Republicans Keep Theories through Economic Wreckage

Tax-Cut Santa and the Millionaire

During the presidency of Ronald Reagan, Republicans latched onto three theories that allowed them to hand out tax cuts and pile up debt. One theory is “Starve the Beast“, which says to cut taxes now, so to bring on a budget crisis that would force cuts in social spending later. As one Republican consultant put it: “[W]e have to ‘starve the beast.’ Cutting their allowance is the only way to put politicians on a spending leash. And that means tax cuts, tax cuts and more tax cuts.”1 A second theory is “Voodoo Economics“, which says that tax cuts — especially for the rich and corporations — would heat the economy and actually boost tax revenue.2 When Ronald Reagan touted this policy in the 1980 presidential race, George H. W. Bush, his opponent in the Republican primary, argued against it — and coined the term: “[I]t just isn’t gonna work … this type of what I call a voodoo economic policy.”3 A third theory is the “Two Santa Claus Theory“, which tells Republicans to play the tax-cut Santa so to rival the Democratic social-spending Santa. The author of the theory, Jude Wanniski, wrote: “The political tension in the marketplace of ideas must be between tax reduction and spending increases, and as long as Republicans have insisted upon balanced budgets, their influence as a party has shriveled …”4 These three theories came to a boil with the presidency of George W. Bush, which pushed through big tax cuts for millionaires and big spending hikes for the military.5 Seven months into his term, when a report showed that the surplus left by President Bill Clinton was quickly dwindling, Bush called it “incredibly positive news.”6 Later, Vice President Dick Cheney hit the same note, saying: “Reagan proved deficits don’t matter.”7 After eight years of Bush — helped along by millionaires pumping their tax cut money into the Wall Street bubble, and the Bush regime borrowing gobs of money to waste on war — the economy crashed.8 Now, a year-and-a-half later, the country is still reeling from the Bush Crash — with one-in-five persons without full-time work, and cities and townships cutting teachers,firefighters and police.9 Democrats have addressed the emergency with short-term spending on infrastructure, education and safety services.10 While their work has cut the job loss rate, it has not been enough to bring down the jobs shortage rate — and the urgent need for more such spending persists. But so do the theories persist, as Republicans strive to kill further jobs spending, and keep the millionaires’ tax cuts.11


1 ‘Off center: the Republican revolution and the erosion of American democracy’ By Jacob S. Hacker, Paul Pierson, 2005, Yale University Press Quote by Chuck Muth

2 The Death of Supply-Side Economics’ – DLC, 2003-04-03

“Do tax cuts pay for themselves?” [“Wall Street Journal columnist Alan] Murray asks”: “That’s been the hot debate of American political economy for the better part of three decades. But it ended last week — with a whimper.” As Murray explains the CBO report, “The results: Some provisions of the president’s plan would speed up the economy; others would slow it down. … But in every case, the effects are relatively small. And in no case does Mr. Bush’s tax cut come close to paying for itself over the next 10 years.”

3 ‘Voodoo Economics’ NBC, 1980-04-10

4 ‘Starve the Beast – Origins and Development of a Budgetary Metaphor’ by Bruce Bartlett, The Independent Review, Summer 2007

5 ‘Tax Cuts Offer Most for Very Rich, Study Says’ By EDMUND L. ANDREWS, New York Times, January 8, 2007

Based on an exhaustive analysis of tax records and census data, the [CBO] study reinforced the sense that while Mr. Bush’s tax cuts reduced rates for people at every income level, they offered the biggest benefits by far to people at the very top — especially the top 1 percent of income earners.

Economists and tax analysts have long known that the biggest dollar value of Mr. Bush’s tax cuts goes to people at the very top income levels. One reason is that two of his signature measures, tax cuts on investment income and a steady reduction of estate taxes, overwhelmingly benefit the wealthiest households.

6 ‘President Asserts Shrunken Surplus May Curb Congress’ By DAVID E. SANGER, New York Times, August 25, 2001

7 ‘Dick Cheney on Budget & Economy’ –

O’Neill said he tried to warn Vice President Dick Cheney that growing budget deficits-expected to top $500 billion this fiscal year alone-posed a threat to the economy. Cheney cut him off. “You know, Paul, Reagan proved deficits don’t matter,” he said, according to excerpts. Cheney continued: “We won the midterms (congressional elections). This is our due.” A month later, Cheney told the Treasury secretary he was fired.

8 ‘Tax Day 2009 — Reversing the Great Tax Shift: Seven Steps to Finance Our Economic Recovery Fairly’ – Institute for Policy Studies, April 8, 2009

… Over these [last several decades], grand concentrations of private wealth have been the engines behind the high-risk, high-return speculation that fueled economic bubbles in technology, housing, and commodities. …

9 ‘290,000 New Jobs Added Last Month, Most In Four Years’ By SCOTT STODDARD, INVESTOR‘S BUSINESS DAILY 05/07/2010

The underemployment rate, including people who have given up looking for work and part-time workers who want to be full time, rose 0.2 point to 17.1%. That’s near October’s record high of 17.4%.

10 ‘New Consensus Sees Stimulus Package as Worthy Step’ By JACKIE CALMES and MICHAEL COOPER, New York Times, November 20, 2009

Now that unemployment has topped 10 percent, some liberal-leaning economists see confirmation of their warnings that the $787 billion stimulus package President Obama signed into law last February was way too small. The economy needs a second big infusion, they say.

No, some conservative-leaning economists counter, we were right: The package has been wasteful, ineffectual and even harmful to the extent that it adds to the nation’s debt and crowds out private-sector borrowing.

These long-running arguments have flared now that the White House and Congressional leaders are talking about a new “jobs bill.” But with roughly a quarter of the stimulus money out the door after nine months, the accumulation of hard data and real-life experience has allowed more dispassionate analysts to reach a consensus that the stimulus package, messy as it is, is working.

… Mr. Obama’s promise to “save or create” about 3.5 million jobs by the end of 2010 is roughly on track, though far more jobs are being saved than created, especially among states and cities using their money to avoid cutting teachers, police officers and other workers.

Among Democrats in the White House and Congress, “there was a considerable amount of hand-wringing that it was too small, and I sympathized with that argument,” said Mark Zandi, chief economist of Moody’s and an occasional adviser to lawmakers.

Even so, “the stimulus is doing what it was supposed to do — it is contributing to ending the recession,” he added, citing the economy’s third-quarter expansion by a 3.5 percent seasonally adjusted annual rate. “In my view, without the stimulus, G.D.P. would still be negative and unemployment would be firmly over 11 percent. …

That sort of impact is what makes federal aid to state governments rank high in economists’ reckoning of the stimulus value of various proposals. Every dollar of additional infrastructure spending means $1.57 in economic activity, according to Moody’s …

By contrast, most temporary tax cuts cost more than the stimulus they provide, according to research by Moody’s. …

11 ‘Could Bush Tax Cuts Survive?’ – All Things Considered, NPR, 2010-04-18

RAZ: Now, at the end of this year, the Bush era tax cuts expire, and before he left office, Mr. Bush urged Congress to make his tax structure permanent.

Now, Republicans say that at the very least, those tax cuts should be extended. But with a high deficit gap, Democrats say the richest Americans should get ready to pay more, starting next year.

RAZ: How long, in your view, should those Bush era tax breaks last?

Sen. GREGG: …[C]learly in the foreseeable horizon, raising rates is a really bad idea if you want to get this economy moving.

RAZ: That’s New Hampshire Senator Judd Gregg. He’s the ranking Republican on the Senate’s Budget Committee. …

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By Quinn Hungeski – Posted at

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