Newt Gingrich Leading Insane Conservative Effort to Close Deficit By Reducing Revenues
If this Washington Post article is to be believed, I think some prominent Washington figures may need a course in remedial math:
And Republicans have made it clear that they intend to try to shift the economic debate toward concern about the federal deficit.
They are also preparing to use the ballooning deficit to renew their push for additional tax cuts. Groups including the Club for Growth and GOP leaders such as former House speaker Gingrich say such cuts would do more to improve the economy than the spending plan would.
The reporters on the piece, Michael D. Shear and Paul Kane, might have observed that a deficit is, by definition, a shortfall between revenue and spending. Thus, it’s extremely difficult to envision circumstances under which “additional tax cuts” would prevent the deficit from ballooning. As this handy chart indicates, ballooning deficits are strongly correlated with either fighting World War II or else governance dominated by a desire for “additional tax cuts”:
Unfortunately, Bush-era macroeconomic management has managed to produce much worse outcomes than we saw during the Reagan years so in the extremely short-term it’s not possible to turn this trend around. In the medium-term, however, the administration is proposing to tackle ballooning deficits by making the deficit smaller—higher revenues and lower expenditures. One possible conservative approach to this would be to argue for more aggressive deficit targets, achieved by more stringent spending restraint. Another would be to argue for higher deficits, achieved by more tax cuts. The idea encapsulated in the Post article, that Gingrich and the Club for Growth have a plan for smaller deficits achieved by more tax cuts is ridiculous. Fortunately, neither Gingrich nor the Club have any formal legislative authority and there’s nothing stopping those Republicans who, unlike Gingrich, weren’t hounded out of office a decade ago, from governing with common sense.
45 Responses to “Newt Gingrich Leading Insane Conservative Effort to Close Deficit By Reducing Revenues”
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February 23rd, 2009 at 12:33 pm
Every morning I take copies of the Post and FT with me on my hour-long commute on Metro and a bus. I begin with the Post and read E.J. Dionne and see what zaniness the op-ed page has in store for me. Then I put that awawy and read the real news.
February 23rd, 2009 at 12:34 pm
Quiet, okay? If the GOP wants to believe that a Newt-inspired return to 1994 is a sure path to victory these days then let them keep thinking that.
February 23rd, 2009 at 12:34 pm
That doesn’t even make sense. How do you reduce the deficit (deficit is defined as spending more than you take in) by taking in less revenue?
A third-grader could tell you that doesn’t make sense.
February 23rd, 2009 at 12:36 pm
I see graphs like this occasionally, but it seems to me that just as important is what this debt costs us. In other words, what is the historical cost of debt service, either in absolute terms, or relative to GDP or to the annual budget?
February 23rd, 2009 at 12:38 pm
The Laffer Curve theorized that taxes above a certain point depress economic activity. That means if taxes are above that point and are cut, greater economic activity results which actually increases the revenue into the government. But if you simply LOOK at the freakin’ thing graphed out, it explicitly acknowledges that there’s a point where taxes can be below the point where greater economic activity can produce increased revenues.
Conservative ideology gets right bashed for many things, but another problem is that modern conservatives don’t even understand the basic elements of their own ideology.
Mike
February 23rd, 2009 at 12:41 pm
Never interrupt your enemy when he is in the process of making a mistake. -Napoleon
February 23rd, 2009 at 12:42 pm
The real reason Newt served divorce papers on his first wife when she was in the cancer ward? She wanted surgery; he wanted a cut in capital gains tax.
February 23rd, 2009 at 12:47 pm
Is this any different that Obama attempting to “stimulate” his way to a balanced budget? Obama must be counting on a fairly large economic multiplier to reduce the deficit by half. And if there is a multiplier, what makes it larger than one derived by cutting taxes?
Clinton cut welfare, passed NAFTA, and did far more free markets and government revenues than it appears Obama is on his way to doing. To base you theory of balanced budgets on 3 presidents is a little daft if not outright disingenuous.
Fundamental questions not answered by liberals other than to call their opponents insane, when their politicians practice the exact same ideologies of “conservatives.”
