The Terrible Cost of Bush II’s Deficit

Popular Economics Weekly

It is now becoming evident just how much damage the GW Bush budget deficit has done to the U.S. In part from the tax cuts of 2001 and 2003, which sharply reduced taxes on income, capital gains, and corporations, two wars, and the Great Recession that began halfway through Bush's second term, the deficit now threatens not only our fiscal soundness, but status as the world's economic powerhouse.

It was VP Cheney who maintained that Reagan had said deficits don't matter, but President Reagan raised taxes 11 times during his tenure to save the budget, and economy, as his Budget Director David Stockman described so well in The Triumph of Politics. In other words, President Reagan didn't dare go as far as Dubya and VP Cheney in creating a deficit that siphoned off revenues to the wealthiest 1 percent and raised corporate profits to the highest in history as a percentage of GDP, while almost causing the disappearance of our middle class and endangering Medicare and social security.

So it shouldn't be a surprise that Republican Paul Ryan's 2013 budget proposal passed by the Republican House follows in GW Bush's footsteps. President Obama assailed it as "...a Trojan horse, disguised as deficit-reduction plans," said the president at an Associated Press luncheon in Washington on April 3. "It is thinly veiled social Darwinism."

Obama was referring to the fact that Ryan's plan doesn't really reduce deficits. Because it calls for $trillions in spending cuts without raising revenues, 62 percent of which would come from low-income programs, just as the Bush II budgets did. And both revenue increases and spending reductions are necessary to pay down the budget deficit. In fact, the new tax cuts at the top would dwarf those for middle-and lower-income families, says The Center for Budget and Policy Priorities, a non-partisan think tank. After-tax incomes would rise by 12.5 percent among millionaires, but just 1.9 percent for middle-income households. It's Bushonomics all over again.

What was most unconscionable about the Bush tax cuts was that they occurred during his first recession -- from March to November 2001, caused mostly by the dot-com bubble bust. In fact, he was starving the government of revenues at the same time that he was planning two wars, as has been revealed in several books by Ron Susskind, including The Price of Loyalty: George W. Bush, the White House, and the Education of Paul O'Neil.

Now we have a yawning federal deficit that continues to grow past $15 Trillion. Bush Treasury Secretary Paul O'Neill, who was fired by VP Cheney for advocating that the four Clinton years of budget surpluses be used to put social security and Medicare on a more secure footing, described the result of the debate that led to such a disastrous decision in The Price of Loyalty. It was return government to its 1900 size, the era of William McKinley and the Robber Barons, by reducing government spending enough "to shrink it down to the size where we can drown it in the bathtub", said Grover Norquist once famously, architect of the no tax increase pledge signed by more than 200 Republican legislators.

So we now know what makes up the current $15 trillion federal debt. Most of the deficit was created by the Bush tax cuts, war spending, and the second Great Recession that occurred under the Bush presidency -- from December 2007 to June 2009-- says the CBPP. It resulted in the most anemic recovery since WWII, with just 5 million jobs created, not even recovering from the 8 million jobs lost since 2000, and the median household income decline from $56,000 in 2000 to $52,000 in 2011 dollars, where it was in 1997, according to the New York Times and Moody's Analytics.

Graph: CBPP

That cost of the Bush II deficit is just now becoming evident, because of its growing size and the fact that budget matters are so arcane and hard to understand by the public and politicos alike. But all of the Bush tax cuts contributed to the deficit, because they weren't paid for. GW Bush wouldn't cut back spending to match the loss in revenues because he wanted to pay for his wars, so he borrowed the monies. Whereas during the Clinton era, legislators had agreed to pay-as-you-go rules, where spending cuts had to match tax cuts.

And the Great Recession has continued to grow the deficit. In fact, if just the Bush tax cuts were extended it would increase that deficit by $4.6 trillion over the next 10 years, says Andrew Fieldhouse and Ethan Pollock of the Economic Policy Institute, a labor think tank. That means we are now facing its terrible cost. Republicans have proven their ideology of starving the beast of government ends up starving the economy of growth, except for the 1 percent who are their supporters.

Harlan Green © 2012

2012 Election—The Propaganda Campaign Begins

Financial FAQs

Now that Mitt Romney seems to have sewed up the Republican delegates needed for his Presidential candidacy, the war for the Hearts and Minds of Americans begins in earnest. And we can trust that the Lee Atwater—Karl Rove propaganda machine that elected Ronald Reagan and the Bushes will be in full swing.

For starters, we heard Wisconsin Republican Paul Ryan congratulate Mitt Romney on his Wisconsin primary win with the assertion that Obama was the divider, not the uniter he had promised to be. And then ‘Mitt’ repeated his assertion that more jobs had been lost during Obama’s tenure that at any time since WWII.

This is classic Rovian tactics. Republicans since Lee Atwater—Rove’s mentor—have always attempted to project their own weaknesses on their opponents—to blame their opponents for their own shortfalls, in other words.

But it is the Republicans who are the classic dividers, of course, in attacking women, immigrant and minority rights with their culture wars. And Bush had the worst job creation record since WWII on his watch—just 5 million jobs created in his 8 years, plus a record deficit and the Great Recession, which caused the loss of a record 8 million jobs. Whereas 3.6 million jobs have been created in just Obama’s first 3+ years.

Graph: BLS

President Obama is already in full campaign attack mode, as he pointed out how extreme is Paul Ryan’s 2013 budget, “an attempt to impose a radical vision on our country. It is thinly veiled social Darwinism”….In fact, “broad-based prosperity has never trickled down from the success of a wealthy few,” he said.

So it strains credibility that Mitt Romney even has an economic platform to stand on. As we have pointed out in past blogs, Republicans have neither had a good growth or employment record for at least the past 30 years. Why? Because they have consistently taken the wrong side of the economic argument. They have always advocated for the ‘rentiers’, owners of wealth, rather than those that produce it as well as create the demand for those products—the employees, 80 percent of which are wage and salary earners. In so doing, Republicans have demonized all who would oppose their most-vested interests; including labor unions, public education, and even publicly-owned assets and activities that they assert are more efficiently run by private entities.

That just isn’t so, of course. Government regulated Medicare has just a 3 percent administrative overhead, whereas private health care providers have a 25 percent overhead, much of it spent on advertising to sell their products. The record of private armies isn’t better, as Blackwater, Kellogg, Brown and Root, mercenaries, et. al., spent $billions in Iraq that have never been accounted for. And privatized prisons are known for overcharging governments, as well as abusing their prisoners.

The worst Republican propaganda has been with federal debt, as they continue to advocate tax cuts, while asserting that Democrats are responsible for the soaring deficits. But this is again Rovian reasoning, as it was Presidents Reagan and GW Bush who created most of the current deficit with their ‘supply-side’ theory that lower taxes created more wealth for everyone. Well, it certainly helped the 1 percent, but has almost bankrupted the federal government, as the historical deficit chart shows.

Graph: Wikipedia

Public debt had come down to 40 percent of Gross Domestic Product by 1970s, and had almost paid off the remaining $1 trillion of WWII debt when Clinton left office in 2000 after 4 years of budget surpluses.

This is while Republicans even today insist in further lowering tax rates. Ryan’s 2013 budget has even upped the ante, with cuts to Medicare and other social programs to pay for the Republican tax cuts that continue to mostly flow to the wealthiest. The Republican recipe for reviving our economy won’t work, in other words.

Harlan Green © 2012