Politics

Republicans are not fiscally conservative

I know several people, as I’m sure you do as well, who claim the label of being socially liberal and fiscally conservative. A growing majority of Americans believe that the rest of the country reflects these preferences. While it isn’t clear why exactly that is, I believe moderate voters want to take what they see as the best parts of both parties, social issues for liberals and fiscal prudence for conservatives, and pin them on themselves.

Democrats seem to be winning the social or cultural war. Americans approve more and more of things like same-sex marriage and marijuana legalization along with other cultural issues.

Republicans, on the other hand, rhetorically tout their fiscal stewardship as a party. From Ronald Reagan in the 1980s to the more recent Tea Party Movement that has engulfed the GOP, the modern Republican Party has been concerned with rising deficit spending and the debt the United States has accrued. Though being fiscally conservative does not always translate into being a Republican, voters tend to trust the GOP on issues like which party would do a better job dealing with the deficit.

The only issue I have with the tie between fiscal conservatism and the Republican Party is that it’s wrong.

The Republican Party has not always been the party of fiscal stewardship. In fact some Republican presidents, including Reagan, increased deficit spending while Democratic presidents like Carter oversaw reductions. The fiscal responsibility versus reckless spending dichotomy between the two parties is not true. It’s not that one party is fiscally responsible and the other isn’t.

Both parties use deficits, but Republicans have not been “fiscally responsible” with them.

Deficits under “fiscal conservatives”

Reagan tax cuts

Reagan, a fiscal conservative icon, oversaw a major reduction in the top tax rate from 70% to 50% in 1981 without any means of making up the lost revenue. This drastic cut in taxes left a gaping hole in the federal budget so large that in ’82, ’83, ’84, and ’87 President Reagan actually had to raise taxes significantly to make up for the predicted $613 billion in reduced revenues. With the tax increases, $367 billion was recovered, but the deficit was still damaged.

From 1982-1983, deficits rose from $128 billion to $208 billion. For the remainder of Reagan’s two terms, federal deficits would never fall below 1987 levels of $149 billion. That was the only year it fell below $155 billion during his two terms.

Bush’s tax cuts and war

The case against George W. Bush is even simpler. Similar to Reagan, in his first year Bush pushed for tax cuts through deficit spending. In 2001, the Bush tax cuts lowered, through phase ins, marginal tax rates almost across the board. When the tax cuts were fully phased in, the estimated lost revenue for the Federal Government was roughly $1.67 trillion from 2001 to 2010, the year the law was scheduled to sunset. In total, the Bush tax cuts added an estimated $5.6 trillion to deficits from 2001 to 2018.

Add to these unpaid tax cuts two wars financed through debt and the deficits under George W. Bush greatly diminish Republicans image as fiscal stewards. The Iraq War alone cost an estimated $800 billion in direct budgetary costs. After putting all of the wars America has been involved in post 9/11 together, the U.S. has spent over $3 trillion as of 2016 alone.

It was unprecedented for Bush to both cut taxes and finance international military operations primarily through deficits. It is no wonder then that during Bush’s two terms, the U.S. went from having a $236 billion budget surplus to a $458 billion budget deficit in 2008. In 2009 the budget deficit skyrocketed to $1.4 trillion, but this was largely due to the Great Recession, a time when there should be massive government spending to inject stimulus into a contracting economy.

The broader picture

Leonhardt and Republican deficits

In a piece written for the New York Times, David Leonhardt lays out a broad analysis of deficits under different presidents. In his piece, he writes how in the simplest terms deficits expanded under Republican presidents and shrank under Democratic presidents since 1977. Below is a chart from his piece that highlights these numbers.

From this chart, one can see a clear picture of rising deficits under Republicans and shrinking ones under Democrats. Even now under the Trump Administration, deficits are rising.

Most likely, the projected revenue shortfalls from Trump’s tax cuts are to blame for increased deficits during his short tenure. Several estimates came out when the bill was being debated about how much the plan would cost. But one analysis from POLITICO showed that from 2018 to 2027 government revenues would drop anywhere from $1 trillion to $1.3 trillion. The Trump Administration famously said that the tax cuts would pay for themselves. But this was assuming annual GDP growth of 3%, a huge gamble that bets on no recession or economic slowdown. Assuming something this unlikely won’t happen, it is safe to say the Trump tax cuts will add to the deficit significantly in the coming years.

