Monday, August 9, 2010

Notorious socialist president Dwight D. Eisenhower

In the summer of 1813, the United States was mired in a valiant but seemingly endless and hopeless war on land and sea with Great Britain, the mightiest naval power on earth. On top of a $56 million debt that still remained unpaid from the Revolution, the government was facing an annual budget shortfall of $17 million as it struggled to meet the surging costs of the army and navy. Loans were offered and found no takers. The nation was literally on the brink of default and bankruptcy.

For the twelve previous years, the party of Thomas Jefferson and James Madison had pledged its unwavering fealty to the doctrine of no new taxes—or rather, no taxes at all. Total internal revenues collected by the United States in 1813 amounted to less than five thousand dollars—for the whole country. Madison and his cabinet were painfully aware that taxes were now unavoidable: the alternatives were unthinkable. Still, the reality of war and impending national ruin were one thing; political guts quite another. "Every one is for taxing ever body," dryly noted Jefferson's son-in-law John Eppes, chairman of the House Ways and Means Committee, "except himself and his Constituents." Congress met for months through a sweltering summer session in Washington, unable to bite the bullet.

Yes, some things never change.

Actually, one important thing has. The populist appeal of Jefferson's and Madison's party was aimed unwaveringly at the "middling" classes, the artisans and small farmers who quite reasonably felt that whatever taxation there was ought to  fall upon the wealthy merchant classes and consumers of luxury goods (in the form of import duties), and not (in the form of poll taxes and whiskey taxes) on the cash-strapped toilers and workers who, with the sweat of their brows, were building a nation.

The astonishing feat of political prestidigitation pulled off by the Republican Party over the last two decades has been to hijack the rhetoric and trappings of populist revolt and Jeffersonian republicanism (small "r") in the service of  . . . cutting taxes on the extremely rich. As recent polls of Tea Party activists have shown, behind all the faux populism and Patrick Henryesque rhetoric about liberty and Jeffersonian denunciations of the dangers of tyrannical government is the same old old rich guys who for decades have spearheaded the conservative crusade of the Republican Party to shift the tax burden to the less privileged.

The thing they will never admit is that the wealthiest have already enjoyed immense tax cuts, steadily, for the last fifty years. If you want to win a bet in a bar, ask someone to guess what the top income tax rate paid by the wealthiest Americans was during the Eisenhower administration. (It's 35% now.) The answer is 91%. Here's an interesting chart showing the top marginal tax rate over the last century, which I generated using data provided by the Brookings Institution's Tax Policy Center:

Recently, the official Republican script has called for all GOP members of Congress to robotically repeat the mantra "job-killing tax increases" whenever alluding to the impending expiration of the Bush tax cuts. Those cuts cost all of us well over $1 trillion in the last decade by anyone's reckoning;  sent Federal revenues into a tailspin; and disproportionately benefited the wealthiest of Americans ($100 billion a year goes to the top 2 percent). It doesn't take a Nobel Prize in economics to grasp that an extra dollar in the hands of each of ten working families will create more economic demand—and  jobs—than ten dollars in the hands of one billionaire. That was certainly the experience of that socialist redistributionist Dwight D. Eisenhower, who along with Bill Clinton led us through the two greatest sustained periods of prosperity since World War II.

One of the most striking points made by Reagan's budget chief David Stockman, in his recent remarks denouncing the "unconscionable" hypocrisy of fellow Republicans in supporting an extension of the Bush tax cuts, was that revenues as a percentage of GDP are now at their lowest levels since the 1940s. Here's a graph that I generated using the official historical budget figures for the United States:

What I think is most interesting about this graph is how it shows quite vividly that receipts fell dramatically to a modern low with the Bush tax cuts in 2001 to 2003, while outlays—even with all of the recent emergency stimulus spending to counteract the recession—are scarcely higher than their historical highs during the 1950s and 1980s. And outlays are of course still vastly lower than the huge highs reached during World War II—which I don't recall causing us economic ruin either.


Endnote: David Stockman's remarks are well worth reading in full, both his New York Times Op-Ed and his interview over the weekend on NPR, in which he stated:

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.