Why Do Republicans Think Deficit Spending is Preferable To Increasing Taxes?

Well, that’s not entirely true. Since these are fixed-term bonds we’re talking about if we merely balanced the budget (honestly) and stopped issuing them we’d pay them off in 30 years.

It’s not quite that easy. Bush is trying to push through a “tax cut” bill that’s really just taking a tax-cut that’s already been approved, and making it happen sooner (yeah, and the dividend thing), and it’s still getting strong resistence from the Usual Suspects. I’ll be surprised if it gets through as currently proposed. The Republicans don’t have supreme control of the land, or anything, they just have a (slim) majority in both houses. It may be easier to get the items on their agenda passed, but it’s by no means a sure thing.

Jeff

Tell that to Reagan and his out-spend-the-Russians plan, which was what made the debt so bad in the first place.
:frowning:

A war fought with money is certainly less destructive than one fought with nukes, no?

While I agree with Scylla with this:

I do wonder why Democrats have the “tax and spend” reputation as irresponsible spenders. I also wonder why the “tax cut and spend” Republicans espouse a smaller federal government, but never deliver one. I wonder why, during the boom years of the late 90s, the Republicans never suggested a tax increase (well, not really, but it fits the quote above).

Even during the boom years, whenever the Democrats proposed funding a new program, the common retort from the Republicans was, “how are you going to pay for it?”. When the Democrats offer the same challenge to Dubya, the answer is to just add it to the deficit (a response that no Republican would let a Democrat get by with, without noting the “tax and spend” mentality of irresponsible spending).

In recent memory, neither party has advocated (broad) tax increases. The Republicans have simply supported larger tax cuts than the Democrats.

Do the facts support the irresponsible spending reputation of the Democrats, or the “smaller federal government” mantra of the Republicans?

Decide for yourself.

OMB, Federal Budget, Historical Tables, Tables 1.2 and 7.1 (pdf)
(as a percentage of GDP)




Year/Administration     Fed Debt      Fed Budget Outlays
1960                     56.0%             17.8%
Kennedy 61-63
1962                     53.3%             18.8%
Johnson 63-69
1968                     42.5%             20.5%
Nixon 69-74 
1973                     35.6%             18.8%
Ford 74-77 
1976                     36.2%             21.4%
Carter 77-81
1980                     33.3%             21.6%
Reagan 81-89 
1988                     51.9%             21.2%
Bush I 89-93
1992                     64.4%             22.2%
Clinton 93-01
2000                     57.9%             18.4%
Bush II 01-?
2004                     64.9%             19.7% (projected)
(or)
2008                     68.3%             19.7% (projected)


And FYI, since Ike, the only federal budget surpluses have been FY 1969 and 1998 through 2001.

Is either reputation fair?

—As has been mentioned before, a very strong reason to run deficits in a situation like this is to reign in government spending.—

I simply don’t buy this argument: it seems like nothing more than a desperate attempt to avoid looking like hypocrites now that the shoe is on the other foot. This is like the argument alcoholics use: if only I drink as much as possible today, maybe I’ll be too poor or sick to drink as much tommorow! Strange, however, how Republicans were never this enthusiastic when the Democrats deficit spent: they never said “wow, that’s a great way to control future spending: I’m (secretly) all for it!”

You even undermine this line of thought when you end with “Assuming Congress doesn’t have a massive spending orgy at that time,” But that’s giving away the whole point of the game!

When considering the amount of money the government takes out of the economy, in the long run, tax rates at any particular time are utterly irrelevant (though not irrelevant for welfare losses, which is separate issue having mostly to do with the type of taxes used). Spending is what matters.

Deficits and deficit spending are not, however, the big horror they are portrayed as (last week it was the Republicans who thought the idea was morally reprobate, next week I’m sure the Democracts will be back to thinking its good, sound policy).

