Yes, it’s once again that time in the election cycle when Republican presidential candidates tell the voters that they can cut taxes (usually on the rich), balance the budget, eliminate the deficit, and reduce the national debt, all in one fell swoop.
Ronald Reagan was the first Republican president to embrace this curious notion, which according to legend was first introduced to a group of GOP savants by economist Art Laffer, scribbling on the back of a cocktail napkin in a Washington, D.C. watering hole.
Funny how those boozy ideas that seem so enchanting the night before can turn out to be such disasters the next morning.
In the entire postwar period, under Truman, Ike, JFK, LBJ, Nixon, and Carter, the national debt fell consistently as a percentage of GDP, from 120% in 1945 to 30% in 1980, when Reagan took office. But under Reagan and then Bush senior, deficits mushroomed and the debt grew; by 1992 it stood at about 65% of GDP. It fell under Clinton, and then popped back up again when Bush junior took charge. When Barak Obama took office, it was up to about 85% and the economy, of course, was in free fall.
You might think GOP presidential hopefuls would have learned something from all this, but here we have Mitt Romney, the “presumptive frontrunner,” telling us he’s going to cut taxes, increase defense spending and put us on a path to a balanced budget during his first term. To his credit, he breaks with the voodoo tradition of assuming that tax cuts will stimulate enough growth to more than pay for themselves. No; he knows that he can’t pull off a balanced budget unless he cuts spending somewhere.
And the size of these cuts is stunning. According to an analysis of Romney’s proposal by the Center for Budget and Policy Priorities, to balance the budget by 2016, non-defense spending would have to be cut by 17%. If Social Security were spared, all other programs would have to be cut by 24%. If Social Security and Medicare were spared, all other programs would have to be cut by 34%. So unless you believe we can get along without Federal support for roads and education and medical care for poor kids and other little items like that, you are again looking at voodoo: somebody, somewhere is going to have to pick up the tab, and it’s probably going to be taxpayers in the states.
And speaking of the states, we have a few witch doctors of our own running around Montana. Last week, five of the GOP candidates for governor told the Montana Economic Developers Association that if elected they would eliminate the property tax on business equipment and the corporate income tax. Some even said they would get rid of the 95 mills of statewide property taxes that go to pay for K-12 education. And just so you know, large corporations that operate across the state are also agitating for a property tax break.
All together the cuts proposed by the GOP candidates mount up to about $400 million. And since the Montana Constitution requires the budget to be balanced right now and not in the sweet bye and bye, you’ve got to wonder how those cuts will be paid for.
Well, we can always shift some of those property taxes onto homeowners.
Or we can cut spending. No, wait! Mitt’s going to be kicking more spending downstairs to the states.
What our would-be governors are apparently counting on is an oil and gas boom - and the taxes that come with it. But as Brian Schweitzer has pointed out, that simply doesn’t compute. Right now oil and gas revenue is running about $100 million a year, so the value of production would have to quadruple to make up for $400 million of tax cuts elsewhere. And that’s not going to happen any time soon, if at all.
Right now you can just hear the beating of drums and the muttering of dark incantations. But just you wait: by November it's going to be deafening.