A Deficit of Responsibilty and Honesty

I consider myself a strong fiscal conservative. However, I do not believe that Republicans are fiscal conservatives, and haven't been since 1976. Republicans are believers in supply-side economics, which is a philosophy that should be utterly discredited by now. The fact that it already hasn't been, in the face of a very clear history, should tell you everything you need to know about the conservatism, intelligence and honesty of the GOP.

Supply-side economics has been attempted three times in the last half-century. The first time was the 1962-'64 tax cuts proposed by Presidents Kennedy and Johnson and were opposed by congressional Republicans. The second time was the 1981 Kemp-Roth tax cut signed into law by President Reagan. Third were the 2001-2003 Bush tax cuts.

All three spurred the economic growth and federal revenue to one extent or another. All three also occurred at the same time as rapid growth in federal spending, particularly in military spending. In two of the cases, 1962-'64 and 2001-'03, the United States was fighting wars and massively increasing discretionary program spending. In none of the cases did the increased economic growth or tax revenue match the explosions in spending and increasingly large budget deficits resulted.

Fifty years of experience has shown supply-side economics to have a 100% failure rate. The fact is that you simply cannot cut spending in a way that makes large tax cuts work in a democracy for the simple reason is that spending is the surest and simplest way to get reelected. At this point, suggesting that supply-side theory can create anything other than debt is an exercise in trying the same thing over and over and expecting a different result. Psychiatry has a term that defines that nicely.

The United Kingdom's new prime minister, David Cameron, is someone that I would describe as a true fiscal conservative. He understands the crippling force of debt and the harm that it ultimately causes society at every level. Moreover, he's taking the steps necessary to confront it. There's nothing empty or rhetorical about what he's proposing, unlike the flaccid and dishonest GOP on the other side of the pond.

Cameron's plan is far more radical than anything Margaret Thatcher would ever dreamed of proposing, but so are the economic problems that he's facing. Most of Britain's government departments - including defense - will be cut between 20-40% over the next five years and taxes are going to go up rather significantly.

Let's for a moment compare this to the biggest economic debate in the United States, the extension of the Bush tax cuts. Notably, the question isn't whether to extend them, but to whom. Neither the Democrats or the Republicans are thinking of doing anything silly, like actually pay for them, but both want to extend them. And that's going to cost a fortune.

Obama Democrats want to extend the cuts to everyone making less than $250,000 at a cost of $3 trillion over the next ten years. The GOP wants to extend them to everyone and make them permanent, if at all possible, at a cost of $3.7 trillion over the next decade.

To put that in perspective, if you combine the 2008 TARP program and the 2009 stimulus plan that Republicans can't stop harping about, you wind up with about $1.7 trillion after rounding the numbers up - considerably less than half the cost of the GOP tax cut proposal. If you add the total costs thus far of the wars in Afghanistan and Iraq, you still come in under $3.7 trillion. Throw in the projected costs of ObamaCare, and only then do you break $4 trillion.

Long story short, $3.7 trillion dollars is an awful lot of money.

Keep those numbers in mind as we explore the almost incandescent dishonesty of Indiana representative and House Republican Conference Chairman Mike Pence on Meet the Press this past Sunday. It'll be enlightening, I promise.

MR. GREGORY: OK. All right, Congressman Pence, you can...

REP. VAN HOLLEN: That just does not make sense.

MR. GREGORY: ...you can take on the substance of that. But first, answer this question about the time, maybe, because this is where the news is, should the House take this up before the midterm vote?

REP. PENCE: David, there is no question that there should be no higher priority for the Congress of the United States today than making sure that no American sees a tax increase in January of 2011, not one. I, I, I have to tell you, this, for all the world, seems like a moment where Congress is putting politics ahead of prosperity. You know, it--what, what they're proposing here, even a--even if they found some way to just extend middle class tax relief, would be an enormous tax increase in January on job creators in this country. You know, higher taxes won't get people hired. Raising taxes on job creators won't create jobs, and the American people know that.

But let me say one last thing. I, I...

REP. VAN HOLLEN: David...

REP. PENCE: ...I think it would be unconscionable for this Congress to adjourn without giving the bipartisan majority in the Congress that wants to extend all current tax relief an up or down vote.

MR. GREGORY: All right. But let me ask you this because this is a key question

REP. VAN HOLLEN: David--wait, David.

MR. GREGORY: Yeah, hold on, Congressman, I'll get right back to you. But I want to ask this key question. In this Pledge to America that...

REP. PENCE: Right.

MR. GREGORY: ...that we'll talk about in, in greater detail in just a moment, is this commitment to bringing down the deficit.

REP. PENCE: Right.

MR. GREGORY: As well as extending the tax cuts. How do you answer the charge from Democrats, from the president as well, that you don't have a way to pay for extending the tax cuts, and yet you're committed to deficit reduction?

REP. PENCE: Well, look, in the Pledge to America, which I look forward to chatting about, we say, look, we've got to do something to get this economy moving again. We give real and meaningful proposals to begin the process of reining in runaway federal spending by both political parties...

MR. GREGORY: But, but how do you pay for the tax cuts is the question.

REP. PENCE: ...and reforming the government.

Look, job one needs to be to create jobs. The American people know the last thing you want to do in the worst economy in 25 years is raise taxes on small business owners and family farmers. We have to vote before Congress adjourns for the political season, the fall elections, on an up or down vote. More than 30 Democrats support extending all the current tax relief. And, and we're calling on Speaker Pelosi and leaders like Chris, give us an up or down vote, let the Congress work its will and give the American people certainty...

REP. VAN HOLLEN: Dave...

MR. GREGORY: Congressman Van Hollen, go ahead.

REP. PENCE: ...that there will be no tax increase.

