REAGANOMICS REDUX IN THE TIME OF TRUMP
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The arithmetic is fairly straightforward: Deficits increase under Republican presidents through increased military spending and tax cuts mainly for the rich; and deficits decline under Democratic presidents through tax increases and reduced military spending. Military spending under all three Republican presidents increased due to wars: Reagan (Cold War), GHW Bush (1stGulf War), GW Bush (Afghanistan and Iraq). The only budget surpluses were experienced during the last 4 Clinton budget years due to his income and gas tax increases and reductions in military spending (the “Peace Dividend” associated with the end of the Cold War). There are exceptions on the margin:
Reagan cut income taxes for the rich but increased FICA taxes mainly affecting working-class Americans, in effect, shifting the burden to the latter.
GHW Bush raised the top income tax rate from 28% to 31%, increased military spending for the first Gulf War
Clinton raised the top income tax rate from 31% to almost 40% and raised gasoline taxes
Gingrich forced Clinton to cut taxes on investment gains and dividends late in his presidency.
Obama takes a lot of heat for increasing the national debt more than any other president. However, he inherited the Great Recession and a $1.4 trillion deficit resulting from G.W. Bush’s disastrous policies forcing the implementation of nearly $800 billion in emergency spending. Obama trimmed the deficit by nearly 2/3, and pulled out of Iraq.
Like G.W. Bush, Trump is repeating the Reagan formula: Cut taxes for the rich and boost military spending producing monster deficits as far as the eye can see. (Chart below.)
Unhappy with these projected deficits, Republicans want to trim Social Security, Medicare and Medicaid – the only programs fully funded for by earmarked (FICA) taxes paid by the ultimate recipients. The net effect is to shift income and wealth to the very rich (who happen to be mainly Republican donors) while cutting holes in the social safety net for the middle class and the poor. By no stretch of the imagination do Republican “Supply-side” tax cuts “pay for themselves.”
The outcome of what is essentially Reaganomics (low taxes on the rich and high military spending) for the past 37 years is this:
THE RICH GET STUPENDOUSLY RICHER, THE POOR REMAIN POOR AND THE MIDDLE CLASS MARKS TIME.
The middle class fills the gap between stagnant incomes and growing aspirations for consumption with debt
Such debt is obligingly furnished by the rich, who, having gathered up virtually all the fruits of economic growth (lightly taxed) have plenty to lend
The recycling of the surpluses of the wealthy into stocks, and, through banks, into mortgages produces bubbles in the stock and housing markets
Eventually, through rising interest rates and the sheer volume of consumption-related debt, the weight of debt overcomes everyday Americans, producing “cascading defaults” resulting in financial panic, crashing stock and housing prices and severe economic contraction with attendant rise in unemployment, immiserating everyday Americans and burdening future generations with debt.
Trump is repeating the Reagan formula, cutting taxes for rich donors (and himself) and increasing military spending (also for the benefit of donors) thereby setting up U.S. for a replay of the Panic of 2008 and Great Recession or worse.
And there you have it in a nutshell.
How long will it take for the electorate to figure out this Republican travesty and vote for candidates who will raise taxes on the rich, stop fighting pointless, unwinnable wars, cut military spending and sustain Social Security, Medicare and Medicaid?