David Stockman, President Reagan's former budget director, has been getting prominent play on the broadcast and cable networks over the past week, as a voice cautioning the ascendant House GOP that their plans to reduce federal spending but at the same time maintain the Bush tax cuts will not help stop the decline of the American economy.
Last week on CBS's 60 Minutes and yesterday on ABC's' This Week, Stockman laid out the reasons why he believes that because of the faults of both the Democratic and Republican parties, America is becoming a "Banana Republic" when it comes to our lack of responsibility on handling the economy.
Stockman was on the show along with Indiana Republican Representative Mike Pence:
PENCE: Before we get — look, David Stockman is, you know, he's a really famous guy and a thoughtful guy. I just disagree with him vehemently and I, frankly, have for about 30 years. David believes that every tax increase equals a revenue increase, but that's not true. Anybody who is familiar with the historical data from the IRS knows that raising income tax rates will likely actually reduce federal revenues.
AMANPOUR: Let me ask David…
PENCE: So if we raise taxes, the American people are very likely going to — the top 1 percent are going to send less money to Washington, D.C., and that will never get us out of this…
(CROSSTALK)
STOCKMAN: I just have to respectfully disagree. You will have some loss of revenue because some activity or transactions won't happen, but if you raise taxes on paper by $100 billion, maybe you'll get $90 billion or $85 billion. But it's just common sense fact that, when you raise the rates, you get more revenue. Normally, it's a bad thing to do. But we are in such dire shape that we have no choice but to accept the negative trade-off of some harm to the economy to start paying our bills. Otherwise, we're dependent on the Chinese, we're dependent on OPEC, we're dependent on a bunch of hedge fund guys to buy our debt, and this game is about over.
AMANPOUR: And, Congressman Pence, you talked a lot about the…
PENCE: Raising income tax rates on the top 1 percent will not increase revenues to the federal treasury.
AMANPOUR: Well, not — not according to — to the budget director, who is the architect of the biggest, most sweeping tax cuts in American history. But the question I have for you is, what about all that — you know, you all talk about the middle class. But the middle class, we've seen their incomes stagnant, whereas the huge amount of wealth has been accumulated by a very, very small top percent. It's not fair, is it? Is it?
PENCE: Well, look — look, what's not fair is the idea that, at a time when tens of millions of Americans are unemployed or underemployed, that you would actually allow a tax increase on job-creators, a tax increase on their employees. I don't know anybody back in Indiana, in the city or on the farm, who thinks that raising taxes on their small business owner boss is going to put them back to work or get them back to full-time.
AMANPOUR: We've got one — time for…
(CROSSTALK)
STOCKMAN: Two years after the crisis on Wall Street, it has been announced that bonuses this year will be $144 billion, the highest in history. That's who's going to get this tax cut on the top, you know, 2 percent of the population. They don't need a tax cut. They don't deserve it. And, therefore, what we have to do is focus on Main Street, and that means getting our house in order fiscally, not tax cuts that we can't afford.
Earlier this summer, Stockman weighed in on the fiscal conditions of the U.S. in an op-ed in the NY Times that said that our economy will not get back to regular growth anytime soon:
The day of national reckoning has arrived. We will not have a conventional business recovery now, but rather a long hangover of debt liquidation and downsizing — as suggested by last week’s news that the national economy grew at an anemic annual rate of 2.4 percent in the second quarter. Under these circumstances, it’s a pity that the modern Republican Party offers the American people an irrelevant platform of recycled Keynesianism when the old approach — balanced budgets, sound money and financial discipline — is needed more than ever.
Meanwhile, what to do about the soon-to-be-expiring Bush tax cuts will be the number one issue that Congress discusses when they reconvene for their lame-duck session later this month. The question remains, will there be a compromise? President Obama keeps on sending out signals that he is intent on wanting those tax cuts to expire for those in the highest tax bracket.
There has been more talk in the past few weeks of raising what the top limit is, such as raising taxes for those making over $1 million, and not the $250,000 that the president has focused on.
The Tax Policy Center has written a white paper on the proposal which you can read here. An economist writing in the Christian Science Monitor this past week named Howard Gleckman says he doesn't believe Republicans will go for that deal. Let's watch and see.
This article appears in Nov 4-10, 2010.