David Stockman, remember, was President Ronald Reagan’s budget director while Reagan was cutting taxes and spending hundreds of billions in borrowed money on defense to win the Cold War by forcing the U.S.S.R. to bankrupt itself trying to keep up.
Stockman built Reagan’s supply-side policies which maintained that keeping taxes low would stimulate the economy and make up for deficit spending. No longer a “boy wonder” at 64, Stockman has a different take on economics these days.
He now believes America as a nation is in danger of “being at sundown,” and continuing to decline because of a refusal to pay its bills and get out from under a smothering burden of debt.
In an interview with William D. Cohan of the New York Times, he called for massive reductions in the $1.25 trillion deficit looming in the current fiscal year which ends next October.
Step one would be to allow the Bush tax cuts — all of them — to expire at the end of the year. Doing so would increase revenues by $300 billion. In response to critics of this rather obvious proposal, Stockman points out that because about half of American families pay no federal income tax, this action would only affect those who can most afford to pay again what they were paying 10 years ago.
Stockman also wants to cut military spending, farm subsidies, Medicare payments and Social Security benefits for the wealthiest Americans.
He said such spending amounts to gifts to various sets of Americans. “These are,” he says, “deficit-financed tax cuts.”
He told Cohan, “if you think you can continue this fiction indefinitely by borrowing money to hand to people so they can keep spending and that nothing will go wrong in the global currency market, the global fixed-income market, the monetary system, break-out commodity inflation — all the possible bad things that can happen — if you want to ignore all that, then spend a couple more years borrowing money and paying it back to taxpayers, because that’s es-sentially what you are doing.”
STOCKMAN NOT only warns against piling up more national debt but also wants Americans to realize how dangerous it is to our economic and national security to continue to rely on others — the Chinese, the OPEC nations, sovereign wealth funds, and the like — to finance our fiscal irresponsibility.
The deficit, he believes, stems from twin desires to live beyond our collective means and to act as policeman to the world, including by financing two hugely expensive wars of our own choosing.
Stockman agrees that taking more money from the economy through taxes will slow the economy to some degree. He said maybe a $100 billion tax increase might only produce $90 billion or $85 billion in net income to the government.
“But it’s just a common sense fact that when you raise rates, you get more revenue. Normally, it’s a bad thing to do.
“But we are in such dire shape that we have no choice but to accept the negative trade-off of some harm to the economy to start paying our bills,” he said.
— Emerson Lynn, jr.
