Two Santas

Commentary By Ron Beasley

Bob Herbert today, A Voice of Reason:

The Republican Party is not simply the �just-say-no� party. It�s also a
shameless advocate of the free lunch. Ronald Reagan famously told us he
could jack up defense spending, cut taxes and balance the federal budget
all at the same time.

George W. Bush put two big wars on a credit card. And now we have the
perennially clownish Newt Gingrich, in an embarrassing rant against
President Obama, assuring the deluded G.O.P. faithful that, yes, the
party can indeed bring down the federal deficit while cutting taxes.

Of course now they are screaming about the budget deficit that the Republicans are responsible for.  As Thom Hartmann explained a few months ago this is no accident.

Two Santa Clauses or How The Republican Party Has Conned America for Thirty Years

But Wanniski had been doing his homework on how to sell
supply-side economics. In 1976, he rolled out to the hard-right
insiders in the Republican Party his "Two Santa Clauses" theory, which
would enable the Republicans to take power in America for the next
thirty years.

Democrats, he said, had been able to be
"Santa Clauses" by giving people things from the largesse of the federal
government. Republicans could do that, too � spending could actually
increase. Plus, Republicans could be double Santa Clauses by cutting
people's taxes! For working people it would only be a small token � a
few hundred dollars a year on average � but would be heavily marketed.
And for the rich it would amount to hundreds of billions of dollars in
tax cuts. The rich, in turn, would use that money to import or build
more stuff to market, thus increasing supply and stimulating the
economy. And that growth in the economy would mean that the people
still paying taxes would pay more because they were earning more.

There was no way, Wanniski said, that the Democrats could
ever win again. They'd have to be anti-Santas by raising taxes, or
anti-Santas by cutting spending. Either one would lose them elections.

When Reagan rolled out Supply Side Economics in the early
80s, dramatically cutting taxes while exploding (mostly military)
spending, there was a moment when it seemed to Wanniski and Laffer that
all was lost. The budget deficit exploded and the country fell into a
deep recession � the worst since the Great Depression � and Republicans
nationwide held their collective breath. But David Stockman came up
with a great new theory about what was going on � they were "starving
the beast" of government by running up such huge deficits that Democrats
would never, ever in the future be able to talk again about national
health care or improving Social Security � and this so pleased Alan
Greenspan, the Fed Chairman, that he opened the spigots of the Fed,
dropping interest rates and buying government bonds, producing a nice,
healthy goose to the economy. Greenspan further counseled Reagan to
dramatically increase taxes on people earning under $37,800 a year by
increasing the Social Security (FICA/payroll) tax, and then let the
government borrow those newfound hundreds of billions of dollars
off-the-books to make the deficit look better than it was.

Reagan, Greenspan, Winniski, and Laffer took the federal budget
deficit from under a trillion dollars in 1980 to almost three trillion
by 1988, and back then a dollar could buy far more than it buys today.
They and George HW Bush ran up more debt in eight years than every
president in history, from George Washington to Jimmy Carter, combined.
Surely this would both starve the beast and force the Democrats to make
the politically suicidal move of becoming deficit hawks.

And that's just how it turned out. Bill Clinton, who had run on an
FDR-like platform of a "new covenant" with the American people that
would strengthen the institutions of the New Deal, strengthen labor, and
institute a national health care system, found himself in a box. A few
weeks before his inauguration, Alan Greenspan and Robert Rubin sat him
down and told him the facts of life: he was going to have to raise taxes
and cut the size of government. Clinton took their advice to heart,
raised taxes, balanced the budget, and cut numerous programs, declaring
an "end to welfare as we know it" and, in his second inaugural address,
an "end to the era of big government." He was the anti-Santa Claus, and
the result was an explosion of Republican wins across the country as
Republican politicians campaigned on a platform of supply-side tax cuts
and pork-rich spending increases.

Looking at the
wreckage of the Democratic Party all around Clinton by 1999, Winniski
wrote a gloating memo that said, in part: "We of course should be
indebted to Art Laffer for all time for his Curve... But as the primary
political theoretician of the supply-side camp, I began arguing for the
'Two Santa Claus Theory' in 1974. If the Democrats are going to play
Santa Claus by promoting more spending, the Republicans can never beat
them by promoting less spending. They have to promise tax cuts..."

Ed Crane, president of the Libertarian CATO Institute, noted
in a memo that year: "When Jack Kemp, Newt Gingich, Vin Weber, Connie
Mack and the rest discovered Jude Wanniski and Art Laffer, they thought
they'd died and gone to heaven. In supply-side economics they found a
philosophy that gave them a free pass out of the debate over the proper
role of government. Just cut taxes and grow the economy: government
will shrink as a percentage of GDP, even if you don't cut spending.
That's why you rarely, if ever, heard Kemp or Gingrich call for spending
cuts, much less the elimination of programs and departments."

George W. Bush embraced the Two Santa Claus Theory with gusto,
ramming through huge tax cuts � particularly a cut to a maximum 15
percent income tax rate on people like himself who made their principle
income from sitting around the pool waiting for their dividend or
capital gains checks to arrive in the mail � and blowing out federal
spending. Bush even out-spent Reagan, which nobody had ever thought
would again be possible.

And it all seemed to be going
so well, just as it did in the early 1920s when a series of three
consecutive Republican presidents cut income taxes on the uber-rich from
over 70 percent to under 30 percent. In 1929, pretty much everybody
realized that instead of building factories with all that extra money,
the rich had been pouring it into the stock market, inflating a bubble
that � like an inexorable law of nature � would have to burst. But the
people who remembered that lesson were mostly all dead by 2005, when
Jude Wanniski died and George Gilder celebrated the Reagan/Bush
supply-side-created bubble economies in a Wall Street Journal eulogy:

"...Jude's charismatic focus on the tax on capital gains
redeemed the fiscal policies of four administrations. ... [T]he
capital-gains tax has come erratically but inexorably down -- while the
market capitalization of U.S. equities has risen from roughly a third of
global market cap to close to half. These many trillions in new
entrepreneurial wealth are a true warrant of the worth of his impact.
Unbound by zero-sum economics, Jude forged the golden gift of a profound
and passionate argument that the establishments of the mold must
finally give way to the powers of the mind. He audaciously defied all
the Buffetteers of the trade gap, the moldy figs of the Phillips Curve,
the chic traders in money and principle, even the stultifying pillows of
the Nobel Prize."

In reality, his tax cuts did what
they have always done over the past 100 years � they initiated a bubble
economy that would let the very rich skim the cream off the top just
before the ceiling crashed in on working people.

The
Republicans got what they wanted from Wanniski's work. They held power
for thirty years, made themselves trillions of dollars, cut organized
labor's representation in the workplace from around 25 percent when
Reagan came into office to around 8 of the non-governmental workforce
today, and left such a massive deficit that some misguided
"conservative" Democrats are again clamoring to shoot Santa with
working-class tax hikes and entitlement program cuts.

In a nutshell:  When the Republicans are in power they give massive tax cuts to the oligarchs and spend like drunken sailors exploding the budget.  The result is that when the Democrats regain power the budget has been busted so they are forced to cut back social programs and raise taxes.  You may have never heard of Jude Wanniski but he has impacted your life in very real ways.