The Supply-Side Swindle

Roundup
tags: deficits, national debt, supply side economics



Brent Cebul is an assistant professor of history at the University of North Carolina, Charlotte where he teaches and writes about political history, urban history, and the histories of inequality and business. Follow him on Twitter here.

... George H.W. Bush, of course, famously called supply side “voodoo economics.” Even the Wall Street Journal’s conservative editorial page worried about the new generation of Republicans who “have deemphasized . . . traditional fiscal conservatism in favor of a radical tax-cutting scheme.” Deficits were still the third rail for “traditional” conservatives like Bush and the Journal’s editors. For his part, President Reagan’s ideologically charged budget director David Stockman expressed “faith” that the supply side theory would be borne out. But he also conceded that when it came to the budget and future tax revenues, “None of us really understands what's going on with all these numbers."

What Stockman and conservative economists were confident about was that regardless of whether the tax cuts stimulated the economy (they didn’t), the short-term deficits they created would stimulate a political climate favorable for Republicans. They did.
As Stockman explained, the goal was primarily a “political question, not of budget policy or economic policy, but whether we change the habits of the political system.” Bruce Bartlett, a key strategist behind the Kemp-Roth tax bill, later elaborated that “a conservative government might intentionally increase the national debt through tax cuts in order to bind the hands of a subsequent liberal government.” Gingrich was characteristically blunter: conservative policies should be designed to create a “governing strategy” to “fund our friends, not [our] enemies.”

In practice, this would essentially amount to Republicans creating massive deficits, and then cowing Democrats into accepting “fiscally responsible” cuts to social programs, to say nothing of creating new ones. Sure enough, in the 1980s, programs benefitting the poor suffered staggering cuts. The Reagan administration slashed $35.2 billion from the federal budget, 60 percent of which came from antipoverty programs. 400,000 Americans lost welfare benefits and another 279,000 saw them reduced. One million Americans lots access to food stamps. Given the support congressional Democrats gave to these cuts, supply-side was working, as Stockman predicted, to change the habits of the political system.

Fast forward to the George W. Bush administration’s tax cuts, signed into law in June 2001. The politics created by the ensuing massive deficits (and the explosion of debt required to fund the government in the war that followed) played a decisive role in limiting Democrats’ response to the financial crisis of 2008. The Obama stimulus plan that ultimately passed Congress was the anemic creature of a conservative political climate engineered by supply-side tax cuts.

It is tempting to simplify this strategy by invoking another conservative turn of phrase: “starve the beast.” But the long-term political impacts of these deficits run much deeper than do the short-term cuts to government programs. Political scientists call these downstream effects “policy feedbacks,” and, as Harvard’s Theda Skocpol has argued, conservatives are “simply light-years ahead of the left in thinking about the interplay of policy and politics” – that is, the ways in which policy choices can create a favorable political environment. As Skocpol predicted in January 2017, Republicans would move quickly to “get rid of the taxes on business and the wealthy that have paid for Obamacare’s remarkable expansion of health insurance.” “Ostensibly,” she continues,full cessation of insurance benefits will be delayed to give the GOP time to devise “replacements” — the GOP is using the “replacement” language as a delaying and deflecting tactic. But as GOP strategists surely realize, there will be no future revenues to pay for adequate replacements, because conservative groups will go all out to support GOP politicians who promise not to raise taxes. Later, when Obamacare benefits are slated to fully disappear, conservatives will pit halfway restorations against funding for traditional Medicaid and Medicare, trying to force Democrats into choosing which kinds of health insurance to protect....

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