The Lies Didn't Start with Trump, Part 4

Republicans are economic arsonists, lying so they can shower trillions on the rich.

As someone who spent much of my career reporting on money matters, I’ve long been astonished when listening to Republicans discuss taxes, deficits and debt. Their words all sound like they were mined out of a college economics textbook, but when strung together, they amount to little more than incoherent flapdoodle. For years, I wondered whether the GOP is really that ignorant of basic economics, or if they are just willing to upend the American economy for their own interests. In 2017, I stopped wondering. Their abominable, obscene tax cuts that year were the worst example of economic arson in modern times, a flimflam sold with knowing lies. These people weren’t stupid; they are just willing to burn the country to the ground so long as their efforts shove trillions of dollars to their rich friends.

Start with one fact: Never in the human history has any country with massive debt adopted a huge tax cut when the economy was booming. In fact, it’s the time to raise taxes: Because everything is going well, paying down the debt should be goal number one. But when taxes are cut, debt piles up even more. (The idea that tax cuts pay for themselves is the most audacious lie of all, as I’ll explain further down below.)

No matter what snake oil the GOP is selling, they cannot suspend the business cycle. Booms are followed by busts, good times by recessions. It is a historical fact, one with an economic basis I’m not going to bother explaining here. (If you don’t believe it, you need to read a book, stop watching Fox News, or both.) So, when taxes are cut in the boom times in a country with high debt, the lean times - when cuts in taxes and increases in spending can help the economy recover - will be horrific.

When Republicans explode deficit spending in a strong economy, it is like spraying a fire extinguisher around the house when nothing is ablaze. Then, when the economic house is on fire, the extinguisher isn’t there to be used. Of course, we can refill the metaphorical extinguisher at great cost by piling bad times debt on top of the good times debt. And that just hands down more financial obligations to our children and grandchildren, all because greedy sociopaths want a twelfth car or a ninth house. But they never forget to kickback some of the largesse as campaign contributions to Republicans who stuff the wealthy’s throats with endless piles of cash.

The Republican lies about tax cuts, spending, deficits and debt have been playing out for forty years. Let’s examine them all:

I. The history of tax cut lies

The most important lie. Should taxes be cut? Of course. Should taxes be raised? Of course. Should interest rates be raised or lowered? Of course. And I am not contradicting myself. As I make clear above, each of these answers is correct depending on the economic circumstances at the time.

• The Reagan tax cut mythology, part 1: Reagan’s tax cuts did not trigger an economic boom. In 1981, Reagan was correct that taxes needed to be cut; the American economy was facing an unprecedented beast called “stagflation” – inflation (normally associated with a runaway economy) and high unemployment (normally associated with low inflation.) The Federal Reserve, under chairman Paul Volker, needed to squelch inflation with a huge increase in interest rates, and did so (to see the horrors of this interest rate path, take a look at the historic rates for 20 year an 1 year Treasury bonds. One month before Reagan took office, the Prime Rate hit is all-time high of 21.5 percent. With the cost of money at the highest rates in history, economic activity had slowed to a near crawl. Outside of monetary policy, the other lever available to the government was fiscal; attempting to get more money in the hands of Americans — any Americans – was important to prevent the economy from falling off a cliff. Now, in the fantasy retelling of the Reagan years blathered out by modern Republicans with no knowledge or concern about economic history, the Reagan tax cuts passed in 1981, and the economy transformed into paradise. But that story is fiction. Instead, the tax cuts of 1981 went through – with carnival barkers like Arthur Laffer proclaiming that economic growth would rush in before the ink on the law was dry – and then precisely nothing happened. By 1982, the economy was in such bad shape that the GOP talking point was not “Reagan the magnificent,” it was the plea (a principled one) that Americans should “stay the course,’’ despite the fact that there had been no evidence of growth. In fact, the economy had grown significantly worse – beginning the first full quarter Reagan was in office through the 1982 election, the growth in Gross Domestic Product was negative 8.9 percent. (By way of comparison, for the comparable period in Obama’s term, GDP growth was positive 15 percent.) A few months after the 1982 election – in February 1983 – the Fed had finally cut the Prime Rate below 11 percent, less than half of what it was when Reagan took office. (PS – presidents don’t have any role in raising and lowering interest rates.) And, surprise! Economic growth returned. With the cost of money significantly cheaper, corporations and consumers unleashed a flurry of economic activity – by the end of the first half of 1983, GDP growth had reached positive 5.1 percent. By the 1984 elections. GDP had grown by just under 34 percent since January 1983.  Now, did tax cuts help? Sure – they lessened the damaging impact of high interest rates and, when the economy turned around, they helped increase the amount of cash available for economic activity. But if interest rates hadn’t have fallen? Reagan would have been a one-term president and shuffled offstage by the GOP forever.

