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Two Predictable and Avoidable Crises: The Death of Democracy and the Death of Our Planet

October 4, 2017

After reading Diane Ravitch’s post today describing Jennifer Bershire’s article about Betsy DeVos’ Machiavellian plans to undercut democracy I exhumed this 2003 article from the NYTimes magazine by Paul Krugman titled “The Tax Cut Con”. In the seven section article Dr. Krugman describes the history of the GOP’s tax cut strategies to that point and accurately foresaw where it was headed.

In the first section he recounted the 25 year crusade against taxes using the decision to fund the Iraq War off the books to emphasize his point:

I don’t use the word ”crusade” lightly. The advocates of tax cuts are relentless, even fanatical. An indication of the movement’s fervor — and of its political power — came during the Iraq war. War is expensive and is almost always accompanied by tax increases. But not in 2003. ‘‘Nothing is more important in the face of a war,” declared Tom DeLay, the House majority leader, ”than cutting taxes.” And sure enough, taxes were cut, not just in a time of war but also in the face of record budget deficits.

In the second section, he described the tax burden of the US in 2003 and noted that it was light compared to other Western countries… and also noted who benefitted the most from the tax code:

So here’s the picture: Americans pay low taxes by international standards. Most people’s taxes haven’t gone up in the past generation; the wealthy have had their taxes cut to levels not seen since before the New Deal. Even before the latest round of tax cuts, when compared with citizens of other advanced nations or compared with Americans a generation ago, we had nothing to complain about — and those with high incomes now have a lot to celebrate.

In the third section he described how the GOP persuaded the public their tax burden was too high, and outlines what he calls the “lucky ducky” argument:

Here’s how the argument runs: to starve the beast, you must not only deny funds to the government; you must make voters hate the government. There’s a danger that working-class families might see government as their friend: because their incomes are low, they don’t pay much in taxes, while they benefit from public spending. So in starving the beast, you must take care not to cut taxes on these ”lucky duckies.” (Yes, that’s what The Wall Street Journal called them in a famous editorial.) In fact, if possible, you must raise taxes on working-class Americans in order, as The Journal said, to get their ”blood boiling with tax rage.”

In the fourth section Mr. Krugman shows that the supply-side “trickle down” argument that underpinned the strategy failed to play out. Indeed, as Mr.Mr. Krugman explained, the opposite occurred! When President Clinton raised taxes on the rich the budget came into balance and the government functioned relatively well.

By the end of the 1990’s, in other words, supply-side economics had become something of a laughingstock, and the whole case for tax cuts as a route to economic growth was looking pretty shaky. But the tax-cut crusade was nonetheless, it turned out, poised for its biggest political victories yet. How did that happen?

The fifth section described how three years of flawed taxation ideas destroyed the balanced budgets President Clinton achieved, noting that in each of the three years a different basis was used to sell the tax cuts… each of which was flawed:

So what were the Bush tax cuts really about? The best answer seems to be that they were about securing a key part of the Republican base. Wealthy campaign contributors have a lot to gain from lower taxes, and since they aren’t very likely to depend on Medicare, Social Security or Medicaid, they won’t suffer if the beast gets starved. Equally important was the support of the party’s intelligentsia, nurtured by policy centers like Heritage and professionally committed to the tax-cut crusade. The original Bush tax-cut proposal was devised in late 1999 not to win votes in the national election but to fend off a primary challenge from the supply-sider Steve Forbes, the presumptive favorite of that part of the base.

And how was the public sold on the idea of tax cuts even though many would not benefit from them? Mr. Krugman’s short and blunt answer: “the tax cuts has depended heavily on chicanery“. His longer answer describes the chicanery and accounting sleights of hand in detail.

In the sixth section Mr. Krugman described how the Bush tax cuts would lead to a “planned crisis”. The gap between revenues and expenditures that resulted from the tax cuts when the “trickle down” failed to materialize would need to be closed by either rating taxes— which would be an admission of failure— or by cutting benefits. But, as Mr. Krugman notes, there WAS a third way! Borrowing.

For the time being, there is a third alternative: borrow the difference between what we insist on spending and what we’re willing to collect in taxes. That works as long as lenders believe that someday, somehow, we’re going to get our fiscal act together. But this can’t go on indefinitely. Eventually — I think within a decade, though not everyone agrees — the bond market will tell us that we have to make a choice.

In short, everything is going according to plan.

For the looming fiscal crisis doesn’t represent a defeat for the leaders of the tax-cut crusade or a miscalculation on their part. Some supporters of President Bush may have really believed that his tax cuts were consistent with his promises to protect Social Security and expand Medicare; some people may still believe that the wondrous supply-side effects of tax cuts will make the budget deficit disappear. But for starve-the-beast tax-cutters, the coming crunch is exactly what they had in mind.

In the concluding section, Mr. Krugman’s heading poses this question: “What Kind of Country?”

If Grover Norquist is right — and he has been right about a lot — the coming crisis will allow conservatives to move the nation a long way back toward the kind of limited government we had before Franklin Roosevelt. Lack of revenue, he says, will make it possible for conservative politicians — in the name of fiscal necessity — to dismantle immensely popular government programs that would otherwise have been untouchable.

In Norquist’s vision, America a couple of decades from now will be a place in which elderly people make up a disproportionate share of the poor, as they did before Social Security. It will also be a country in which even middle-class elderly Americans are, in many cases, unable to afford expensive medical procedures or prescription drugs and in which poor Americans generally go without even basic health care. And it may well be a place in which only those who can afford expensive private schools can give their children a decent education.

Just short of “a couple of decades” from 2003, Mr. Krugman’s prediction is coming true. While I am confident he would say that it gives him no joy to have been accurate, I also believe there is time for us to fix this problem.

In the comment I wrote on Diane Ravitch’s post I analogized Paul Krugman to James Hansen, who predicted the global warming crisis decades ago. I wrote:

Liberal economists like Mr. Krugman are like climate scientists like James Hansen: they tell the public what they don’t want to hear and give us lots of facts to support their message. It’s too bad for democracy that we are unwilling to pay the taxes that are required to keep our safety net intact… and too bad for the planet that we are unwilling to wean ourselves away from fossil fuel. MAYBE we have time to wake up and save both!

Here’s hoping we are going through an awakening now!



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