by Randolph T. Holhut
Chief of AR Correspondents
July 21, 2011
HOW WE GOT TO THE ABYSS: A BRIEF ECONOMIC HISTORY OF THE LAST DECADE
DUMMERSTON, Vt. -- It's hard for many Americans to remember that when George W. Bush became President in 2001, he was inheriting from President Bill Clinton one of the strongest federal balance sheets since the end of World War II.
How good? The federal budget was running a surplus, and finances were in decent enough shape to deal with the coming retirement of the baby boom generation.
The federal debt stood at about 30 percent of GDP and was falling, and the dire predictions that were heard in the mid-1990s of a looming federal bankruptcy were no longer valid. The Congressional Budget Office (CBO) projected that the federal government would be debt free by 2009.
Strong economic growth in the late 1990s and increased tax revenues were responsible for much of this. And even though the boom of the late 1990s was at an end by the time Mr. Bush took office, there was little reason to doubt the CBO's prediction.
But President Bush and the Republicans made a choice. Rather than build on the success of the Clinton Administration's economic policies, they handed out huge tax cuts that mostly benefited the wealthy at the expense of everyone else. Instead of being debt-free, the nation's debt-to-GDP ratio is now almost 70 percent, not the 50 percent it would have been had those tax reductions never happened.
This back story is important, because in the ongoing battle over cutting the federal budget and raising the federal debt ceiling, it has to be remembered that, up to now, there has never been a vote to raise that ceiling that has been tied to spending cuts.
In fact, the debt ceiling was raised seven times during the Bush years, 18 times when Ronald Reagan was President, four times each during the Administrations of President George H.W. Bush and Bill Clinton, and three previous times by President Obama.
Yes, ithe Administration of George W. Bush, the debt limit was raised six times with little debate, and mostly to pay for tax cuts and the wars in Iraq and Afghanistan - the two things that the CBO says account for much of the increase of the federal debt over the past decade.
For example, one of the first acts of the Bush Administration in January 2001 was to ask for a $500 billion increase in the debt ceiling. That first increase covered the first installment of the Bush tax cuts in June 2001, which cost the U.S. Treasury an estimated $1.3 trillion in lost revenue over the last decade.
In 2003, another request was made to raise the debt ceiling, this time by $984 billion. That money covered both a second round of tax cuts and the cost of implementing the Medicare Part D prescription drug benefit - and it was passed on the same night Mr. Bush gave his fat cat friends the biggest of his tax cuts, some $350 billion worth - calling it an "economic stimulus."
To review, a Republican-controlled Congress approved raising the debt ceiling seven times during the Bush Administration, while at the same time cutting taxes on the wealthy and corporations. That same Congress refused to raise taxes to pay for two wars, a move unprecedented in U.S. history. Finally, when the worst economic downturn since the 1930s hit, it again refused to ask more from the people who benefitted the most from the Bush tax cuts.
Also worth reviewing is this fact: 52 percent of every tax dollar goes to military spending, while Social Security and Medicare - both targeted for massive cuts - are entirely funded by separate payroll taxes, and not only have not contributed a single dollar to the federal deficit, but have been routinely borrowed from by the government over the last four decades to help finance the military spending binges.
Why is there such Republican resistance to tax increases? Because Grover Norquist and his anti-tax, anti-government group Americans for Tax Reform (ATF) have demanded such a stance. All but seven House Republicans and seven Senate Republicans have signed Norquist's pledge to never vote to increase taxes. The penalty for breaking this pledge is the threat of ATF and its political allies using its money and muscle to ensure that violators will be voted out of office.
The answer to the next question - Why are the Republicans now so adamant against raising the debt ceiling? - is obvious. There's a Democrat in the White House, and the Republicans in Congress don't want to give President Obama any help in getting re-elected, even if it means destroying the global economy in the process.
Strip away the posturing and hypocrisy surrounding the debt ceiling and deficit-reduction talks, and it is easy to see a simple solution to the problem. According to the CBO, it is for Congress to do nothing.
According to a CBO report it released last month, if all the Bush Administration tax cuts are merely allowed to expire next year, as called for under current law, revenues would steadily increase and the debt-to-GDP ratio would fall to a manageable level - just under 60 percent by the end of this decade. If those tax cuts continue, the debt-to-GDP ratio rises to nearly 100 percent.
Ten years after the enactment of the first round of the Bush tax cuts, we are still feeling the effects. In terms of the overall economy, they were an utter failure. In terms of transferring wealth to the already wealthy, they were a stunning success.
But more specifically, we lost a decade where we could have better positioned the country to ride out any fiscal storms that came our way. The country can't afford to make that mistake again, but the Obama Administration and the Republicans in Congress aren't listening to the American people.
Poll after poll shows that a majority of the American people want to see cuts in military spending, rather than cuts in Social Security, Medicare and Medicaid, or education. They want to see the wealthy and corporations pay their fair share in taxes. They want to see something done to ease the economic pain that working Americans are still feeling in the aftermath of the 2007-2009 economic collapse.
If the President and Congressional Democrats had any gumption, they would adopt the stance recently suggested by U.S. Rep. Barney Frank, D-Mass., the ranking member of the House Financial Services Committee: declare that Social Security, Medicare, education, and programs to protect the poor are all off limits in any budget discussions, and in its place call for an immediate 25 percent cut in military spending.
Instead, they see Republicans pledging to never raise taxes and never increase spending (at least for social services; the military still gets a pass). And they see Democrats refusing to fight for average Americans and campaigning on the platform of "we're not as bad as they are."
This is not a recipe for moving the country forward in a positive direction. It is a recipe for chaos and disaster.
AR Chief Correspondent Randolph T. Holhut has been a journalist in New England for more than 30 years. He edited "The George Seldes Reader" (Barricade Books). He can be reached at email@example.com.