Why the GOP Can't Balance the Budget—and Why they Don't Care

tags: Republican Party, budgets, Economic Policy, Reaganomics, Budget Deficit

Monica Prasad is professor of sociology and faculty fellow at the Institute for Policy Research at Northwestern University. She is the author of Starving the Beast: Ronald Reagan and theTax Cut Revolution.

House Republicans are struggling to produce any budget plan, let alone one that balances the budget within 10 years as they originally promised. House Budget Committee Chair Jodey Arrington (R-Tex.) admits that a balanced budget is now “aspirational.”

It’s a stark cry from the GOP that was once the champion of balanced budgets. What changed?

First, Presidents Ronald Reagan and George W. Bush turned Republicans into the party of tax cuts, and now former president Donald Trump has transformed them into one that won’t touch Social Security and Medicare either. That makes balancing the budget exceedingly difficult — if not practically impossible.

The story starts with Reagan. In his first seven months in office, the 40th president pushed through the largest tax cut in American history, coupled with major spending cuts — an achievement so novel it earned its own name, “Reaganomics.” Reagan had promised that cutting the size of the state would usher in an economic boom. But Reaganomics started coming apart almost as soon as the ink was dry. Just weeks after Reagan signed both pieces of legislation, markets lurched, house and car sales hit historic lows, and the deficit rose instead of falling.

What Reagan did next explains the difference between his era and ours. His team quickly started working on, and eventually signed into legislation, the largest tax increase in American history.

Reagan’s attempts to close the deficit show the constraints he was operating under in 1982. First, members of Congress in both parties worried about how bond markets would react to the deficit, which was hitting new highs. Bond traders thought that big deficits meant government would compete with private investors for financing. Second, poll after poll reminded Reagan and congressional Republicans that the public hated deficits, and might punish elected officials for them in the 1982 midterm elections. And most importantly, Reagan’s own party believed in balanced budgets. He came under intense pressure from people like Senate Finance Committee Chairman Bob Dole (R-Kan.) to do something about the numbers. So he backpedaled furiously and tried to close the deficit with a big tax increase.


But history throws us surprises. Reagan became the pioneer of the Republican era of tax cuts not because his tax cut was an economic success, but precisely because it failed and created a deficit — and then nothing disastrous happened. In fact, far from crippling the economy or hurting Republicans, Reagan’s deficits burst all of the constraints that had forced him to raise taxes in 1982. Bond traders’ fears never came to fruition because over the course of the 1980s, global investors — especially from Japan — began to pile their savings into America, effectively freeing the United States from worries that government deficits would crowd out private investment.

Read entire article at Made By History at the Washington Post

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