• The Reagan tax cut mythology, part 2: One of the most revealing moments in the entire modern tax-cut debate occurred during Leslie Stahl’s interview of Eric Cantor, the House Majority Leader, on 60 Minutes. Actually, revealing isn’t the right word – terrifying is. Here was a man whose knowledge was critical in how this country would move forward, and he was woefully lacking. At one point, Stahl points out, despite Cantor’s protestations that Reagan never compromised, that Reagan in fact did raise taxes multiple times, with the biggest being in 1982 (before economic activity took off.) Cantor’s people were outraged by Stahl’s truthful recounting of history – outraged! ­– because it contradicted their Fairy Tales version of the Reagan years. “That just isn’t true,’’ one of Cantor’s aides yelled from off-camera, “And I don’t want to let that stand.” Cantor did nothing to correct his loudmouthed – and wrong – aide. In 1981, Reagan signed the Economic Recovery Tax Act – the tax cut law that GOPers slobber over to this day. The following year, in the bit of history excised from the Republican mind, Reagan signed the Tax Equity and Fiscal Responsibility Act (TEFRA). While Americans still received tax cuts when aggregated with the prior year’s law, TEFRA constituted the largest tax increase in American history at that time. Why did Reagan do it? Because he wasn’t, contrary to some GOP revisionists, a blind ideologue. After the adoption of the 1981 tax cuts, government analyses showed that the impact on four-year average impact on federal revenues would negative 2.89 percent of GDP. (Remember the whole supply side scam, that tax cuts pay for themselves? Well, they don’t.) After TEFRA, the four-year average was positive 0.98 percent. You see, it seems that when you increase tax, tax revenues go up. Funny, that. But, because the tax cuts were cumulative negative, deficits went up. The first time in American history when deficits exceeded $100 billion was in 1982. The deficits stayed above that number until 1998, during the Clinton Administration. The first surplus came in 1999. (For those who don’t remember economic history under Clinton, he raised taxes in 1993, and – surprise again – higher tax rates increased federal revenue and allowed the government to reduce the amount of publicly held debt outstanding. Funny, that.)

• Reagan tax cut mythology part 3: At a meeting in the Oval Office, Obama commented on the fact that tax rates are lower now than they were under Reagan. After the meeting, Rep. Michelle Bachmann – one of the dangerous Republicans whose certainty to knowledge ratio might well be the first to exceed 100 percent – scoffed that Obama was fibbing. Of course, as the mantra goes, we have been pillories with higher taxes in the years after Reagan. But no – Obama was right. The total Average Federal Tax Rate for all income quintiles was between 21 and 22 percent in the Reagan years. When Obama took office, it was 17 percent. If the Democrats introduced the “Ronald Reagan Tax and Fairness Act” (I made the name up) calling for a return to the tax rates under Reagan, we would be talking about a 23 percent tax increase. Tax rates are at historic lows, which is why it is perfectly reasonable, in the face of massive federal debts, to raise them.

• Laughing at the Laffer Curve: This has lasted for decades since Reagan, and I have touched on it above. But now let’s really delve into the most destructive mythology.  In my opinion, Arthur Laffer has done far more damage to the future of America than Osama bin Laden. Here’s why: Laffer came up with his little device called “the Laffer Curve” which stated that tax revenues increased and then decreased once you moved up the rate scale from 0 percent to 100 percent. While there are some technical arguments about why the last number actually isn’t correct, theoretically, Laffer is correct. So, by his logic, there is a point where cutting taxes increases federal revenues. For now, I’ll accept that as true. But there is one huge problem with that argument: the Laffer Curve has no numbers! In other words, assuming Laffer is right, there is a point somewhere on the scale where tax rates bring in the highest amount of government revenues. And where is that number? Nowhere close to where it is now. The empirical analyses conducted by people who are less polemical than Laffer have come up with 68 percent, 70 percent and 35 percent. Whichever number you choose, they are all higher than the current rate of taxation. You see, what Republicans ignore is that it is the Laffer Curve, not the Laffer rising vector. There is some point – even if you want to assume that Laffer is right – where tax cuts decrease the amount of federal revenue. Since 1981, there has been a direct correlation between tax cuts and increases in the deficit. In other words, empirically, the tax rate was below the peal of the Laffer curve before cuts even started. Supply siders will bitch and moan at those numbers, but they are fact, not fantasy. Deficits went up under Reagan, down under Clinton and up (dramatically) under W. To argue that tax cuts pay for themselves is about as logical as saying Jesus rode dinosaurs – it is a statement made to justify a desired outcome, and not something based on any truth.

