The green line: If the Republicans had balanced their budgets
The green line on the graph shows what would have happened if the supply-side presidents, Reagan and the Bushes, had balanced their budgets, and Bill Clinton and Obama had taxed and spent exactly as they actually did.
Instead of Reagan adding 125 miles of thousand-dollar bills to the debt, I assume he adds nothing at all. Because the economy kept growing, the size of the debt relative to the economy would have decreased, as shown by the green line. And this would have continued under Bush for the same reasons.
Then I assume Bill Clinton taxed and spent the same. But with a smaller debt there would have been less interest to pay on the debt so he would have paid off more of the debt, just like happens when a home mortgage is half paid off. This would have brought the debt down to essentially zero, which is where it was heading before the Voodoo started.
Finally, I assume G. W. Bush also balanced his budget and kept the debt near zero. But again, I assume that Obama taxed and spent just the same as he did. (Shortly, I’ll explain why that was needed.) The result is that the National Debt would be $14 trillion lower if Reagan and the Bushes had done what they said they would and balanced their budgets.
The Secret of Tax Cuts and Economic Growth
The supply-siders keep saying tax cuts will cause so much economic growth that it will reduce the debt. And it keeps not working. But they’re half right. It has long been know that tax cuts can stimulate the economy, especially in a recession. Here’s how that works.
Say the government reduces taxes by $1 billion per year, but does not fire anyone and does not stop buying anything. Then no one that sells to or works for the government loses their job. But taxpayers have an extra $1 billion in their pockets and they spend most of it. Businesses sell more and so they hire more workers.
But how can the government keep spending without that $1 billion in taxes? Simple, they borrow the $1 billion. So yes, tax cuts cause growth and INCREASE the debt, if the government keeps spending. And that’s what’s been happening.
So a tax cut that creates debt is a good thing in a recession. In fact you could cut everyone’s taxes in half and you might have hired and extra 6% and ended the Great Recession very quickly. But with 6% more workers and everyone paying half as much tax, no, you will not increase tax revenue. You will increase the debt.
But that’s a good tradeoff. Unemployment is quite wasteful for society and costly in many ways for the unemployed. The trick is to pay down the debt once the economy is humming again. The graph shows Bill Clinton did that and Obama is headed that direction, but Reagan and the Bushes didn’t. That’s because they believed in the Voodoo — cut taxes and tax revenues will increase. No need to worry about the debt. So they didn’t.
Ripped Apart
