Bartlett: Obama's Tax Truths

Bruce Bartlett writes at The Fiscal Times:

On the tax issue, the Republican message is simple, clear, unambiguous, and wrong. But it is repeated so relentlessly and aggressively that its logical and factual weaknesses get lost in the discussion. Rather than counter the Republican position with reason and evidence, Democrats mostly say nothing, perhaps hoping that the media will do the dirty work for them.

At its core, the Republican position is based on several falsehoods:

• First is that the budget deficit is 100 percent a spending problem that has nothing to do with revenues.
• Second is that the American people are grossly overtaxed and taxes must never be raised at any time for any reason.
• Third is that tax cuts have magical properties; they starve the beast and hold down spending, while at the same time so massively stimulating growth that revenues will actually rise, based on numbers from the right-wing Heritage Foundation and here.

Unfortunately, Democrats and the media have really made no effort to refute these lies. Indeed, they appear incapable of even making the simple logical point that the deficit is the difference between outlays and revenues; therefore, tax cuts will necessarily increase the deficit. The Bush tax cuts, to which Republicans are obsessively devoted, reduced federal revenues by about 2 percent of the gross domestic product annually. This can be seen from the fact that revenues were 20.6 percent of GDP in 2000 and 18.5 percent of GDP in 2007, at the peak of the business cycle before the recession reduced them to 14.9 percent of GDP, where they have been for the last two years. (The postwar average is about 18.5 percent of GDP.) Without the Bush tax cuts – and those added by Obama – revenues would likely be more like 17.5 percent of GDP, which is where they were at the trough of the last three recessions.

If revenues had been 2 percent of GDP higher over the last 10 years, the federal debt would be about $2.5 trillion smaller. Instead of having a debt of about 60 percent of GDP last year, it would have been about 44 percent. And that doesn’t take into account all the interest that would have been saved that now adds about $60 billion to the deficit annually. Together, higher revenues and lower interest spending would have reduced last year’s deficit by one-third.

Of course, Republicans claim that the Bush tax cuts stimulated growth in the last decade. But real GDP growth was much higher in the 1990s, unemployment was much lower, and we had budget surpluses instead of deficits. Arguably, these benefits flowed in large part because of the tax increases in 1990 and 1993, not to mention those enacted by Ronald Reagan in the 1980s, which stabilized the nation’s finances. Yet it is Republican dogma that tax increases never reduce the deficit despite the obvious evidence to the contrary.

Of course, no one likes paying taxes and it’s not unreasonable for people to oppose any increase. But right now, Republicans are essentially promising them pie-in-the-sky, while Democrats have done little to inject realism into the budgetary debate. So it’s no surprise that people overwhelmingly believe they can have their cake and eat it too. Polls consistently show that people believe that the budget can be balanced with spending cuts alone and that none of those spending cuts will affect them personally.

Until people are forced to confront reality, Republicans will continue to hold the strong hand. President Obama is the only Democrat in a position to talk directly to the American people and explain to them that there are trade-offs, that tax cuts have added substantially to our fiscal problems, and that the budget isn’t going to be balanced by cutting foreign aid and waste. ...

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