Of course, there are those who will argue this assessment and others are wrong about Republicans and fiscal conservatism. David Harsanyi for example, in a piece written for the Federalist, greatly diverges from Leonhardt’s analysis in the Times.

Automatic stabilizers

In his own critique, Harsanyi discusses how Leonhardt discounts what are called automatic stabilizers. According to the Tax Policy Center, what these tools do is stimulate economic activity during recessions and “temper the economy when it overheats,” without any needed action from policymakers.

Basically what that means is during recessions more families are eligible to use different benefits. Programs like unemployment insurance and SNAP are considered automatic stabilizers. They help bolster families’ incomes when they inevitably drop during recessions. Because more people use these programs during slowdowns, more money is spent on them, and politicians don’t vote to approve the spending increases.

Harsanyi criticizes Leonhardt because he doesn’t account for this large amount of spending on automatic stabilizers during the Great Recession in his deficit analysis. If Leonhardt had, the costs of the stimulus under Obama would have gone from $787 billion to $2.6 trillion.

Missing the point

But Harsanyi seems to be making an unfair argument that doesn’t at all apply to what Leonhardt and this analysis are saying.

Absolutely, $2.6 trillion is a large increase in spending. But those spending increases on automatic stabilizers are just that, automatic. They don’t indicate whether one party’s policies have led to increased deficits versus another. That is what is being argued here.

But besides that, Harsanyi seems to discount the necessity for automatic stabilizers as programs “supported by Democrats.” These tools are far from unnecessary. People needed automatic stabilizers like unemployment insurance and food stamps to, no pun intended, stabilize their economic situation.

The Great Recession led to a peak unemployment rate of 10% and a 76% increase in families using SNAP benefits from the start of the Great Recession to 2012, among other economic hardships. For many families, the assurances from these programs helped significantly. Mr. Harsanyi should consider the cost had these automatic stabilizers not been in place to help families affected by the economic slowdown.

The truth is deficits under Obama did go up initially when the largest recession in U.S. history since the Great Depression threatened the livelihood of the American economy. When there is a recession, the government is supposed to stimulate the economy to provide a bottom. Automatic stabilizers like unemployment insurance increase because more Americans lose their jobs due to the downturn. As soon as the recession turned around, however, deficits under Obama dropped, from $1.4 trillion in 2009 to the lowest point at $484 billion in 2014. Overall through Obama’s years as president the deficit slightly contracted by 0.1% of GDP.

One last problem with Harsanyi’s piece

While it is clear I don’t agree with Harsanyi’s critique of Leonhardt, there is one more point that struck me as careless. In his piece Harsanyi makes the case that after Obama left office, the U.S. debt, which is different from the deficit, was almost $20 trillion, “nearly double what it was when he [Obama] got there.” But he then goes on to make an egregious mistake.

Harsanyi says, “According to the Office of Management and Budget, the deficit (emphasis mine) went from just over 52 percent of gross domestic product at the end of fiscal year 2009 to 77 percent of GDP at the end of fiscal year 2016.” That is not what OMB said in his cited source. His source says the debt rose from 52% of GDP to 77% from 2009 to 2016, not the deficit. If the deficit was 77% of GDP, countries around the world would question justifiably the solvency of the United States, a situation we are far from.

Fiscally conservative does not always mean Republican

When looking at changes in deficits as a percentage of GDP it seems clear that Republicans are not as solid fiscally as they claim to be through their rhetoric. Specific examples of fiscal irresponsibility like unpaid tax cuts, unpaid wars, and ever-increasing military spending show how the Republican Party has gotten away with one of the greatest messaging scams in American history: claiming the mantle of fiscal conservatism when they have no right to.

However, the party that has significantly increased deficit spending is the same party Americans trust more to fix those same budget deficits…

*Author throws papers into air in frustration*

Harry
Please comment on any post if you want to have a discussion about the topic. I would love to engage in meaningful conversations with people, but will not respond to negative comments, or ones made in bad faith.

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