II. The “Lucky Duckies” who Pay No Taxes.

The Wall Street Journal once wrote an editorial bemoaning the luck of the impoverished, since they don’t pay federal income taxes. At first, I thought it was a joke, and now it is a GOP talking point. In fact, Senator Rick Scott (Cadaver-FL) made it part of the party’s 2022 platform that the struggling who pay no federal income taxes should get hit with an increase. And who can forget Sen. Mitt Romney’s proclamation that he thought would remain secret, when he lamented that 47% of Americans pay no taxes. “My job is is not to worry about those people,” he told his monied puppetmasters. “I’ll never convince them that they should take personal responsibility and care for their lives." This whining about a system that tortures the poor, suffering uberwealthy who are paying so, so much while others are getting a free ride is, as you might imagine, utter bull. .

• You’re make massive income? You pay more federal income taxes. You make smaller amounts of income? You don’t. It’s that simple. Americans who are in the top 20 percent of income earners pay about 70 percent of federal taxes – but guess what? They also pull in about 60 percent of total pre-tax income, according to the Congressional Budget Office. In other words, they pay more in absolute dollars in income taxes because they have more income. The argument is akin to complaining that people living in mansions pay the majority of a town’s real estate taxes, while people renting apartments pay nothing. It’s both illogical and knowingly misleading. Now, when Romney said 47% of Americans pay no federal income taxes, he was right. The reason: they don’t make enough money. The income for twenty three percent of Americans is so low that, once they apply the personal deduction (which is taken by all taxpayers), their tax obligation goes to zero. This group includes the poor, the elderly, students, etc. The only way to bring in more cash from them, if it was possible, would be to cut the personal exemption (which the GOP would never do, because that would affect everyone) or dramatically increase taxes on low-income Americans. The other 23 percent who don’t pay taxes have enough income to pay after the personal exemption, but qualify for tax breaks that bring their bill to zero.

• Ever notice, when whining about the rich paying taxes, Republicans always only cite statistics from federal income taxes? GOPers moan that everyone should pay taxes by picking and choosing what they want to call a tax. Federal income taxes, in their lexicon, are the only ones that exist, ignoring payroll, state and local taxes. When actual tax burden – rather than bits and pieces of tax burden – are assessed, the bottom 20 percent of income earners pay 17 percent of the total tax bite, versus an effective rate of 30 percent for top earners. And guess what? Those numbers result in all the share of total taxes paid roughly matching the share of total income for each of the income groups. You will never see Republicans advocate lifting the income ceiling on payroll taxes that finance Social Security, Medicare and Medicaid, because that means they will be hit with the same percentage impact on incomes that the middle class and poor face.

III. All Praise the Job Creators!

The “Job Creators.” Lord, this lie is disgusting. It has no basis in logic or statistics. Remember here, we are talking about personal income taxes, not tax cuts for small businesses. (Large corporations never need tax cuts, because they all already know how to dodge their obligations and pay nothing.) Think about it: A millionaire gets a $340,000 tax cut. And this translates into a job how? Maybe he’ll hire another housekeeper, maybe buy some more from Tiffany’s, but the vast majority of that money will not be spent on goods that drive the economy – it will be put into savings. Usually, that can be a good thing, but in a stagnant economy, the people whose financial activity creates jobs are the middle class. Give a middle class family $10 during a rough economy, they spend it. And that is how an economy gets moving. What we need is more tax cuts for the middle class, not tax cuts for the wealthy. (And, again, you have to look at actual numbers. The Bush tax cuts went into place in 2002: employment remained fairly stagnant until the financial crisis of 2008, when unemployment skyrocketed. Well, the Trump tax cuts must have worked, right? Nope. The rich got richer, and the middle class got fired. Under Trump, the economy lost 2.9 million jobs. The unemployment rate increased by 1.6 percentage points to 6.3%. Meanwhile, the “job creators” in corporate America were showered in cash. After-tax corporate profits went up, and the stock market set new records. The S&P 500 index rose 67.8%, fueled in a good amount by companies buying back their own stock rather than investing in their future with jobs. And remember, the wealthy who received tax cuts were pouring that money into investments, pushing up stock prices and giving them even more wealth from the change in their tax obligations. Remember: Stock ownership is concentrated among the top wage earners. About 92% of those in the top 10% of income owned stock in 2019 compared to 56% of the middle class. And when it comes to wealth, not incomer, 94% of those whose net worth placed them in the top 10% owned stocks in 2019. Of families whose net worth was in the bottom 25%, 21% owned stock in some form.