February 23rd, 2009 at 12:48 pm
It seems to me that the Republicans have to move fast on this since 1) Obama and the Democrats are selling the stimulus bill as the “biggest and quickest tax cut in history” and 2) next up is the deficit, which Obama is apparently going to address in his speech tomorrow. Or, to phrase it differently: He is, once again, beating the Republicans at their own game, neutralizing their only remaining issues by co-opting them.
So good luck, Newt Gingrich and Bobby Jindal.
February 23rd, 2009 at 12:49 pm
Fortunately, neither Gingrich nor the Club have any formal legislative authority and there’s nothing stopping those Republicans who, unlike Gingrich, weren’t hounded out of office a decade ago, from governing with common sense.
Except the fact that they have outlined a clear strategy of repeating 1992-94, which means they have to target Perotnistas, and the R base.
In 1992-94, the argument was essentially made that the elder Bush had failed by embracing tax increases (which ostensibly hurt the economy), actually ending the war in Iraq (that would be Gulf I), and running large deficits. Therefore, the R’s said to themselves, very loudly, they should embrace tax cuts, small deficits and more war. And that strategy ostensibly succeeded, so therefore, faced with what they consider to be the same situation, they intend to repeat the same gameplan.
‘Responsible’ Republicans have no reason to do otherwise than follow that plan because it has not been shown to their faces that it is a costly scheme, that will result in electoral devestation.
max
['Heads have not rolled.']
February 23rd, 2009 at 12:55 pm
@Nathan –
What? I could be wrong about this, but I’m pretty sure Clinton didn’t inherit a massive, downward-spiraling recession of epic proportions. Also there is no way we are anywhere near the taxation levels where cuts increase revenues. In fact, IIRC, studies suggest that the top bracket level where cuts increase revenue is >60%, no?
February 23rd, 2009 at 12:56 pm
Holy crap — it’s gone mainstream.
That chart actually does say “Democrat” president; not Democratic president.
Iz our journalists ever learned their grammar?
February 23rd, 2009 at 12:57 pm
In what sense can Newt Gingrich be said to “lead” anything? His political flameout was one of the most purely personal rejections in recent political history. Why do we bother with any response to Newt other than to point and laugh?
February 23rd, 2009 at 12:59 pm
Hee hee:
February 23rd, 2009 at 1:03 pm
Did Obama jump the Grand Ol’ gun by talking up the deficit and fiscal responsibility before Republicans had a chance to execute their plan? Did Axelrod and company see this one coming?
Hard to hit him on the deficit when he’s vowing to cut it in half.
February 23rd, 2009 at 1:35 pm
“Hard to hit him on the deficit when he’s vowing to cut it in half.”
Well, only if he’s successful.
February 23rd, 2009 at 1:43 pm
@Mike,
The problem with the Laffer curve, and hence Republicans heavy reliance on it in their economic theories, is that no one can tell us where we actually are on the curve. Laffer didn’t when he published it. So it’s easy for Republicans to claim tax cuts will actually increase revenues, becuase they get to say where we ar eon the curve.
February 23rd, 2009 at 1:50 pm
This is a better graph, as it underscores the true Reagan legacy: public debt. A naive Barro, perhaps not unreasonably, thought we would return to long-run trend.
February 23rd, 2009 at 2:11 pm
The only reason why the right doesn’t push for cutting taxes to zero is that they don’t want the government to have too much money (starve the beast and all that).
February 23rd, 2009 at 2:11 pm
The graph in Matt’s post is one of a whole bunch that he will conveniently forget about in four years. Public debt under Obama will balloon.
February 23rd, 2009 at 2:23 pm
To base you theory of balanced budgets on 3 presidents is a little daft if not outright disingenuous.
Those 3 Presidents are the modern conservative movement, which is exceptional in American history. With the notable exception of WWII, every President of the modern era has decreased the national debt relative to GDP during his term.
The ONLY breaks with this normal historic trend are among the Presidents of the modern “conservative” movement.
The economic policy of the modern Republican party is one of debt hogs. Trickle-down economics is a cover for credit-card budgeting. It’s tax cuts for the wealthy by any means necessary.
