If you saw the recent Republican presidential debate (earlier this summer), you witnessed a remarkable sight. At one point the moderator asked all eight candidates on the stage if any of them would vote for a budget proposal that had ten times as much spending cuts as tax increases. Not one of the eight indicated approval for that hypothetical.
Such is the state of the GOP as it prepares to select its presidential candidate in next year’s primaries and caucuses. The anti-tax wing of the party has engulfed the pro-spending-cut wing, albeit the two are generally in lock step with each other. But given the opportunity to embrace a ten to one ratio of spending cuts to tax increases, the entire field of presidential candidates said they wouldn’t accept that plan. Amazing!
This week, the most moderate of the candidates, Jon Huntsman, essentially called his competitors unelectable. He may be right on that point, but by denouncing the likes of Michelle Bachmann and Rick Perry (the two current darlings of the Tea Party), Huntsman might as well have announced that he was dropping out of the race. This Republican Party will never nominate someone who is a “center-right” candidate.
It’s all enough to make one wonder what Ronald Reagan would say. Reagan, who won his party’s nomination by beating a candidate who called his economic plan “voodoo economics” and who then picked that same candidate to be his vice-president, was proud that his party was a “big tent,” as he called it.
And back in the 1960s and 70s, and even in 1980, when Reagan was elected, the Grand Old Party was a big tent, with men like Hugh Scott and Nelson Rockefeller and Jacob Javits respected leaders of their party. They were all liberals, yes, liberals, who saw the need for an active government and who supported government programs and, yes, government spending.
Of course, Reagan himself was no liberal, and he spent much of his presidency moving his party as far to the right as he could. But even he, were he alive today, might wonder what he had wrought. And those who claim to be his torch-bearers might do well to consider how far to the right of even him they are.
Reagan, after all, approved numerous tax increases during his presidency and oversaw budget deficits that were massive. Tax revenues were much higher during his presidency than they are now, and so was government spending.
But don’t tell that to today’s GOP. It has been overwhelmed by the Tea Party, or at least by that part of the Tea Party that is figuratively insane, if by insane we mean advocating policies that are against the nation’s interests.
The Tea Party demands less spending, claiming that only by cutting spending will jobs be created. In fact, nothing could be farther from the truth.
When the private sector doesn’t (or can’t) create jobs, the government must be the employer of last resort. That fact is basic Econ 101. The Great Depression provides the model. When the private sector fell apart—due to an unregulated financial market that imploded on itself (sound familiar?)—the federal government, under Franklin D. Roosevelt, created jobs by spending money.
The recovery was short lived, not because the government was spending too much money, but because it didn’t spend enough. In 1937, just as the economy was starting to rebound, Roosevelt tried to get spending “under control.” The result was a sharp spike in unemployment akin to a double dip (sound familiar?), that was only abetted with the outbreak of World War II, when, of course, government spending went through the roof. The result was that everyone, either in military uniform or out, was working.
The lesson is simple: When private enterprise, for whatever reason, cannot or will not create the jobs that keep the demand for goods and services high, the government must step in. Otherwise, you have a downward spiral of lowered demand, leading to lowered supply, meaning fewer jobs and less income, which then leads to still lower demand and still lower supply and …
You don’t have to be a genius to understand this pattern. Rather, you have to be mentally disabled not to. Or, if you are a public servant, seeking to lead the country, you have to be insane to espouse less government spending during a severe economic decline such as the country is experiencing now.
And the effect of taxes is another misunderstood, or ignored, reality. Taxes are simply a cost of doing business (if you’re a company) or a cost of living factor (if you’re a private individual). Businesses factor in their costs in setting the wages they pay and the prices they charge. If taxes are too high, businesses cut other expenses to meet their financial needs. To this extent, higher taxes can lead to reduced work forces.
But the reverse does not follow, and recent history proves that it doesn’t. Lower tax rates do not increase employment. If they did, we would certainly not be struggling to recover from the current economic crisis, since taxes have been exceedingly low (historically as low as they’ve been in over 60 years) for over ten years now.
With Fortune 500 companies like General Electric paying zero dollars in taxes while sitting on billions in profits, the claim that lower taxes would stimulate the economy is obviously not true. Companies hire based on the need to produce. And if the demand for products is not there, they sit on their profits (i.e., they invest them) and wait for demand to emerge.
But demand is dependent on income, and those who are unemployed don’t earn income. And if they don’t earn income they don’t demand goods and services. (They also don’t pay taxes.)
Most sane politicians understand all of these facts. If they are courageous they give speeches about them.
If they are insane, they claim that we need to spend less and tax less. And that is the sad state of the Tea Party-led GOP as it prepares to select its next presidential nominee.