The Bush Tax Cuts are No Worse than the Reagan Tax Cuts?
by Guest Blogger, 8/22/2003
There seems to be a common misperception that while things are pretty bad, the country survived the Reagan tax cuts, and the Bush tax cuts aren’t that much worse. All that progressives need to do is continue working against any more tax cuts and advocating for adequate appropriations funding, and we'll get through it. This complacency is misplaced and dangerous. The tax cuts, the fiscal condition of the federal government and the states, and the politics are very different. Conservatives have been working on a long-term agenda of shrinking government by reducing revenue. Movement conservative Grover Norquist wants to cut spending on federal programs in half within the next generation; in his words: "kill the taxes and you kill the government."
Given the conservative agenda, we think it is vital for the public interest nonprofit community to sit up and take notice before any more hard-won ground is lost. We can no longer just defend against tax and spending cuts. To actually move forward, attention needs to be given to what a more progressive agenda would consist of and the development of a long-term strategy. It is time for the public interest community to present a positive vision for the future of the country.
Over the next six to 12 months OMB Watch will begin a process for assessing whether a proactive campaign can be put together -- and what it might look like. We will be circulating a survey in late September or early October to gauge the viewpoints of groups around the country. In the meantime, if you are interested in helping either develop or distribute the survey, let Ellen Taylor at OMB Watch know (email@example.com).
Some Key Differences Between Today and Reagan Era
- Make-up of Congress. During the Reagan tax cuts, the Senate was Republican controlled, but Democrats were strong in the House -- at one time by a 100-seat margin. Currently, Republicans control the House and have a slim majority in the Senate. President Bush has gotten two major tax cut bills passed during his three years in office: the costliest in June 2001 has a ten-year price tag of $1.35 trillion and the May 2003 "growth package" has a $350 billion cost. The actual costs are even higher. A tax cut a year is a real possibility if conservatives have their way.
- Pending Baby-boom Retirement. When the Reagan tax cuts passed, we were a long way from the retirement of the baby boom generation and resultant huge drain on Social Security and Medicare. The first wave of baby boomers will become eligible for retirement benefits under Social Security in 2008; they will become eligible for Medicare in 2011. This administration has done nothing to prepare for the increasing demands on Social Security and Medicare. Rather, budget deficits are forecast for years to come, entailing an increasing national debt and higher interest payments. Yes, it took years to dig out from under the Reagan deficits, but they were years when Social Security was running a surplus and was not facing huge demands. Also, Reagan even slightly increased the Social Security tax rates. This administration has done nothing to prepare; instead we are in worse shape than ever.
- Entitlement Spending. Currently, just seven programs make up about 75 percent of all federal spending: Social Security, Medicare, Medicaid, military pensions, civil service pensions, defense, and interest on the debt. When the Reagan tax cuts passed, the drain on the country's resources for the provision of health care was not as large. Now, the retirement of the baby boom generation, increasing life spans, and changes in health care technology mean that increases in spending on Social Security, Medicare and Medicaid will far outstrip the rate of growth of the economy. That huge percentage is expected to rise even more as the aging population pushes up the costs of Social Security, Medicare, and Medicaid. Given the post-9/11 environment, defense spending and homeland security costs are also expected to rise. And, of course, the national debt will increase with each year's budget deficit. At the same time federal government revenue has dropped to 16.4 percent of Gross Domestic Product -- the lowest since 1959. There will simply be no revenue to support everything else that government does, including all the discretionary programs, from schools to fire departments, from drug counseling programs to museums, from environmental protections to build up of energy infrastructure, from housing programs to child nutrition efforts.
- A Tax Cut a Year. The Bush tax cuts are part of an ideologically driven conservative effort to reduce government by decimating the revenue that supports government. This is a sustained, methodical, long-term, well-funded, organized multi-level effort to cut taxes. By contrast, the 1981 Reagan tax cuts were accomplished after the assassination attempt on Reagan, through the Omnibus Budget Reconciliation Act (OBRA), discretely pushed through by Office of Management and Budget Director David Stockman. Recognizing that the 1981 tax cut was excessive, the Reagan administration scaled back the cuts through "revenue enhancers," i.e., tax increases, in the Tax Equity and Fiscal Responsibility Act of 1982. Nothing like that is happening now. There has been no Bush administration support for scaling back the tax cuts, like keeping some of the cuts from phasing in. Rather, the administration effort revolves around passing new tax cuts and making the tax cuts that are scheduled to "sunset" permanent.
- Tax Cut Gimmicks. The 1981 Reagan tax cut was permanent (although modified by the "revenue enhancers" the next year) and the costs were not hidden by the gimmick of "sunsets," such as the budget windows designed to disguise the actual cost, or the failure to include inevitable extensions of existing tax cuts or fixing the Alternative Minimum Tax. The Bush tax cuts use a variety of such gimmicks, which gives the impression that the cost is smaller than it really is. Given that the intent is to make the cuts permanent, it is important to assess the full costs of the Bush tax cuts, which begin to explode in the later years.
- State Fiscal Crisis. The states are facing their worst fiscal crisis since World War II. Even Republican governors are talking about raising taxes. The Medicaid burden on the states is the second largest state expenditure next to education. The combination of Medicaid growth and lower-than-projected revenue has created a situation where Medicaid costs are eating up state budgets, leaving nothing for other priorities. Any economic stimulus that might come from the federal tax cuts is being offset by state needs to raise taxes or cut programs.
- Sharply Deteriorating Federal Budget. The budget situation under the Bush administration has deteriorated at an unprecedented rate. Deficits are projected to reach a record $455 billion for 2003. Over a decade, the change from the projected surpluses Bush inherited to the deficits he now expects is roughly $9 trillion. The "actual" deficit -- which is calculated by removing the Social Security and other trust funds since these are dedicated funds -- is the second highest deficit since 1946, with the highest coming during the Reagan administration in 1983 when there was a public cry to reduce the deficit. The 2003 deficit is projected to be 5.7 percent of the Gross Domestic Product; in 1983 it was 6 percent.