Lynn Woolley
Thursday, Jan. 9, 2003

The President’s stimulus package is fine – to a point. Unfortunately, without the balance of spending cuts – which actually should be even greater than the tax cuts – the national deficit is almost certain to explode.

Let’s go back in time to that most maligned of decades – the 80s. President Reagan, the champion of supply-side economics, proposed and won some big tax cuts. Critics charged that the cuts would “cost” the federal government too much money and that deficits would balloon. They were exactly wrong – and exactly right.

President Clinton himself published the data on page 369 of his “Economic Report from the President” in February of 1996. A table shows that income to the federal government increased from $286 billion in fiscal 1981 (when Reagan began to cut personal rates) to $446 billion in fiscal 1989, Mr. Reagan’s final budget. That’s a gain of 56 percent, and that isn’t bad.

The Bush tax cuts can – and probably will – have much the same effect. After all, they are somewhat geared to long-term growth and to reviving the slumping stock market. Unlike the Democratic alternative, people who pay most of the taxes will actually see some benefit. That means the Bush plan is not welfare; it is a true stimulus that will encourage business expansion and job creation.

But the Reagan tax cuts did all that and more. And yet, the national debt quadrupled after the Reagan cuts. The reason is simple. Mr. Reagan got no spending cuts commensurate with the tax cuts. Even with the increase in cash to the federal treasury, it wasn’t near enough to cover the big checks that Congress was writing.

You want specifics? Let’s go back to President Clinton’s 1996 report. The chart provides a “total outlays” column that shows spending at $678 billion in 1981. But by 1989, the government was spending $1.143 trillion – a 69 percent rise.

Form 1981 to 1983, we were in a severe recession. Personal income rose just 1 percent. But our representatives in Congress managed to increase spending by 19 percent. No wonder we had big deficits.

In the 80’s, Congress couldn’t restrain itself from massive spending, and it can’t restrain itself now. This creates a vicious circle that works like this: the economy drags; a big tax cut is implemented; the tax cut stimulates the economy; revenues begin to rise; times are good; Congress spends itself silly; the deficit rises; eventually, there is a bust.

This is exactly where were we are now. When Ronald Reagan took office, we were still suffering from the “malaise” of the Jimmy Carter administration. President Reagan implemented his tax cuts and we saw the boom-times of the 80’s. Congress went on a spending spree and the deficit exploded and so the Democrats blamed the Reagan tax cuts.

Bill Clinton’s economy was lifted by a “dot-com” revolution which caused the stock market to soar – and so Congress went on another spending spree. Unfortunately, the high-tech boom became the latest bust just as Clinton was leaving office. So George W. Bush stepped into a slumping economy – just as Reagan did.

We are starting the cycle again. And yet, our national leaders never learn from past mistakes and seem doomed to repeat them as if we are traveling on an economic Flying Dutchman. Already, we are prosecuting a war against terrorism and will almost certainly have a military operation in Iraq.

Yet George W. Bush has presided over a massive expansion of government including a bloated Farm Bill, the new Department of Homeland Security and an expansion of the federal role in education. The major parties are arguing about the size of a new prescription drug entitlement – not about whether there should be one at all.

Unfortunately, the Congress and the President seem unwilling to tell the American people that their government might actually cancel some agency or cut some program. But unless the Bush stimulus plan includes some serious reduction in spending, supply-side economics is about to suffer another major setback.

Lynn Woolley’s e-mail address is lynn@belogical.com.