It’s important to recognize here that the Democrats are NORMAL. They are governing like a logical, sane, responsible, NORMAL party. It’s the modern “conservative” movement that is conservative like a Wall Street Banker: fiscally profligate and reckless with other people’s money.
It’s a mark of their radicalism that our discourse has become so dysfunctional. First of all, budgets under Reagan became ridiculous and under Bush descended into farce (seriously, how can you justify keeping Iraq off-budget in 2008!) Defense spending is not considered spending. Deficits are generated only by spending, not by tax cuts. Fixing the national debt is a conversation about ONLY “entitlements.” It’s freaking demented. Of course the debt went through the roof when Reagan and the Bushes were President–we had to pretend a huge chunk of spending and revenue cuts simply didn’t exist!
February 23rd, 2009 at 2:42 pm
I see no problem with basing a theory on 20 years of governance.
February 23rd, 2009 at 3:12 pm
Of course, Barack Obama is attempting to do no such thing. Rather, he intends to cut the deficit in half largely by no longer funding stimulus spending.
February 23rd, 2009 at 3:12 pm
This is Economics 101. For instance, give a wealthy person a tax break and they may just sit on it, or use it to pay off debt. No stimulus there. Give a poor person an extension in unemployment benefits and you can bet they’ll be spending it.
February 23rd, 2009 at 3:19 pm
Just for kicks, a brief history of Arthur Laffer:
Link
There’s a pretty funny cast of characters in the story of voodoo economics. Its staunchest proponents tend to believe in things like ESP and creationism. Hmm, wonder why.
February 23rd, 2009 at 4:15 pm
how’s that “Generational Theft” thing go?
February 23rd, 2009 at 7:33 pm
Hmm, weren’t taxes increased in 1990? Debt to GDP still increased for quite some time. Despite, Bush II’s tax cuts, rates are still higher than when Bush I was president. Two big factors are being missed, Clinton held spending back substantially, and had a very positive macro economy as a tailwind toward the end of his term. Get ready for that debt to GDP ration to increase sharply for the next ten years, despite any talk of reducing it. The government is spending MASSIVELY, increased the budget baseline MASSIVELY, and revenues will be depressed for years – especially at the state level where structural spending has been set at unreasonable levels – tax loss carry forward as far as the eyes can see – total income for the rich brackets will be severely depressed and the list goes on.
February 23rd, 2009 at 9:18 pm
The problem with understanding the Laffer curve is time horizons. Optimal levels of taxation will be different when looking at total returns 1, 5, 10, 20 years into the future. This arises from the fact that economies tend to multiply on previous progress. Let’s say 5% lower taxes lead to approximately 1% improved GDP. That 1% doesn’t look so great in a country where political cycles revolve around 2-8 year periods. But 1% extra growth over 100 years is a 170%(1.01^100 = 2.7) improved standard of living. Try explaining to your great great grandchildren why you have chosen to cut their wealth by 63%.
This is also why America is such a decent place to live today. Lower than average taxes and higher than average economic freedoms have produced through exponential growth a nation so awash in affluence our biggest problems are obesity, smoking, and car accidents and our political discussion revolve around how to dole out care for these diseases of affluence.
I am not convinced by Liberal claims that there is some kind of magical multiplier to government spending, and that the government by taking our money and spending it inefficiently to politically connected allies creates wealth.
February 23rd, 2009 at 9:24 pm
This is Economics 101. For instance, give a wealthy person a tax break and they may just sit on it, or use it to pay off debt. No stimulus there. Give a poor person an extension in unemployment benefits and you can bet they’ll be spending it.
Spending it instead of working?
Don’t the wealthiest savings lead to more cheaper loans?
Washington’s Econ 101 of political convenience seems to have a different set of principles than that taught at even the most liberal of institutions.
February 23rd, 2009 at 9:25 pm
I see no problem with basing a theory on 20 years of governance.
I do. Especially if you are going to also ignore legislatures.
February 23rd, 2009 at 9:34 pm
You do why? Why isn’t 20 years of running up huge debts enough to form a theory? Because it ignores legislatures? That’s a red herring. If the last 8 years have taught us anything it is that the legislature doesn’t matter. The same deficit hawks from 1996 turned into deficits don’t matter spenders.
