Dick Cheney famously told Treasury Secretary Paul O’Neill that Ronald Reagan proved that deficits don’t matter, which helps explain why the Bush administration cut taxes on the rich even more than the president thought was justified.
When the Treasury secretary went to the Oval Office for weekly discussions, he found he did all the talking. “I wondered from the first, if the president didn’t know the questions to ask,” he tells Mr Suskind, “or if he did know and just did not want to know the answers?”
The one time the president does become engaged in economic policy discussion in Mr Suskind’s book, it is to question the orthodoxy of his own administration’s policy during a White House discussion of a second round of tax cuts in November 2002, following triumphal midterm election results.
According to Mr Suskind, who says he has a transcript of the meeting, the president asks: “Haven’t we already given money to rich people? This second tax cut’s gonna do it again.”
The president suggests instead: “Shouldn’t we be giving money to the middle?” But Mr Rove, who has masterminded Mr Bush’s election campaigns since his days in Texas, jumps in at this point in the transcript to urge the president: “Stick to principle. Stick to principle.”
“He says it over and over again,” Mr Suskind said. “Don’t waver.”
In his own account, Mr O’Neill discovers the hard line on tax cuts is coming from Mr Cheney. Not knowing he was in his last weeks as Treasury secretary, he went to see the vice president expecting to get a sympathetic hearing for his concerns over the deficit. Instead he is told: “You know, Paul, Reagan proved that deficits don’t matter. We won the mid-term elections, this is our due.”
Commentators on both the right and the left have sometimes defended Cheney’s assertion (at least, partially), each for their own reasons. In February 2005, Irwin M. Stelzer wrote in the Weekly Standard:
The housing market remains strong; the unemployment rate is a low 5.2 percent; over two million new jobs have been created in the past year; the service sector is growing; inflation is low, as are long-term interest rates; and U.S. companies are increasingly optimistic, “bolstered by unprecedented cash flows,” according to Goldman Sachs. The budget deficit may be larger than we would like, and Dick Cheney may have been overstating things a bit, but so far it hard to say that his view of budget deficits is clearly wrong.
In March 2009, Joe Conason wrote the following in Salon:
Dick Cheney once observed that “deficits don’t matter,” which may well have been the most honest phrase he ever uttered. His words were at least partly true, which is more than can be said for the great majority of the vice president’s remarks — and they certainly expressed the candid attitude of Republicans whenever they attain power. His pithy fiscal slogan should remind us that much of the current political furor over deficit spending in the Obama budget is wrong, hypocritical, and worthy of the deepest skepticism.
The truth is that deficits do matter, but Republicans no longer care about them except as a tool to bash Democrats when they take over for them. Writing in BusinessWeek in December 2004 (after the reelection of George W. Bush), Robert Kuttner observed (emphasis mine):
…Republican deficit hawks have all but vanished…
HOW DID THIS SHIFT HAPPEN? Conversations with more than a dozen senior business leaders, including board members of the Concord Coalition, point to this progression: Since Ronald Reagan, a majority of Republican politicians have gradually come to conclude, as Vice-President Dick Cheney famously told former Treasury Secretary Paul H. O’Neill, that “deficits don’t matter.” What’s interesting and alarming, however, is that different Republican factions believe deficits don’t matter for opposite and incompatible reasons.
Supply-siders believe deficits don’t matter because tax cuts so boost investment and productivity that the economy grows its way out of debt. The opposite, “starve the beast” faction, epitomized by tax tactician Grover Norquist, hope tax cuts will indeed create deep deficits that will then force spending cuts. But both things can’t be true.
Under George W. Bush, the merry ideology calls for tax cuts in all seasons for all reasons. Spending has increased faster than under Clinton, and deficits have ballooned, yet tax cutting marches on. This privately scares many Republican business leaders. But very few are speaking out, either because they don’t want to burn bridges to the White House or because they are too pleased with their tax cuts.
Actually, Norquist said he wanted to shrink the government to the point that it could be drowned in a bathtub. He doesn’t believe that massive tax cuts will grow the economy sufficiently to provide the tax revenue needed to keep the government humming. He believes the exact opposite. The other side is a mixture of stupid people who believe whatever they hear on their radio and smart people who spout the nonsense those stupid people consume. There’s a debate, I guess, but mostly these ideologues just want to pay less in taxes without any regard for the consequences.
Yet, now that President Obama is in power and threatening to increase tax rates on the extremely wealthy, they’re screaming mad about the budget deficits that Ronald Reagan proved don’t matter. And all those members of the base who stood mute as Bush and Cheney set records for deficit spending are now parading around with tea bags hanging off their tricorn hats.
