Stockman: Bush Tax Cuts Will Make U.S. Bankrupt
GUY RAZ, host:
This is ALL THINGS CONSIDERED from NPR News. I'm Guy Raz.
If the collapse of the financial markets in 2008 taught us anything, it's that economics - or rather, economic forecasting - is an art rather than a science. Some economists say the rest of this year will feel very much like a recession. And others aren't so pessimistic. But this week's jobless numbers and weaker-than-expected growth are playing into a debate here in Washington over tax cuts.
But before we get to that, a story - and it begins when David Stockman met President Reagan in 1981.
Mr. DAVID STOCKMAN (Economist): He was one of the, you know, greatest human beings I've ever met.
RAZ: In the early 1980s, Stockman became a kind of Washington wunderkind, the vanguard of a new type of economic thinking: supply side, deregulation, low taxes to stimulate growth.
As the White House budget director, Stockman was an architect of what would come to be known as Reagonomics. But a few years into the job, he became disillusioned.
Mr. STOCKMAN: The military budget got out of control, and the tax cuts went to special interests as much as they did to the broad public.
RAZ: And he noticed a problem. The government wasn't collecting enough money to cover its costs, and he started telling that to Reagan.
Mr. STOCKMAN: As time passed, he was less and less enthusiastic about what I had to say.
RAZ: So in 1985, Stockman left. Now these days, he's still a conservative and still a Republican, but he doesn't think his party is taking a responsible position on taxes any longer. At the end of this year, the Bush-era tax cuts are set to expire. Republicans want them renewed; Democrats want to keep the tax cuts for the middle-class, but not for the wealthiest 2 percent of Americans.
Now, Stockman says they're both wrong. And he says extending either of those cuts is tantamount to the government declaring bankruptcy.
Mr. STOCKMAN: We've had a rolling referendum on what we want in government and what we don't, ever since the first Reagan spending cut program - which I was part of in 1981. And it seems pretty clear to me that by 2010, we've decided a lot of things that cost a lot of money, the American people want. I might not agree with that but apparently, they do.
So we're spending $3.8 trillion in defense, non-defense, entitlements, everything else, and we're taking in only 2.2 trillion. So we got a massive gap. You have to pay your bills; you can't keep borrowing from the rest of the world at that magnitude, year after year after year. So in light of all of those facts, I say we can't afford the Bush tax cuts.
RAZ: Now, I think many people would be surprised to hear Ronald Reagan's former budget director make this argument. I mean, what happened to the idea you once pushed, that tax cuts ultimately stimulate the economy?
Mr. STOCKMAN: I think that's true. But we're in a much different world today than we were in the early 1980s. We have had a spree of debt building for the last 30 years, both in the public and in the private sector. So in that environment, the highest priority is solvency now, not incentives for growth.
RAZ: You seem to suggest that many of our economic troubles are the result of Republican economic policies over the past few decades. You are a Republican. You are a conservative. Why do you think Republicans are largely to blame?
Mr. STOCKMAN: Because the Republicans abandoned their old-time fiscal religion in favor of two theories, which I think are now proving to be both wrong and highly counterproductive and damaging.
One was monetarism, which said let the dollar float on the international markets. Let 12 men and women at the Fed decide whether to raise or lower interest rates, and use the Fed to try to run this massive economy. What they've done instead is run the printing press; they've flooded the world with dollars. The whole monetarist policy has been a mistake.
The second thing was the perversion of supply side. Yes, there was a good idea that in certain circumstances, lower tax rates will encourage economic activity and savings. But when you make it a religion, when you make it a catechism and you say you cut taxes no matter what the circumstance, what the season, what the condition, then I think the whole idea has been perverted.
By getting off track over the last 30 years, the Republican Party has basically given up its historic view that the key thing was financial discipline, financial responsibility, and that we had to live within our means. Today, we have two free lunch parties and as a result, we're borrowing ourselves into grave danger with each passing month and year.
RAZ: Now, Republicans - David Stockman in the Senate, led by, obviously, the Minority leader, Mitch McConnell - they say they're simply following, you know, the Reagan philosophy of supply-side economics, a policy that you pushed. Do you think they're being disingenuous?
Mr. STOCKMAN: Utterly disingenuous. I find it unconscionable that the Republican leadership, faced with a 1.5 trillion deficit, could possibly believe that good public policy is to maintain tax cuts for the top 2 percent of the population who, after all, have benefited enormously from this phony boom we've had over the last 10 years as a result of the casino on Wall Street.
And I blame Paulson on it. I blame the Bush White House. They basically sold out the birthright of the Republican Party when they bailed out Wall Street unnecessarily, in a state of complete panic in September 2008. That's really, at the end of the day, one of the greatest misfortunes in fiscal governance since the Reagan revolution tried to straighten things out beginning in 1980.
RAZ: Do you hold President Obama and his economic policies responsible for some of this growing deficit?
Mr. STOCKMAN: Absolutely. The only thing worse than the Republican leadership position is that of the White House. I don't know how they think they're helping the economy by every month, coming up with a new plan to borrow tens of billions more, drive us deeper into debt. Never in history has anyone said that for very long, you can sustain a circumstance where the debt is growing at twice the rate of the economy.
So I think the White House with the stimulus is totally wrong. A lot of it has been wasted. Why did they put all that money in the automobile industry? There's far too much capacity already. Why did they waste the money on the housing credit? Why are they continuing to try to pump money into state and local governments? I understand there's severe budget pressure there, but the federal government is in deeper debt than the state and local governments.
But in the end of the day, I would say Obama is really wrong when he says, I'll extend the Bush tax cuts except for the top, you know, 2 percent - above 250,000.
RAZ: In other words, you're saying he has to not just end the tax cut for the top 2 percent or 1 percent of Americans, but the middle-class, the so-called middle-class tax cuts as well.
Mr. STOCKMAN: Absolutely. The tax - the Bush tax cuts costs $300 billion a year: 100 billion to the top 2 percent, 200 billion to the middle-class. So I ask the White House, why is a $175,000-a-year family going to be given a tax break that we can't afford - a large tax reduction, tens of thousands of dollars a year? To me, it makes no sense.
RAZ: I wonder, David Stockman, where is your political home these days? I mean, where does somebody like you go?
Mr. STOCKMAN: Well, I don't know. I think I'm in the unwashed middle, let's say, with more and more of the American people. And one of these days, I think the public is going to speak in no uncertain terms - that we've had enough of this crony capitalism, and that we're going to have to now clean things up.
At some point, we're going to either be forced to do it by the global bond and currency markets, or the American people are going to wake up and demand it through an election that really cleans house in terms of both parties and the irresponsible behavior that each of them engages in today.
RAZ: That's David Stockman. He was the director of the White House Budget Office under President Ronald Reagan and is widely credited as the architect of Reagonomics.
David Stockman, thank you so much.
Mr. STOCKMAN: Thank you.