You can’t think of the government borrowing as if it was just you taking out a loan from a bank. Nor can you think of it like a company running a decifit or a surplus. The government is different because it ultimately draws all its “on-book” revenue directly from its “shareholders.” That means that when the government borrows money (sell bonds, etc) what it is doing at the exact same time is implicitly making an loan to taxpayers: a loan in taxes NOT assessed.

So while a surplus in a private company is very good, it’s not necessarily so in a government. Any government can run a surplus simply by increasing taxes drastically. Any government can run a deficit by slashing taxes drastically. So what?

bayonet1976, ummm, what MilTan said. Well, almost.

The “neither of which has taken place yet” is kind of a strange argument with economics, since everything you do in economics takes place “later”. It’s just that much of a now kinda science. Since we were talking defecit, I was assuming Annual. Actions taken now will have little effect on today’s or this week’s economics, and even on an annual sense, actions taken now have more impact on future annual results than this years. Add to that how congress works, and, well you get the picture.

The debate currently on the Hill should surely should include dividend tax cuts and war. As well as the debate here.

I agree with 90% of what you said up there, Apos. My only quibble is that I never said that this was the main motivation of most republicans (although I have seen a few of them mention it), only that it wasn’t necessarily a bad idea. I agree wholeheartedly that deficits are not the bogeyman they’re made out to be, and theoretically at least, we could run up the debt forever and be just hunky-dory.

I think you really spell out the whole point of my post when you say that spending is what matters. I will add as a corollary that any congress will tend to spend every penny it can. The only way to control their spending is to not give them too much in the first place. Of course, as the 90’s showed, even that only works to a certain extent. You run down the taxes, the economy booms, and suddenly the government has more money than it knows what to do with. (I note that the only periods when the US has run a surplus has been during periods of tremendous prosperity - ie, there was so much tax revenue congress literally couldn’t spend it fast enough.)

Honestly, it would be nice if the congress were to balance the budget, such that the government spent every penny it got, and not a smidgen more, but I don’t see that happening soon, unless by accident (as during the 90’s), and even then not for long. Sadly, politicians don’t get re-elected by being fiscally responsible - they get re-elected by funding lots of nice, happy projects. Oink, oink.
Jeff

Economics 101

At times when the economy needs stimulous in terms of Government spending, it is by definition not doing very well. A result of this is that tax receipts are lower. Hence, that stimulous necessarily entails deficit spending.

At times when the economy is doing very well receipts are up, and a reduced or eliminated deficit does not necessarily equate with government fiscal prudence.

Mmm…really?

The democrat party controlled the House from the 1940s until 1994. The House is where ALL federal spending must originate. During that time, they ran the national debt up to several trillion dollars.

I agree with Scylla pretty much on this. I don’t think that some deficit spending now when the economy is in the tank is a bad thing from a stimulus perspective…And is also somewhat inevitable given the drop in receipts associated with the recession.

The problem is the way in which the Bush Administration is going about it:

Rather than using tax cuts to stimulate the economy, they are using tax cuts to lower taxes far into the future…and mainly on the upper classes. This means that we are looking not just at temporary deficits but deficits far into the future. We looked at this before and even the optimistic figures from the Administration don’t have revenues from personal income taxes in real terms exceeding those revenues in 2000 until the last year they project…which is 2008 and even that is just barely and, as I said, is likely optimistic. Such a dip in revenues for so long a period of time is unprecedented. [The last time we had dips was under Reagan when it took til 1987 to exceed the revenues in 1981 and in the early 90s when it took til 1994 to exceed the revenues in 1990.]

(For those worried about big government, note by the way, that even once revenues are back up to their 2000 levels in real terms, they will be still be lower as a share of the GDP.)

So, I would have to say that I don’t agree with the idea that deficits are horrible and we can’t be running them in times of recession. However, I think we have to ask what we are getting for them in terms of tax cuts and spending…i.e., are we giving the tax cuts to those who most need it and / or those who will do the most to stimulate the economy and are we spending in ways that will invest in the future? Also, do we have a good plan to be more fiscally responsible once the recession is over? On all those counts, the Administration’s plans fare badly.

