Clinton's America/How to Grow the Deficit
Roberts, Paul Craig
B ill Clinton is practicing a new brand of economics that has replaced both demand-side and supply-side economics. It is called blind-side economics. He wants to repeat a fifth time the tax-hike...
...The Reagan administration responded with a second deficit-reduction program...
...What Clinton seems to mean by "reversing the legacy of the last twelve years" is that he can run up the national debt higher by raising taxes than Reagan did by cutting them...
...Reagan cut tax rates and built up our defenses...
...A variant of this plan would be a shorter freeze followed by several years of holding the growth in spending below the normal growth in revenues...
...Federal spending increased only $13.6 billion instead of the $44 billion that it increased in 1986 and the $95 billion in 1985...
...Citizens Against Government Waste has found $167 billion in waste, fraud, and abuse in the annual federal budget...
...This time Stockman promised that the 1982 Tax Equity and Fiscal Responsibility Act (TEFRA), which took back most of the prior year's tax reduction for business, would reduce the deficit to...
...documented waste, fraud, and abuse...
...Other tax increases followed...
...1982 Stockman's estimate of the 1984 deficit had moved from $128 billion to $229 billion...
...The plan says it will add $916 billion to the national debt over the next four years—and that's if everything works as advertised...
...Once revenues catch up with spending, a simple rule will maintain budget health: Spending can grow every year, but by less than the revenues from the normal growth of the economy...
...taxpayers get very little in exchange for turning over to Washington income that the entire French nation—including the French government—could live on comfortably...
...None of this accumulated failure made any impression on Richard Darman when he occupied the Office of Management and Budget...
...Darman forecast massive deficits unless President Bush broke his "no new taxes" pledgeand signed on to a $165 billion tax hike...
...No doubt, any talk of a budget freeze would energize AARP, and the Social Security lobby would mindlessly flood the government with protests...
...The U.S...
...and declining defense expenditures...
...Instead, spending resumed, rising by $60 billion and absorbing that year's revenue growth...
...To put that figure in perspective, it is $183 billion more than Ronald Reagan's cumulative first-term deficit and $238 billion larger than his second-term deficit...
...But if $612 billion of tax increases has not reduced the deficit, Clinton's tax hike won't either...
...If Reagan had repeated this feat a second year, he would have rid his record of the deficit issue...
...Stockman got his way, and fiscal policy provided nothing to offset Federal Reserve chairman Paul Volcker's independent recessionary monetary policy during 198182...
...The federal budget is equal in size to the combined gross domestic products of Canada and Latin America...
...He wants to repeat a fifth time the tax-hike approach to deficit reduction that failed in 1981, 1982, 1984, and 1990...
...New York State's budget is larger than the GDP of oil-rich Venezuela...
...In 1933, for example, the real gross national product was 30 percent less than in 1929...
...Officials in the General Accounting Office estimate that $150 billion leaks out in waste, fraud, and mismanagement—a sum two to three times as large as the annual growth in Social Security, Medicare, and interest on the debt...
...By 1990, government spent 33.3 percent of GNP, leaving the private sector with only 66.7 percent—the proportion that was left to medieval serfs...
...A budget freeze is the only plausible approach to deficit reduction when we look at the results of the alternative of the past decade—higher taxes and higher deficits...
...Waste, fraud, 'and abuse is as large as the combined GDP of Colombia, Venezuela, Chile, and Peru...
...TEFRA was enacted to much fanfare, but by December Paul Craig Roberts, former assistant secretary of the treasury, is an economist at the Center for Strategic and International Studies and a nationally syndicated columnist...
...Stockman put the Reagan Revolution into tax hike high gear again with the Deficit Reduction Act of 1984 (DEFRA), which took back the remainder of the business tax cut and was supposed to raise $100 billion, but the deficit was unfazed...
...The deficit fell by a third—from $221 billion to $150 billion—in one year...
...It looks different from abroad...
...If the private sector can routinely endure declines in income, the government can go two or three years without a raise...
...The $59 billion deficit promised for 1987 had become $280 billion...
