The Pardu

The Pardu
Watchful eyes and ears feed the brain, thus nourishing the brain cells.

Friday, May 2, 2014

Connect The Dots USA: Tax Cuts And Deficits

We continue with Connect The Dots USA and it's ongoing posts on Federal governance and our tax dollars in action! 

Connect The Dots USA
 April 26 

Then in the late 1970s, Republicans decided “tax cuts” were a sexier platform to run on than “balanced budgets.” I mean, who doesn’t like a fire-sale? Who doesn’t like Santa Claus?

The GOP obsession with tax cuts sprang from a now famous 1976 editorial by Jude Wanniski. He argued that if they ever wanted to win elections again, Republicans would need to adopt a more attractive marketing strategy to compete with all the popular Democratic programs like Social Security, Medicare, Medicaid, public schools and parks, investments in roads and bridges, etc.

So instead of being the “Scrooge of Balanced Budgets,” Republicans would brand themselves as the Santa Claus of Tax Cuts: Government is on sale! Vote for us and you don't have to pay for anything. Based on magical math, we can reduce everyone's tax rates and still bring more money into the U.S. Treasury. You can have your cake, eat it too, and not gain any weight.

Reagan was the first President to put this new marketing gimmick into action.

April 27 

Let’s zoom in on the deficit graph to see what happened since the 1980s and the newfound GOP obsession with the “tax cuts” marketing strategy. Reagan came along slashing tax revenues and discovered it was a lot harder to cut spending. And the deficit gap widened.

Contrary to right-wing mythology (I’m talking to you Alan Greenspan), Americans have quite the appetite for deficit spending when it comes to all the govt programs they like. So the GOP “starve the beast” strategy doesn’t work and is fiscally irresponsible. If you care about balanced budgets, you better cut spending BEFORE you cut taxes. Not the other way around.

Nor does trickle-down economics work. We’ve tried that experiment for the last 30 years and the proof is in: Tax cuts don’t create jobs; they create deficits and growing income inequality.

Note that the last five times we’ve had budget surpluses (four of them were Clinton budgets), revenue was near 20% of GDP. So that is a good guideline for the minimum size of govt Americans actually want in the modern age. But the Clinton surpluses were squandered in the Bush years when revenue dropped to below 15% of GDP and spending soared to 25%. 

GDP is currently about $17 Trillion, so each 1% is a whopping $170 Billion — a huge difference. In 2013, the deficit was $680 Billion or 4.1% of GDP, which is way down from the 10% of GDP deficit when President Obama first took office in 2009. Remember, fiscal year 2009 started Oct 1st 2008 while Bush was still in office and most of the spending and tax revenues (as well as the Great Recession) were already baked in for fiscal year 2009 before Obama and the Dems could even pass any legislation.

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