The fact is that the GOP doesn't have any "real and meaningful proposals to begin the process of reining in runaway federal spending by both political parties." They intend to extend tax cuts that will cost nearly $4 trillion dollars over ten years without having any way to pay for them while increasing defense spending.

What they actually propose to do is cut "non-defense discretionary spending", which is roughly 17% of the budget. They are very deliberately not saying anything about cuts to Social Security, Medicare, Medicaid and defense. Even if you completely eliminated the 17% of the budget that Pence is promising to cut, which no one is suggesting will happen, the United States will still be behind the eight ball because of the Bush tax cuts, increased military spending, the ongoing wars in Iraq and Afghanistan and the exploding interest costs on the existing debt.

The only "certainty" in the Republican and Democratic plans is that the deficits will get wider and the debt will grow until interest on the debt costs more than the Pentagon, at which point American foreign policy as we currently know it is finished.

REP. PENCE: If the current tax relief was enough to get this economy moving again, the economy would be moving and it's not. What, what Chris and the Democrats in Congress and the administration continue to insist on is a tax increase in January of 2011. But I want to stipulate to the point. That's why Republicans, in the Pledge to America, called for a 20 percent business deduction on all business income immediately, to be voted on in this Congress. We think there needs to be more pro-growth tax relief to get the economy moving again. But, for heaven sakes, let's not raise taxes on job creators.

MR. GREGORY: All right, but let me ask you a bigger question about tax cuts or tax hikes. You say in the Pledge to America that you want to bring spending down to 2008 levels, which you well know is not enough to really seriously tackle the deficit, even if you bring it back to 2008. So the question for you, and I'll ask Congressman Van Hollen, how can you rule out tax hikes as we move forward if you want to get serious about tackling the deficit?

REP. PENCE: Well, look, I, I--number one, I think you rule out tax increases because our problem isn't that the American people are taxed too little, our problem is that Washington spends too much. In the Pledge to America we call for cutting discretionary spending to pre-stimulus, pre-bailout levels, cutting the amount of funding allocated to Congress, freezing all pay on nonsecurity federal employees, ending federal control of Fannie Mae and Freddie Mac, ending TARP. That'd save a trillion dollars over 10 years alone. And, you know, reducing discretionary spending back to those 2008 levels, that would be--I mean, that would save $100 billion this year.

MR. GREGORY: That's fine, but that doesn't...

REP. PENCE: We, we can get there through fiscal discipline and reform.

MR. GREGORY: ...that really doesn't tackle the deficit completely.

That might be the most ridculous thing I've ever heard. Pence is lying, stupid or both.

The American people obviously aren't being taxed enough, as evidenced by the deficit. Congress, over the last fifty years - including under Saint Ronald of Reagan, who raised taxes almost as much as he cut them - raised less revenue that it spent. And God, did it know how to spend. And the American people, in their infinite self-interested ignorance, kept reelecting the people who spent more than anyone had.

Freezing spending at 2008 levels - which was horrible enough - still only puts you back at Bush's deficit levels and doesn't do anything to address the existing debt, which will continue to grow because of interest. As long as deficits are still in place, you don't reduce the debt or even bring down your interest costs in any real way. Period.

Deficits, particularly deficits of this size, aren't just spending-related. They're far more indicative of a revenue problem, especially when no one is serious about cutting spending revenue below Bush levels. It ignores entirely that the United States has been consistently in deficit since 1961.

I understand that a tax increase - which letting the Bush tax cuts expire isn't because their expiration was written into them, due to the fact that Bush couldn't otherwise pass them through a Republican Senate - isn't good for job creation. I also understand that this isn't a good time to do it, with the economy so delicate. But it may be the only time.

Letting the tax cuts expire might very well be enough to push the economy into recession. But the GOP would oppose it even if things were grand and everyone was farting through silk. They'd say that it would cause a recession, anyway.

There's some precedent for wounding the economy in order to save it. In 1982 President Reagan gave Paul Volker political cover to cause a deep and very deliberate recession by hiking interest rates in a very weak economy. That was done to finally break inflation, which was accomplished beyond anyone's expectations. But it did hurt a lot of people for a protracted period and was politically unpopular beyond words as it happened.

Righting America's fiscal house might actually be more important than a double-dip recession and continued or increased joblessness. That's certainly not true politically, but its imperative for the future fiscal and foreign policy health of the United States. I can't be the only one to notice that China has become increasingly aggressive in its trade and military policies in recent weeks, can I?

Here are the facts about tax cuts. President Bush and Nancy Pelosi sent out $150 billion in "refunds" in early 2008. A third of President Obama's stimulus - roughly $300 billion - was tax cuts. People like Representative Pence will be the first to tell you that nearly half a trillion dollars in tax relief did virtually nothing for the economy. And the idea that decade-old tax cuts are going to stimulate anything is too silly to even be considered a plausible lie. It's a mirage.

Here's the fact about spending. There isn't enough of it to cut in discretionary areas to make a significant difference. No serious person is suggesting that there is. Even Paul Ryan's roadmap, as drastic as it sounds, only proposes reforms that will take twenty or more years to see any savings from.

This is primarily a revenue problem. There is now a full five decades of history that proves it, and no one is seriously suggesting otherwise with any degree of honesty. And fixing that is going to suck for everybody, regardless of when you do it. The only problem is that it becomes politically impossible to do it when and if the economy fully recovers.

David Cameron is right and the Americans - Democrats, Republicans, Tea Partiers and the voters alike - are selfish, stupid, self-destructive and delusional. They'll wait until it's too late, by which time things will have spiraled so far out of control that nothing will work.

In the not-too distant future, you'll be seeing bumper stickers that say "America: A Nice Place While It Lasted." Take that to the bank, assuming that there are any left.