...Clinton is doing the opposite and still producing more red ink...
...The fivecent-a-gallon gasoline tax and the 1983 Social Security Amendments were supposed to raise $118 billion over a multiyear period—but the deficit persisted...
...If this growth is projected into the future, a three-year freeze would knock $192 billion off the annual deficit, which would more or less solve the problem...
...From 1985 to 1989, federal tax revenue growth averaged $64 billion annually...
...There has to be another way, and there is: either a budget freeze or a milder policy of permitting federal spending to grow by less than the annual increase in revenues that economic growth produces...
...They will have to pay these Clinton energy taxes a second time every time they buy groceries or any products, since everything is produced with energy...
...It is larger than the national income (wages, profits, rents, interests, and pensions) of every industrial country except Japan...
...This budget rule would also stop...
...If the elderly were responsibly represented, AARP would lobby to have the COLAs paid out of waste, fraud, and mismanagement...
...T hree factors make a spending freeze practical: the vast room for maneuver within a $1.5 trillion budget...
...The economy fell into recession, and the deficit estimate for 1984 jumped from $0 to $128 billion...
...Any moderate Republican or Business Roundtable executive who favors Clinton's budget plan should step back and look at the facts...
...If the budget of the U.S...
...The $25,000-if-single and $32,000-if-married retirement income thresholds for Social Security taxation are not indexed, and it is only a matter of time before most Social Security benefits will be taxed...
...It doesn't have to be this way...
...These aren't daunting questions: in 1987 Reagan did, for all practical purposes, freeze the budget...
...In 1929, government at all levels spent 9.9 percent of GNP...
...In 1974 and 1975 the real GDP was less than in 1973, in 1980 it was less than in 1979, and in 1982 it was less than in 1981...
...New York City's budget is approaching $30 billion—as large as the GDP of Chile...
...California's budget is equal in size to the national income of Argentina...
...The difference would be used to pay down the national debt...
...There were several other tax hikes along the way...
...Many Americans lack a perspective on federal government spending, believing that the government, like them, is pinched for funds...
...government were a country, it would be the third or fourth largest economy in the world...
...H ere it is 1993, and Clinton projects $300-billion deficits for these years unless he gets his tax increase...
...A brief history of previous efforts to reduce deficits with taxes will document the counter-productivity of the approach...
...the growth of government rela- tive to the private- economy that has been gradually crowding out property rights and the market...
...In 1981, David Stockman convinced President Reagan that scaling back personal income tax rate reductions from 30 percent to 25 percent and delaying their implementation until the second half of his term would permit a balanced budget in 1984...
...During the Depression things were much worse for much longer...
...A fter the burst in government spending under Bush, the taxpayers' budgets have no room for the cockeyed Clintonites who want bigger government...
...There is a lot of blather about the impossibility of freezing the budget: "What about entitlements and interest on the debt...
...a mere $59 billion by 1987...
...The budget freeze would also spare the elderly the higher taxes on heating, cooling, ventilating, and lighting their homes, cooking their food, and running their refrigerators and cars...
...Californians certainly do not receive services from the state equivalent in value to the national income of Argentina, and U.S...
...Failing this, AARP could still explain to Social Security recipients that they are better off doing without COLAs temporarily than having 85 percent of their Social Security benefits permanently subject to income tax—which is what Clinton is proposing...
...New Yorkers do not receive equivalent services in exchange for delivering the value of the Chilean economy to the mayor's office...
...Do you plan to cut Social Security, Medicare, and to default on the debt...
...As a result, most of that year's $85 billion revenue growth went to deficit reduction...
...Bush gave in, and an ecstatic Darman made his budget deal with congressional Democrats...
...His budget for FY 1992 (issued early in 1991) projected a balanced budget in 1995 and $20-billion surplus in 1996...
...government spends every year more than the entire population of Great Britain or Italy can produce...
...During recessions, the private sector gets by with less income than it had the year before...
...Even our state and city budgets are gigantic...
Vol. 26 • May 1993 • No. 5
