 5 workers carrying the burden to cover every retiree, but now that we are moving to only 2 workers for every retiree, the necessary tax burden to sustain this spending is simply too great — not to mention Medicare costs continue to outstrip inflation by large amounts since demand for healthcare is not something that can be capped as easily as supply. Both of these systems need to be shifted to financing that is based on current workers’ monies covering their future obligations vice those monies covering current obligations.
2) We are experiencing a natural hangover due to a credit binge. Clearly the global financial crisis is not due to Reagan cutting taxes and overspending! But yes, there were definitely some monetary, fiscal, and regulatory policies that exacerbated the credit bubble — and thus the hangover is worse as a result. The only solution is de-leveraging. Fiscal stimulus cannot reasonably accelerate this process, as it just moves debts from private books to public books. Meanwhile, monetary stimulus has its limits, as evidenced by current interest rates being near zero, not to mention easing credit amounts to curing a hangover by doing shots of vodka the next morning.
3) Capital markets react more towards what they think will happen in the future than they do towards what is currently happening. Thus, if you want the de-leveraging to accelerate, capital markets need some reassurances of what the future will look like. With Obamacare, the expiration of Bush tax cuts, financial “reform”, skyrocketing debt, and potentially cap-and-trade all looming, the markets are nervous — not reassured. No effort has been made to curtail deficit spending or reform entitlements (see 1 above). Europe and the Third World are imploding on their own debts as well, so there is no safe harbor. Consequently, we’re stuck in neutral for the time being.
All of these things are far better explanations for our current predicament than some flimsy theory that we’re seeing the end of a 30-year bubble started by Reagan. Had we solved entitlements in the Clinton era, when we all knew we needed to, the Reagan contribution to the public debt would have been inconsequential. Had the Fed not held interest rates artificially low while Congress was fueling risky behavior by Fannie and Freddie as well as turning a blind eye to shady practices in pursuit of raising home ownership rates (particularly among minorities and the poor), the credit bubble arguably would have never reached the heights it did in 2005 and 2006, and consequently we wouldn’t have seen such a fantastic and painful implosion of the financial system, and we’d be in a better position to respond to the more modest recession that would’ve resulted. Instead, things are what they are, and Reagan had very, very little to do with it.
The starve the beast idea never made a lick of sense to begin with.
The whole idea is that we should run deficits until the interest payments are so high that social services are not affordable. But guess what? You’re still paying taxes that are high as hell. It’s just that you get nothing for it. It’s just covering interest payments.
So instead of paying taxes for services, we should pay taxes for nothing. That’s brilliant.
AND — it’s not as if there would be a 1 for 1 tradeoff as interest payments increase, with money moving away from social services and towards interest payments. Every cut in social services would tilt the political needle to the left. People who would never vote Democrat now might consider it if that were their only chance to survive retirement (no Social Security) or have health care. Unless you wanted the Democrats to undo the “starve the beast” policy, some sort of concessions would be needed.
Finally, credit is vitally important for national security. Every major war in the last 250 years (and most minor wars) has involved massive government borrowing. No credit, no war.
In conclusion, “starve the beast” is an argument for higher taxes and American military impotence. It’s the most anti-conservative of conservative policies ever conceived.
Even Bruce Bartlett, who has written much about the “starve the beast” idea (which he traces back to Greenspan in 1978) being a fiscal fallacy, acknowledged that it was a perfectly plausible economic strategy when it was formulated.
The problem on every level of government is not that we pay too few taxes, it is that government spends too much. If we raise taxes, government spends more. If we cut taxes government spends more. If we leave taxes alone, government spends more.
Every year, every level of government spends more, even when adjusted for inflation.
Apparently, the Democrats believe the solution is to spend obscenely more instead.
By the way, at what point does excessive taxation become a form of wage slavery?
When you combine the state sales tax, the state income tax, property taxes, medicare taxes, and the federal income tax I am approaching a combined tax rate of 40%. Now I am told that that is not enough. Well, how much is? 50%, 60%?, 75%?
Seriously…when will even the Left admit that taxes are oppressively high?
gahrie – probably only when you pry their cold dead hands out of *our* wallets …
Gahrie, I don’t want to be an advocate for taxation, but are you really serious about “high taxes”? Income tax is at an all-time low in this country. There is no death tax today. So if your rich uncle dies and leaves you a billion dollars, it’s tax free. Property taxes in california are being reduced due to the fall-off in real estate values. I’m sure that is taking place elsewhere.
If we compare the US to other countries income tax, the US is easily one of the lowest.
And if you’re paying 40% of your income in taxes then you need to get a new tax preparer.
SandyU – are you serious ?
Income (Fed/State/County(?)), sales, property, FICA – and that’s just the obvious ones – they all add up …
Last year, I made about $54,000 a year.
State Sales tax: In my area it is 9% (In some areas it is over 10%) I pay an unknown, but huge amount. At least a couple of thousand dollars a year. Easily 3% of my income.
State Income tax: 9.3% in my bracket (If you make $100,000 or more it is 10.3%!) {up to 12.3% already}
Fuel Tax: 46.6 cents per gallon. And in California, you have to drive. A lot. That’s almost $9 a 15 gallon fill up. {I fill up at least once a week, I’ll just round up to 13%}
Property Taxes: 1% of assessed full cash value. ($1,000 per $100,000) {I pay $1,900 a year.Let’s say 2.8%, we’re up to 15.8% in state taxes alone….}
Medicare: I paid $900 to medicare last year (on top of my private insurance) {we’re up to about 17.2%}
Social Security: Right now I am lucky because I am exempt, but the politicians are trying to change that. (note I am also basically ineligible to collect SS)
My federal tax bracket is 25%. {That puts us over 42%}
So 42%. And I didn’t include all of the taxes on my gas bill, water bill, electricity bill, cable bill, telephone bill, car registration etc. And I don’t have Social Security taxes. If I added in my required minimum retirement contribution instead I bet I’d be at or near 50%
I bet if you ever sat down and tried to figure out how much money government is actually taking from you Sandy you would be amazed.
gahrie, you’re also probably forgetting to include your employer’s contribution of your SS and Medicare taxes. That’s money that would otherwise have gone to you as income, as demonstrated by the fact that the self employed pay 14% for SS and Medicare, not 7%.