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IMF Analysis Confirms Republican Fiscal Waste

IMF Analysis Confirms Republican Fiscal Waste
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Monday, 18 December 2017 12:01 PM Current | Bio | Archive

Dear Republican ideologues, stop reading here or risk agitation. What follows is an uncomfortable truth. If, instead, you are a genuine fiscal conservative, read on. As the tax bill comes to a final vote, history reveals Republican rhetoric on fiscal responsibility contrasts sharply with their actions.

An analysis by the International Monetary Fund (IMF), released in 2013, identifies 19 fiscally wasteful years in the U.S. since World War II. Republican Presidents oversaw 15 of them. Four wasteful periods were greater than one year: 1983 – 1988 (Ronald Reagan); 1990 – 1993 (George H. W. Bush / Bill Clinton); 2003 – 2005 (George W. Bush); and 2008 – 2011 (George W. Bush / Barack Obama).

Dramatic tax cuts underpinned many of these wasteful periods and conform to a now consistent Republican play book: avoid the issue of fiscal responsibility by claiming that tax cuts pay for themselves. Tax cuts stimulate growth which, so we’re told, increases government revenue. Everyone wins. Simple.

There’s one problem — even conservative economists now acknowledge this Republican orthodoxy does not work.

"I'm a very conservative economist. I would love it if tax cuts paid for themselves, but I'm also someone who looks at the numbers. And there's just no evidence that the tax cuts actually pay for themselves." These are the words of Douglas Holtz-Eakin, former economic adviser to Senator John McCain, R-Ariz., and current president of conservative think tank the American Action Forum. Bruce Bartlett, former adviser to President Ronald Reagan and Treasury official under President George H. W. Bush, concurs. Bartlett explained recently "there’s no evidence that a tax cut now would spur growth."

Prosecuting the case for his 2003 tax cuts, President George W. Bush explained tax cuts "will bring the added benefit of higher revenues for the government." The following day Bush’s Press Secretary, Ari Fleischer, shared "The entire package the president does believe (sic) will lead to growth, which will over time grow the economy, create additional revenues for the federal government and pay for itself."

Such lofty rhetoric, though, has little impact on the numbers. In 2002, Bush’s own Treasury Secretary Paul O’Neil sounded the alarm about rising budget deficits and counselled against the 2003 tax cut. Secretary O’Neil was fired one month later, although has subsequently been vindicated.

Over the period to 2019, Congressional Budget Office (CBO) analysis reveals Bush’s tax cuts (2001 and 2003 combined) will squander over $5.6 trillion with benefits mostly flowing to the very highest income earners. For some perspective, the CBO finds that between 2009 and 2019, Bush’s tax cuts will increase the fiscal deficit by more than double President Obama’s stimulus and financial rescue packages following The Great Recession.

Even Ph.D. economists who worked for the Bush administration acknowledge the tax cuts have left a fiscal hole with little impact on economic growth.

Democrats by no means bring a clean fiscal slate. The IMF analysis identifies the beginning of Obama’s Presidency, 2009 – 2011, as fiscally wasteful. It’s worth noting that the IMF’s analysis only covers the period to 2011. Subsequent years of the Obama Administration, particularly 2012, may well have been identified as wasteful too.

The IMF does, however, acknowledge that fiscal waste “may sometimes be justified — to avoid plunging the economy into a deep and prolonged recession.” The period between 2009 – 2011, following The Great Recession, is identified as a "notable episode of fiscal stimulus." More broadly, the two periods of fiscal prudence identified by the IMF took place under Democratic Presidents: 1948 – 1951 (Harry Truman) and 1998 – 2000 (Bill Clinton).

Following the Clinton presidency, when George W. Bush took office in 2000, Bush’s Press Secretary’s exclaimed the government was "awash in surplus money." The CBO forecasted significant surpluses over the next decade. How quickly the Republicans changed all that.

Despite a rich history of lessons to draw from, the U.S. is now at a familiar juncture. According to the non-partisan Joint Committee on Taxation, accounting for the impact of economic growth, the current Republican tax bill will add roughly $1 trillion to the deficit over the next decade.

In a repeat of the Bush-era, conservative cheerleaders are once again out in force. Senate Majority Leader Mitch McConnell, R-Ky., is "totally confident this is a revenue-neutral bill and probably a revenue producer." Meanwhile, Treasury Secretary Steve Mnuchin has consistently claimed the tax bill will be revenue neutral. Yet Treasury’s one-page analysis (yes, one-page) appears to refute his own claims.

According to Treasury’s analysis, growth needed to off-set the tax plan includes "a combination of regulatory reform, infrastructure development, and welfare reform." Treasury’s tax analysis includes yet to be legislated policies. As you were, nothing to see here.

Despite absurd claims to the contrary, the history of Republican fiscal waste looks set to continue. After years of Republican howling about growing deficits under President Obama, the hypocrisy is, in light of history, entirely expected.

To those Republican ideologues still reading, rest easy. As the welfare debate heats up, the Republican leadership will no doubt soon rediscover their fiscal bona fides.

Matt Tyler has worked for the last decade across the private, public, and academic sectors. Currently he is focused on improving social services primarily working with governments to improve child welfare, criminal justice, and homelessness. Matt is a former management consultant where he supported executives develop and implement strategy working with large companies in financial services, telecommunications, manufacturing, postal services, and retail. Subsequently he worked as an economist for Australia’s foreign service and as a policy adviser to the Federal Australian Labor Party on economic and social policy. He holds a Master of Public Policy from the Harvard Kennedy School, Bachelor of Economics (Honors) from Monash University, and a dual degree in Arts (Psychology)/Commerce (Finance) from the University of Melbourne. He tweets as @matt_b_tyler. To read more of his reports, Click Here Now.

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Despite a rich history of lessons to draw from, the U.S. is now at a familiar juncture. According to the non-partisan Joint Committee on Taxation, accounting for the impact of economic growth, the current Republican tax bill will add roughly $1 trillion to the deficit over the next decade.
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Monday, 18 December 2017 12:01 PM
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