The Republican Revolution: Real This Time?

If congressional Republicans are truly serious about shrinking the deficit, they won't cut taxes

By Fareed Zakaria Thursday, Nov. 04, 2010
    • Michael Reynolds / EPA

    U.S. House Republican Leader John Boehner, right, and House Republican Whip Eric Cantor speak to members of the press on Capitol Hill in Washington D.C.

    We are watching the third Republican revolution unfold — the third time the Republican Party has come to power promising to fundamentally alter the relationship of the U.S. government to society. If the past is any guide, the Republicans are going to have a tough time fulfilling their pledge. If they do not deliver yet again, the American people, at some point, will surely conclude that they are hypocrites.

    The first Republican revolution was the Reagan one, which promised to roll back Lyndon Johnson's Great Society. In its place, Reagan proposed a low-tax, small-government America. The first part happened, with a historic reform of the tax codes, bringing marginal tax rates way down and eliminating hundreds of loopholes. But the spending cuts never took place. The result: from 1981 to 1985, the federal budget deficit more than doubled as a percentage of GDP, and it declined slightly in Reagan's second term only because he agreed to tax increases. Still, the basic pattern was set. If the old Democratic paradigm was tax and spend, the new Republican one was borrow and spend.

    In the core sense of reducing the size of government, the Reagan revolution was a failure. This is not my judgment but that of Reagan's budget director, David Stockman. In his book The Triumph of Politics: Why the Reagan Revolution Failed, Stockman places the lion's share of the blame on congressional Republicans, who never went along with efforts to cut government spending. That meant — given the tax cuts — that deficits exploded.

    Round 2 was the Gingrich revolution. It was more successful, though that had a lot to do with the fact that it took place during Bill Clinton's presidency. The historical record is clear: since the mid-1960s, it was Clinton's terms that saw the lowest average deficits of any President — the only period of restraint in the growth of the federal government — and the biggest surpluses. Some spending restraint took place after the Republican congressional victories of 1994, but some — like steep reductions in the number of government employees — started earlier.

    Most important, the surpluses were created in large part because Clinton raised taxes in his first year, something every congressional Republican voted against. But put that to one side. If Republicans were really serious about cutting spending, they had a golden opportunity after 2002, when they controlled all the levers of government in Washington. The result was the most reckless expansion of government spending and debt in two generations.

    Bush made three big decisions: to cut taxes, give prescription drugs to the elderly and fight two wars. Crucially, he decided not to pay for them. ("Reagan proved that deficits don't matter," Dick Cheney famously told Secretary of the Treasury Paul O'Neill.) As a consequence, the U.S. went from having a large structural surplus in 2000 to a structural deficit that was close to 2.8% of GDP by the end of the Bush presidency. (A structural deficit is one that exists even in good times, as opposed to a cyclical one that is caused by a recession and the resulting drop in tax revenues.) After the 2008 recession came along and tax revenues plummeted, that deficit more than doubled. But the hole was created well before the collapse of Lehman Brothers.

    Third time around, the Republicans say they mean business. But when asked how they will close the deficit, most explain they will cut taxes — which will only reduce government revenues further and increase the debt. Others, like Dick Armey, chairman of the Tea Party affiliate FreedomWorks, say they would eliminate the National Endowment for the Arts, whose budget is $167.5 million, approximately 0.01% of the federal deficit.

    On the Oct. 31 edition of 60 Minutes, Stockman weighed in on this madness. "We've demonized taxes," he said. "We've created almost the idea that they're a metaphysical evil ... It's rank demagoguery. We should call it for what it is. If these [Republicans] were all put into a room on penalty of death to come up with how much they could cut, they couldn't come up with $50 billion, when the problem is $1.3 trillion. So to stand before the public and rub raw this antitax sentiment, the Republican Party, as much as it pains me to say this, should be ashamed of themselves."

    I would suggest three litmus tests to gauge whether the Republicans are serious about deficits: 1) Are they prepared to stop with the tax cuts? Because the deficit will keep widening with more of them. 2) Are they prepared to cut middle-class entitlements? Because the only places to find real reductions in federal-government spending are in the large, popular programs like Medicare and Social Security. 3) Are they ready to take on the Pentagon? Because at $717 billion, defense spending — more than half of all discretionary spending — has to be trimmed.

    These are not political statements. They are mathematical ones, and it is on understanding math, not politics, that the third Republican revolution now rests.