IV. The GOP is not the party of tax cuts, just tax cuts for the rich.

I was horrified by something I saw in Obama’s first State of the Union in 2010, when he mentioned that the stimulus had given the middle class the greatest tax cut in history. It’s true – it did. This was not something I figured would be controversial. The Democrats jumped out of their seats and applauded. The Republicans did nothing – no applause, nothing. That was the moment that really put me on a path of contempt for a party I had once considered worthy of respect: they didn’t care about tax cuts, only about tax cuts for the rich. I had long considered that something of a canard, but from what I witnessed, I no longer had any doubt that Republican economic philosophy had nothing to do with economics (which was why so much of it was illogical) but instead was about one thing: their constituents wanted money. That’s it. The Laffer Curve, the fictionalization of the Reagan years, job creators, lucky duckies – all of that was no accident. It was a means of obfuscating the truth so that the middle class would sit by as the wealthy looted the federal treasury. And my realization was only reinforced in the years that followed: As always, GOPers ranted and raved about the need for tax cuts for “job creators” but when the time came for a renewal of a payroll tax cut – which helped the middle class enormously but did almost nothing for the rich – the party fought it. When Obama proposed allowing the Bush tax cuts for the middle class to be renewed, the GOP refused, instead taking the proposal hostage in an attempt to force through tax cuts for the rich.

V. The GOP piles on the debt, then blames Democrats.

When George W. Bush assumed the presidency, the budget was in surplus and the projections showed that the government would be able to pay down much of its debt within the next six years. Then, came the Bush tax cuts. Beginning in 2002, the Federal government fell into deficit again – and hasn’t recovered since. The deficit is the annual contribution to the total debt owed by the federal government, and that number began climbing in 2002 in ways that are unprecedented in the history of the world. In 2002, the year that the first Bush budget was effective, the total outstanding debt of the United States was $6.2 trillion. It had barely budged in size from the previous year. By the end of the final Bush budget, the total outstanding debt had almost doubled, to $11.9 trillion. In the first two years of Obama budgets, the debt climbed to $13.6 trillion. But why? GOPers like to blame the stimulus – contrary to all available evidence. The stimulus did add an amount – extremely small as a percentage – in the short term. But Obama continued to have to work with the Bush tax cuts and the wars in Afghanistan and Iraq. The Bush tax cuts and the wars have been the single largest factor in the continued growth of the debt by far – both under Bush and under Obama. If the Bush tax cuts had been allowed to expire at the end of 2012, the Congressional Budget Office projected that future deficits would be cut in half. There is no way to accomplish that amount of cutback on the deficit by simply going after expenditures. The numbers are simply impossible – there is no money there. Non-defense discretionary spending – areas like foreign aid, education and food safety that GOPers attack as being some huge driving force of deficits – account for only 15 percent of the budget. In other words everything the government does that isn’t military or Medicare only would provide $560 million if cut in its entirety. And the deficit would still be $800 billion – an unsustainable amount. But Trump was the king of debt: Despite his campaign lies that he had a plan to eliminate the national debt in eight years, he instead raised it more than any other president in history, all in just four years: A mammoth 36% increase from $19.9 trillion at the beginning of his term and reach an all-time high of $27 trillion in October 2020.

VI. The GOP’s debt ceiling blackmail.

The debt ceiling is nothing more than the legal limit on borrowing allowed for the federal government. Both houses of Congress have to approve the limit and have done so repeatedly since 1917. Usually, raising the debt ceiling was a perfunctory matter – it had been done 74 times since 1962. That is, until The GOP realized they could threaten the very survival of the American economy to strangle the policies of Democratic presidents.

• The stakes: American debt has been considered the safest investment globally for decades. Whenever international financial markets are rocked, investors take a flight to safety by buying American debt. Treasury bonds are part of untold thousands of investment strategies, used as a means of diminishing the risk profile of a portfolio. All of this works solely because of international faith that America would never default on its debt. But once the economic illiterates known as the Tea Partiers came into office in 2010, their hopes, wishes and assertions became the other side of an economic debate about facts, figures and reality, a problem that has existed until this day. Oh, investors wouldn’t care about America not paying its obligated interest on the debt, Republicans lied, as the actual investors who owned the debt squealed about the impact of such a delay being disastrous. The Tea Partiers who now make up much of MAGA seemed to believe that the holders of American debt were little old ladies in Idaho, picking out breadcrumbs from their tea cozies while waiting for the next check from the government. And that ain’t reality. The vast majority of American debt is held by sophisticated international investors who, as I said, use Treasuries as part of a complex portfolio of investments. If the cash doesn’t arrive as planned, the investment strategy dies. If people trading Treasury bills know that there is a default, the value of those Treasuries would crash through the floor.

