A model for making tax cuts work
Harding and Coolidge avoided higher deficits by cutting spending
on economic growth, large numbers of our political leaders keep on proposing the same policy and hoping for a different result.” Mr. Lofgren is absolutely right but may be giving politicians credit for naivete rather than for coming up with a clever, if irresponsible, method of winning votes.
Such fake tax cuts — without a corresponding reduction in government spending — may not be achieving economic growth because they generate yawning budget deficits, thus creating massive federal public debt (now almost $20 trillion) that drags on the economy. If government spending is not cut, someone needs to pay for the tax cuts sometime. Taxes need to be raised later, as Ronald Reagan did in six years of his eight-year presidency. In the meantime, the government needs to borrow money to fund the deficit, thus ratcheting up costs of interest paid. Finally, in some cases, to get buyers for its debt, the government prints money — the worst option — thus leading to inflation and significant distortions in the economy.
As usual for Republicans, Mr. Trump, during his campaign, and congressional Republicans have talked a lot about tax cuts and large defense-spending increases — just as Reagan did and George W. Bush did by running the first war in American history at the same time he promulgated a huge tax reduction — but have not spent much time advocating the slashing of federal spending. In fact, Mr. Trump has promised not to cut entitlements — by far the largest part of the federal budget. If these familiar policies are followed, the $500 billion deficit that Mr. Obama has left will balloon — as deficits did during the Reagan and Bush administrations.
However, Mr. Trump, not being a usual politician, ran against the corrupt vote-buying gimmicks of both parties — and the voters responded. Instead of the Reagan-Bush model, Mr. Trump and the Republicans should adopt the Warren Harding-Calvin Coolidge route to tax cuts. Those presidents believed in robust, old-fashioned spending cuts, thus enabling them to also slash taxes while at the same time reducing the then-substantial national debt left over from World War I. “To make America great again,” Mr. Trump and the congressional Republicans should use the honest Harding-Coolidge approach rather than the usual irresponsible Ronald Reagan- and George W. Bush-style chicanery.