Tax Cuts Without Spending Cuts are a Mistake
US fiscal policy has been out of whack for so long that both Democrats and Republicans share a part in the blame. But, for a recent column in the Financial Times Gideon Rachman focuses on the Republican role in debt creation. In particular, he looks at how Ronald Reagan’s strengths and weaknesses in office have evolved over time into a muddled mess of tax and spending strategy.
From the Financial Times:
“The Republican party – with Ms Palin to the fore – is currently decrying the huge deficits being run by the Obama administration. But this is a recent conversion. Ever since the Reagan years, the Republicans have been the party of deficit spending.
“Conservatives once believed both in lower taxes and in balancing the budget. Under Reagan, they simply became the party of tax cuts, without any commitment to fiscal responsibility.
“Dick Cheney, George W. Bush’s vice-president, admitted as much when he told a cabinet colleague: “Reagan proved deficits don’t matter.”
“A mystical belief took hold that if you just cut taxes, the economy would grow fast enough to cover the shortfall – or government would shrink, almost by magic. Somehow it would all come right.
“This drift in Republican thinking was actually profoundly anti-conservative – because it elevated ideology (cut taxes at any cost) over a pragmatic commitment to good governance.”
The idea that tax cuts alone — without a reduction in spending — can increase the wealth of the nation was unrealistic at best. Over time that shortcut thinking has only lead to worse ideas, such as the belief mentioned above that deficits are no longer important. Unfortunately, there still appears to be no magic cure for deficits.
You can read more details in Rachman’s Financial Times commentary on how Reagan ruined conservatism.