Anyone who actually believes that the Republicans think deficits matter and will lower them if restored to power is a fool.
One point of view: Republicans believe that large, grinding deficits will help to dismantle our FDR inspired liberal-socialism. Bush naively thought he could take this dismantling further, beyond enormous deficits, by urging the rescue of social security by its privitization.
Another view is that since the ‘have-mores’ are indeed the most inportant Republican constituent, it only follows that tax cuts for the wealthy is good politics, is serving one’s own.
It’s “their due.”
You forget, among the faithful who can be relied upon to vote against their own best interest they believe they are likely to lose their job if they don’t let The Man keep all the riches he has “earned”. Otherwise he can’t invest and spend on things that keep us all employed.
“Otherwise he can’t invest and spend on things that keep us all employed.”
The greatest period of economic growth in the US was during the twenty years following WWII. In that period, the tax rate on the top earners was 90%, and there was no break for income earned through capital gains/dividends. Granted there were loopholes that the wealthy used to reduce their taxes, but at face value, the tax scale was progressive. Today, give or take a few percentage points, we all pay taxes as if we already had the flat rate tax.
Sadly, it was Kennedy who started destroying the progressive tax by reducing the top rate to 70%. The rest is history.
And, once again, the eternal question that one seems to be able to use ad infinitum these days, “Where are all the Democrats who should be hammering this point home at every single opportunity when a microphone is put in their face or a TV camera pointed in their direction?”
BooMan, are you the only one who is able to present these things in a simple and understandable manner for Joe Six Pack’s like me? Is the wall of the Washington political bubble so thick that Democrats have lost their ability to make a case such as this? Why am I not hearing this from the lips of every Democrat who is given a platform in the media? Why are Republicans not being forced to answer these questions? Do Democrats just consider it impolite or are they just plain clueless?
Simple answers to simple questions:
MIA or is that AWOL
Like most things Cheney said, “Deficits don’t matter.” is a half-truth that is insidious.
Deficits don’t matter, but chronic deficits do. What matters even more are rising levels of debt.
But even rising levels of debt don’t matter unless the government does not have a good plan for servicing the debt or unless the debt is a large portion of the GDP. And then it only matters if you are seeking to borrow more funds or are trying to restructure debt to lower interests rates you are paying. By the way, right now the interest rates on Treasury bill are less that 3%. I wish I could restructure my personal debt to pay only 3%.
It matters a great deal what the money that is going out as deficits is used for. It is doubtful that the trillions of dollars spent in Iraq and Afghanistan will wind up saving the American people money in the future. The same is true of most military procurement. Military research is a different matter; some things have dual use and others don’t. Things that have civilian uses, like the internet, will likely save immense amounts of money and create sources of wealth. But one doesn’t need for it to be military research for this to happen. However, in the US, only the military has a checkbook large enough to fund these significant projects because military expenditures are politically unquestionable.
Where deficits don’t matter is when the money is going into needed construction or repairs of infrastructure or more importantly providing a new infrastructure that will boost private productivity in the future. And when it is substituting for a lack of consumer and business demand that is increasing unemployment.
Guess where we are. And guess what will help most. Letting the Bush tax cuts lapse. Don’t worry about the middle class. Middle class incomes have been so deflated that trying to hold them harmless from the sunsetting of the Bush tax cuts means very little.
And then spend on the infrastructure of the future. Massively. As massively as the Chinese are doing. The improvement in employment will eventually turn into surpluses.
Get out of Iraq and Afghanistan. Rethink national security needs and institutions and trim them down. Military expenditures in an of themselves are not a deterrent unless the rest of the world thinks you are spending them on some really good things militarily. Thanks to George W. Bush, we have proven to the world how powerful our military actually is and how much waste there is (astoundingly a lot). We are being treated now as a paper tiger and the longer we remain in Iraq and Afghanistan the weaker the world will perceive us. Counter-intuitive, yes indeed.
As for Social Security and Medicare, eliminate the cap on incomes on the payroll tax. This has the effect of providing incentives for corporations to hold the line on salaries at the upper end, since they will be paying 7.5% of those more exorbitant salaries. That will tend to reduce income inequality over time.
Most states have rainy day funds, which have been exhausted because of the deepness of the this depression. It would be wise for the US government to set aside a rainy day fund so that it can substitute for loss of consumer and business demand in future recessions. Instead of having to pay back for past calamities, a rainy day fund pays forward for potential future calamities. Whatever legislation enacts it should restrict Congress’s ability to treat it as funny money.
It’s strange to be talking about surpluses, but we must plan now because the deficit will be dealt with and the national debt brought down. We need to prevent what happened to the debate about fiscal policy in the year 2000 when the US being debt-free was seen as somehow a dangerous thing.