• The Extortion: If you’re young, you might not remember this, but hold onto your hats. If the GOP takes the House in 2022, it’s coming again. In 2011, the GOP launched its first “Let’s default on Our Debt” blackmail: Unless Obama agreed to cuts in expenditures - while allowing for the Bush tax cuts that were supposed to expire to be renewed - the GOP was willing to flush America down the toilet. It was history’s most irresponsible and reckless act on the part of any political party. The real possibility was raised that America would, for the first time since its founding, default on its debt obligations to the world. The result? America’s credit rating was reduced. Standard & Poor’s Ratings Services words on announcing that cut were instructive: “The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.” Another problem, S&P declared, was that the GOP no longer considered the economic health of the United States, and was singularly dedicated to the tax cuts to the wealthy. “Our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues.” Following that downgrade, the Dow Jones Industrial Average had one of its worst days in history and fell 635 points. Obama, seemingly unsure how insane the GOP had become, pretty much caved to the blackmailers demands. Emboldened, the extortionists put the gun to America’s head again in 2013, threatening to let the country default unless Obama agreed to defund Obamacare, his signature accomplishment that had successfully decreased the percent of America’s uninsured. Once again, the credit rating agencies freaked out: For the first time ever, America was placed under a "Rating watch negative" because of the voluntarily produced crisis. Obama stuck to his guns this time, and the GOP backed down without winning much of what it wanted. From 2017 through 2020, raising the debt ceiling was a blasé affair, with Republicans and Democrats coming together, singing kumbaya as they raised the debt ceiling under Trump. But then, Biden won, and suddenly debt ceiling increases were monstrosities. In 2021, the GOP refused once again to vote for a debt ceiling increase, raging and screaming about debt, and demanding that the Democrats raise the limit all by themselves.

• As is obvious from the above, the GOP’s opinion of debt ceiling increase depends solely on whether Republican or Democrat is in office, even though the conservatives are the ones who traditionally need to have it raised most often. Reagan raised the debt ceiling 18 times and Bush II raised them 7 times – tax cuts have to be paid for with borrowings, after all. Put another way, Reagan raised the debt limit every five months, Bush every 13 months, and Obama - who came in to office at the moment of the 2008 collapse - raised it every 15 months. (Clinton was every 24 months.) Trump, who had only four years in office during a booming economy, raised the limit every 16 months. In each of the Trump limit increases, Democrats sided with Republicans. The party did that even though the growth under Trump in the annual deficit - which accumulates as debt - ranks as the third-biggest, relative to the size of the economy, of any President, surpassed only by Bush II and Abraham Lincoln. But both Bush and Lincoln had wars to pay for; Trump did not as he piled on $7.8 trillion in new debt. If the GOP takes the House in the upcoming elections, the extortion will begin again, and God knows what they’ll demand this time. But the that bastion of liberalism, the Business Roundtable, has already made it clear during the Biden years that this brinksmanship, if it pushes America over the edge, would be catastrophic.

  It issued a statement saying, “Failure to lift the U.S. federal debt limit to meet U.S. obligations would produce an otherwise avoidable crisis and pose unacceptable risk to the nation’s economic growth, job creation and financial markets.”

• The last part of the con is the “Who’s to blame” game. The GOP literally plays extortion, then blames the Democrats for the crisis because they won’t give Republicans what they want. This is the tactic of a domestic abuser, not a political party: “I punched you in the face because you didn’t give me what I wanted. So it’s your fault.” Still, the game is well-ingrained. The extortion will begin, Fox News and their fellow propagandists will begin the “it’s Democrats’ fault for not giving in” talking points, MAGA will fall for it, Democrats will fight back against the illogic, and no Republican will care. Lying and hypocrisy are features, not bugs, in GOP debt limit extortion.

We’re reached a point in this country where the GOP acts solely in the interest of the wealthy, all for more campaign contributions. The lies, the threats, the chaos: All of it is about getting everything for rich people, even if the middle class suffers. That’s why Republicans spew lies about Critical Race Theory, murderous immigrants, LGBTQ groomers, and the other greatest hits in the culture wars: If MAGA ever figured out that Republicans were using that rage catnip as distractions while wrecking the finances of their own non-wealthy supporters, what would these dishonest politicians have to run on? If Americans understood what had really happens because of GOP economic lies, they would – hopefully – run these people out of Washington. Then they could replace them with either Republicans more interested in governing than in rage or, if they can’t be found anymore, with Democrats.