PAYGO

July 30, 2010. In every other serious democracy outside the US, conservative political parties feel an obligation to match their tax policies with their spending plans. Remember Newt Gingrich’s “Contract with Americans Pay As You Go” or PAYGO? But that got in the way of supply-sided economics whose champions insisted taxes were too high, especially on the rich, and that a tax reduction would raise tax revenue – forget spending cuts. So how did America fair under cutting taxes without eliminating Government spending? Did the money really trickle down?

President Ronald Reagan signed tax cuts into law with the result that the national debt more than tripling (from $908 billion in 1980 to $3.2 trillion in 1990). Under Reagan total federal government outlays (in constant 2005 dollars) increased 22 percent and the Federal workforce grew by more than 60,000, all in peace time. Contrary to the myth floating around today, Reagan was not a fiscal conservative. He ranks among the top bureaucratic socialists of the 20th century.

President George W. Bush signed two major tax cuts into law; one in 2001 and one in 2003. Bush said these tax cuts would pay for themselves. Their cuts lowered everyone’s taxes, but they were skewed heavily to the wealthy. The Bush tax cuts were among the three biggest federal tax reductions since the end of World War II, comparable to the Reagan tax cut of 1981 and the Kennedy tax cut of the 1960s. Because the Bush tax cuts were expected to eventually cause huge deficits, Republicans wrote the law so they would expire in 2010. At the same time Bush went about creating the largest expansion of government ever recorded, expanding health care (passing an unfunded prescription drug benefit law that alone created $8.4 trillion in unfunded obligations in present value terms), education (increased DOE spending by 60%), defense (one trillion dollars for the war in Iraq), and etc. In eight years, President W. Bush increased the federal budget by a record 104 percent while failing to look for savings elsewhere in the budget. Taken together, his tax cuts and blotted bureaucracy increased the debt by almost $5 trillion. Interest on the debt (including both public and intra-governmental amounts) increased from $322 billion to $454 billion annually. Thanks to the Bush tax cuts the gaps in after-tax income between the richest one percent of Americans and the middle and poorest fifths of the country more than tripled between 1979 and 2007. Under Bush the rich got richer and the poor got poorer.

As a result of tax cuts, America is currently the lowest taxed country in the world with the exception of some oil rich countries. And as a result of this tax deficit hole being dug deeper every day, five Americans are now standing in line for each job opening. So what happened to this trickle down thing? And what happened to our debt? Is “supply sided” economics “voodoo" economics, and is it to be blamed? You betcha! The promise that reduction in tax rates would actually raise tax revenue never happened, neither in the Reagan nor the Bush years. Quite to the contrary, budget deficits exploded and private savings were swamped by these deficit increases.

Thanks to Republican Newt Gingrich’s PAYGO budget law from 1990 through 2002, America briefly experience economic prosperity and budget surpluses. When they expired President George W. Bush was at liberty to run up huge deficits, and he did without bothering to find budget tradeoffs for his tax cuts. Is PAYGO a relic of the past along with Newt Gingrich’s “Contract with Americans?” Folks listening to Fox Republican News just somehow didn’t get the information – they never do. On Feb 12, 2010 (Lincoln’s Birthday) President Barack Obama signed pay-as-you-go budget legislation into law as one in a series of crucial steps needed to snap Washington out of a destructive pattern of overspending. In signing the legislation, Obama said, “Now, Congress will have to pay for what it spends, just like everybody else. After a decade of profligacy, the American people are tired of politicians who talk the talk but don’t walk the walk when it comes to fiscal responsibility. It’s easy to get up in front of the cameras and rant against exploding deficits. What’s hard is actually getting deficits under control. But that’s what we must do.” The new PAYGO legislation passed on a 233-187 vote in House and 60-39 in the Senate. No Republican voted for the bill. How strange! Perhaps they’re shell shocked from the Bush years.

As America heads into the fall election cycle, will Democratic plans to eliminate the Bush tax cuts resonate with voters who have lost houses and jobs? You betcha! In the face of stiff opposition from Republicans who blame Obama for record budget deficits, their logic is blowing a hole in Republican and Tea Party arguments that they're deficit hawks. They want to extend the Bush the tax cuts, adding more than $2 trillion over the next decade to the national debt, while President Obama wants to extend the cuts only for families making less than $250,000 a year and bring sanity back to America where the rich have been getting richer and the poor poorer. Republicans are still stuck in the mud with the same old tickle down argument thing saying tax cuts are critical to bolstering a feeble economic recovery. With twisted logic they use that rationale for tax cuts but not the stimulus package. Somehow, Republicans keep blaming Obama for the trillions of dollars the Bush tax cuts created; the very tax structure that helped led the US into recession. Reagan and Bush proved that tax cuts on the rich did not create jobs; they killed them.

With the help of Fox News, Rush Limbaugh, and company (those yellow pseudo-journalists) PAYGO has not crept back into our collective vernaculars. Many today still believe somehow by reducing taxes, without like spending cuts, that somehow, magically, money trees will sprout up and we’ll see huge surpluses. For those folks I’ve got a bridge in Brooklyn to sell.