Running a deficit is no different than taking a loan. If you need to make a large investment, whether in infrastructure or in securing the safety of your nation (please lets not argue that here) and you do not have the cash, you borrow. You don’t want to hamstring the source of future earnings needed to pay back that loan by raising taxes at the time of the loan. There really isn’t a political argument here, only an economic one, that is, unless you don’t consider the war an investment in safety.

**

It clearly depends on what state the economy is in at the time those tax cuts take effect. The effects may be far worse than you imagine, or they may be negligible.

I agree that future tax cuts do little for current stimulous.

Always good and reasonable questions for any proposal of this nature.

You were doing pretty well before this blanket statement of opinion. Take the proposed dividend tax cut. I think it’s smart for a variety of reasons.

  1. Double taxation of the same money is intrinsicaly unfair, and the money does often get double taxed without any value added.

  2. At least a part of our economic woes are tied to the execrable performance of the stock market, the excesses of which were engendered by speculation. Regardless of your economic school of thought or politics, it’s hard to deny that the wealth effect isn’t being felt at these extreme levels. People are more comfortable spending when they feel they’re doing well. An incentive to own stocks for tax-free dividends is a much needed boost to the market, and by extension the economy.

  3. An emphasis on the value of dividends over speculative gains makes stocks more bondlike and hence easier to value realistically through tools like the dividend discount model, making them less prone to wild speculative fluctuations. A dividend payment is a cash payment and can’t be faked like the phantom earnings we’ve seen from the likes of Enron. It should produce a saner more sustainable stock market.

  4. The cut in divident taxes will serve to lure money away from the bond markets which are at extremely speculative and dangerous highs. Interest rate or inflation fluctuations that negatively impacted the bond market causing further losses and panics in ouf financial markets would be a crippling blow to our economy. There’s just not much room for error with the 10 year T at 3 and change.

Simpleton aproach for me.

I want to buy a house. I can either save money forever in order to pay cash for the place, or deficit spend and get a mortage.

The house is only $100,000. By the time I raise the cash, the value could be up to $200,000, and I still have to pay rent for the crap apartment I live in until I have my house.

OTOH, I can go into debt, buy the house, live in it, and pay off the mortgage. When it’s finally paid off, when I retire, I live for free and enjoy my pension to pay my bills.

I can enjoy my life in my house now, instead of always saving for the time I can then enjoy living in my house.

Yep, let’s raise taxes. Cut the public wealth-building now to pay for it all upfront. Or, we can deficit spend, at the same time wealth-building continues, and as we pay off the debt, it’s done with the increased wealth of the of the counhtry.

Your call.

You are comparing making war with buying a house? A house is an investment, that will appreciate in value over the long term. A war is a gamble at best; maybe you win and the world is a better place. But maybe it doesn’t go as planned, and your economy is ruined, terrorism at home increases and you are drawn into a wider Mid East war that could tip into nuclear holocaust. I would liken it to going on a bender in Las Vegas and putting it all on plastic. War is not the proper use of deficit spending.

Granted. Therefore, deficit spending can be an indication of an economy in need (especially if it occurs during the “smaller federal government” Republican administration), and reduced or eliminated deficits may indicate a strong economy (and especially if it occurs during a “tax and spend” Democratic administration).

Both may reflect fiscal prudence and responsibility. But if a correlation exists between increasing/decreasing deficits and the party controlling the White House, the same correlation will exist with a weak vs. strong economy.

I don’t suppose you’d stipulate causation. :smiley:

I’ll ask again - are the reputations warranted?

IIRC Bob Dole’s main campaign theme in 1996 was cutting taxes. And IIRC in 96 the US economy was rolling right along.

Do you think that war is never a proper use of deficit spending or just this one? If so, your argument is political, not economic.