It would be nice if you contributed with a semblance of an argument.
February 23rd, 2009 at 9:34 pm
If you think these are our biggest problems, I want to know what America you live in, because it certainly isn’t my America.
February 23rd, 2009 at 10:36 pm
Drawing down in Iraq and raising taxes on the rich is stimulus spending?
February 23rd, 2009 at 11:37 pm
You do why? Why isn’t 20 years of running up huge debts enough to form a theory? Because it ignores legislatures? That’s a red herring. If the last 8 years have taught us anything it is that the legislature doesn’t matter. The same deficit hawks from 1996 turned into deficits don’t matter spenders.
It would be nice if you contributed with a semblance of an argument.
It wasn’t 20 years you tool. 8 + 8 = 16, but who cares about facts.
I voted for Gore and Kerry, don’t base your argument on blaming me for the last 8 years. In fact, fuck you for forming an argument around your perceived notions of who I voted for.
Conveniently Republicans controlled congress under Clinton’s final 6 years. But as you said, we can blame the deficit hawks for deficits when they are given carte blanch powers, but when they actually follow their principles we ignore what they did. Right…
February 24th, 2009 at 9:06 am
A more accurate title would have been “Politicians on both sides launching insane effort to reduce the deficit.”
Deficits and debt denominated in our own currency are harmless in a growing economy, and necessary in hard times to get the economy growing again. Top priority: a growing economy. Debating deficits and debt is a dangerous distraction and a waste of valuable time.
February 24th, 2009 at 10:41 am
Wow, you truly are a moron. Apparently you can’t even add!
Regan = 8 years
Bush I = 4 years
Bush II = 8 years
8+4+8 = 20
So fuck you for not knowing basic arithmetic. And also fuck you for making such a sorry strawman argument. I never made a claim as to whom you voted for. Not once.
Republicans controlled the House of Representatives only twice in the postwar era. Once in 1947-1948 and once in 1995-2006. If you want to argue that the lot in 1995-2006 was primarily responsible for paying down the debt, you are ignoring all the postwar years when the Democrats controlled the House and payed down the debt.
This argument is fundamentally the argument used by Limbaugh to try and exonerate Regan from the huge deficits he ran. Limbaugh blames it on the big bad Democrats who ran the Congress and spent too much, ignoring the fact that they paid down the debt for a good 30 years. And add to that the fact that these same Republicans decided to spend spend spend from 2001 onward to 2006, and it makes for an intellectually dishonest argument.
February 24th, 2009 at 4:58 pm
“Holy crap — it’s gone mainstream.
That chart actually does say “Democrat” president; not Democratic president.”
King Bush himself used that several times at the podium. The problem is that it’s not just bad grammar – it’s based on focus group feedback that “Democrat” puts more emphasis on “rat” and is therefore perceived more negatively. It’s stupid word gaming that actually began in the 50’s, fell out of style, and came back with a passion when the self-described “adults” regained control in 2000. Now I know what you’re thinking: it’s difficult to believe that people who are so intensely focused on political minutia could possibly be bad at running the government, but it turns out to be true! Heh.
“How can a party which doesn’t believe in government possibly run one correctly?”
February 24th, 2009 at 5:01 pm
> Is this any different that Obama attempting to “stimulate”
> his way to a balanced budget?
He’s not “stimulating” his way to a balanced budget, he’s stimulating his way to an improved economy. An improved economy is necessary but not sufficient for a balanced budget.
> Obama must be counting on a fairly large economic
> multiplier to reduce the deficit by half.
No, he’s counting on the stimulus spending being temporary.
> And if there is a multiplier, what makes it larger than one
> derived by cutting taxes?
Empirical evidence. Tax cuts have historically had smaller multiplier effects on the economy than targeted spending increases.
February 24th, 2009 at 7:31 pm
a nation so awash in affluence our biggest problems are obesity, smoking, and car accidents and our political discussion revolve around how to dole out care for these diseases of affluence
At this point, this kind of thing is worse than stupid; it’s morally bankrupt and vicious and ought to be called out as such.
March 10th, 2009 at 2:05 pm
Dies ist ein gro