Friday, November 28, 2008

Tax and Spend Liberals

No need for much text in this post, I'll let the picture do the talking.


So there is indeed some truth to this cartoon and I realize what it is trying to say, but I hope that people realize that this is a very simplistic explanation of the past budget deficits. I could just as easily make a simplistic analysis of who controlled congress over those periods (and the branch with the most control over the budget). The Democrats controlled the House for all of Reagan’s term and the Senate for half of it. They controlled Congress during all of Bush I’s term. The Republicans then controlled congress for 6 out of the 8 years of Clinton’s terms, including all of the years of surpluses. Lastly, even with Bush II, the years where the deficit grew from the previous year, Congress had Democrat control. The first two, the Dems had the Senate, and in the last two, where they had both houses, the deficit has ballooned from $160 billion to a projected $1.1 to $1.5 trillion deficit for this budget year. But this is too simplistic as well.

But first, just a side note. Partially because of horrible fiscal stewardship ont he part of the Republicans in recent years, the Democrats have successfully been able to turn the meaning of "fiscal responsibility" to one regarding only deficits and not rampant spending in of itself. So deficits are not even necessarily as good of a measure of being “fiscally conservative,” as total spending is. Deficits after all are not a measure of spending growth or how the money is spent, but simply the gap between inlays and outlays.

But getting back to the main point, lets briefly look at the dynamics that existed under all these administrations. First, Reagan was unable to get the budgets he wanted. Though the Southern Democrats went along with his tax cuts, they wouldn’t go along with his spending cuts, or at least not enough of them to balance the budget. Without that block in the House, he could not get anything through it. Also, in order to cut many programs, 60 votes in the Senate would have been required, which he usually did not have. Furthermore, many Republicans didn’t want to cut certain programs either because any given spending program has its entrenched interests. Had Reagan actually gotten the budgets he sent to Congress, there would have been a cumulative budget surplus by the end of his term. Now proposed budgets always get altered and it is likely Reagan didn't expect those to actually pass, but it does show that he was trying to reduce spending much more then he was able to do. Now some also say, “well wait, Reagan drastically increased military spending.” Well this is true, but his increase really only brought defence spending back in line as a percent of GDP with what had been the Cold War average. Defense spending had been falling through the Ford and Carter years being replaced by domestic spending.

Next was Bush I. He had a very hostile Congress that would not go along with any substantial spending cuts at all. But regarding the deficit, he got hit with a recession. Because of the social safety net and the progressive income tax system, a recession naturally reduces tax revenues while at the same time increasing outlays. These were all programs already in place and not the direct hand of Bush. In the end, he compromised with the Democrats and raised taxes, because he could not get cuts, and the rescinding of his famous “read my lips, no new taxes” pledge ultimately contributed to him losing his reelection (furthermore, Bush I was not nearly into the small government thing as Reagan was... remember “Voodoo Economics”, and therefore was much more willing to go along with the Congressional Democrats in the first place.)

Clinton, started out as a big tax and spend liberal as the title in the cartoon states. He raised taxes and then tried to get through his massive universal healthcare program. However, a combination of the program's high cost, the complexity of it and the political infighting within the Democrat party, he didn’t get this through. The Republicans then took the Congress and at this point they actually believed in restricting spending. They also had the partisan incentive to go against Clinton backed spending. But also at this point, Clinton then began to rule as a moderate, likely out of political necessity, and encouraged by his Treasury Secretary Rubin, who is obsessed with budget deficits, stopped pushing for more spending. The Republicans essentially made policy for most of the decade. Even think of the major achievements of the Clinton administration, NAFTA, welfare reform, capital gains tax cuts, balanced budgets... these were all the Republican Party platform issues in 94 and 96. Furthermore, he spent most of his second term using his political capital to blunt the various sex allegations. Clinton also had the short term benefit of the stock bubble, an unsustainable period of economic growth that yielded a temporary benefit, but led to the recession to follow in 2001. And just as a recession naturally reduces revenues and increases outlays, the opposite is true during a boom time. The late 90's saw the largest percent of GDP collected as tax revenue since WWII. This was why Bush II was so attement about putting in place a tax cut durring his 2000 campaign and why even Gore was advocating a smaller tax cut.

Bush II is where this cartoon has the most truth, because the administration has actively pushed for massive increases in spending over its tenure, whether it be Medicare D, No child left behind, farm subsidies, Homeland Security, etc. However, even this is not the full story. He got hit with the 2001 recession and 9-11, both of which reduced tax revenues and increased outlays. Now we have a massive deficit with all the bailouts, but these have been quite bipartisan, or at least Bush and the Congressional Democrats.

So this is still a very brief overview of the various administrations that doesn't do any of them justice; however, in general, this begins to look at the more complex dynamic.