The original version of this page was written during the election of 2000.  But now that the Bush Administration is pushing hard for another big tax cut, despite the enormous deficit we are already running up, an updated version is relevant once again...


Why doesn't the Republican party
let the United States get out of debt?

Ever since WWII, the federal deficits run up during Republican administrations have always tended to be larger than those run up by "free-spending" Democrats.  Only under Democrats have we ever had any chance to pay that debt down.  Why is it that when Republicans take measures that increase the deficit, nothing ever seems to get in their way... yet it's very hard for one to get away with reducing it?

The only modern Republican who made an honest effort to bring the federal budget toward better balance was Gerald Ford, and he was nearly rejected by his own party.  The Republicans far preferred Reagan, who ran up the debt to levels nobody would have believed could be gotten away with.

In the late nineties, thanks to sharp reversals of Reagan's policies, we finally had a chance to pay down some of the principal and get out from under a big chunk of that debt.  Yet the Republicans, led by George W. Bush, opposed this.  Bush wanted to eliminate the revenue that would make this possible, and did so with a vengeance.  Why?

The obvious guess would be that tax cuts are popular, and that promising a tax cut was a way for Bush to get elected.  Often, republicans who represent a constituency drawn from the economic elite can rally a lot of populist support by advocating low taxes.  This is how Howard Jarvis sold California's famous Jarvis-Gann Initiative (proposition 13), which ever since has left the wealthiest of states struggling to handle basic public services.  It's how the elder George Bush got elected (that, and running against an exceptionally bad campaigner who froze like a deer in headlights when hit by attack ads).

But did a low-tax platform help Little Bush in the 2000 election?  Probably not!  Since people were well off and the federal budget had become unusually small as a percentage of the total economy, most people felt able to afford their taxes fairly well.  And among the voting public, paying down the federal debt was a far more popular idea than a tax cut was.  The public is not lacking in foresight.  We know that, because of the huge accumulated debt burden that the federal government is carrying, any money we pay now toward reducing the principal will save us far more in interest later on.  As one congressman said, "It's time to fix the roof while the sun is shining."  Most of us know he's right.

Bush's second tax cutting effort, in 2003, is once again an unpopular idea -- a recent poll showed 60% of the public opposing the cut, despite the widespread agreement of typical Americans that their own tax bill is too high.  (Which it is, for most, because working people's share of the total tax burden keeps being pushed upward.)

A tax cut was a less popular idea during the 2000 election than paying down the debt was, just as it is today.  Given this fact... why did Dubya still advocate a large tax cut?  One that everyone could see would more than use up any available surplus?  It was not the idea that would gain him the most votes.  Nor was it an idea that followed logically from the circumstances... remember that Dubya originally called for a tax cut because we were so prosperous and the surplus was unnecessarily big, but later he called for a tax cut because the economy was slowing and he was seeing a possible recession.  He's used two entirely opposite arguments to promote the same conclusion.

Today, with the deficit spiralling out of control even before adding the cost of a war, he still claims that the bigger the tax cut, the more the economy will benefit.  Is this because he advocates a tiny shrunken government?  Hardly -- he has sponsored spending plans of all sorts which overall are about as lavish as you'd expect from any Democratic leadership.  Could there be some other reason for this agenda?

The Republican party has two core constituencies.  These two groups have surprisingly little in common, though they have formed a stable coalition.  One core constituency might be called the Christian right -- the conservative working class which believes in traditional, moralistic, and patriotic values.  The other might be called the capitalist right -- the financially powerful individuals and corporations who, in various ways, have gained the privilege of organizing our society to their own advantage.  The power balance between these two groups is somewhat lopsided: the moral traditionalist right gives far more to the capitalist right than the latter ever gives back.  Yet they get along well, most of the time.

The key to understanding the strengths and limitations of the Republican party is that it is unable to oppose either of these two groups which are the backbone of its support.  (The Democrats, in turn, are largely tied to the interests of the suburban middle class, though their constituency is far more diffuse.  Many groups are not represented by either.)  If a Republican does something unpopular, it is probably because one of these two groups wants it.

Who on Earth would want the federal government to stay in debt?  The negative consequences of this situation should be obvious to everyone.

If we ask ourselves, "Who wants me to stay in debt", most of us have an easy answer at hand: our credit card companies do!  In general, anyone who loans us money, if we can handle the payments, would rather we kept paying interest than that we ever cleared the principal.  This is how loan sharks make a living, and why your bank likes 30 year mortgages instead of 15 year ones.  So the clear answer to who would want the federal government to stay in debt is the people who are loaning it the money.  In a word, investors.

A lot of investors are middle class people.  Many working people buy US bonds.  But the biggest part of the investing in the federal debt is done by individuals and institutions which are not middle class.  It is done by the capitalist group which is one of the two core backing groups of the Republican party.

Almost twelve percent of the federal taxes you paid in 1999, 2000, and 2001 went to pay interest on the debt.  That's not just 12% of your income tax, that's 12% of all federal taxes, including Social Security!  If you figure that as a part of just your income tax bill, it's almost a quarter of what you paid!  About seven percent more, thankfully, went toward the principal.  The total is equal to the entire military and foreign affairs budget!  If you resent paying taxes that get written out as checks to poor people... how much worse is it to have a much larger chunk of your tax money being turned into checks to people richer than you?

Up through the 2001 tax year, the numbers were heading in the right direction: debt interest was 14% for fiscal year 1998, 12% for 1999, 11% for 2000, and 10% for 2001.  (Payment on debt principal was 4% for FY 1998, 7% for 1999, 12% for 2000, and 6% for 2001.)  But you know that for 2002 the interest number is going to be heading back up, because the payment on principal is now dwarfed by new borrowing.

As long as the US government stays in debt, you will continue to pay your taxes to people richer than you instead of for any federal program.  What we have here is a direct flow from your wallet into the bank accounts of investors  -- a flow of gigantic magnitude.  It's probably a bigger ripoff than even the Savings and Loan debacle was.  Up to 2001 the trends were going in the right direction, with interest costs dropping, but that can only keep happening if we restore our old tax rates for a while longer.  Just a few more years at old rates could make a significant positive difference.  As long as Republicans like Shrub manage to sell the idea of low taxes now, the principal goes unpaid and interest payments stay high.  Then you keep paying extra taxes later, to friends and backers of the Republicans who did you the big favor of cutting your tax rate, instead of toward programs that Congress can be held accountable for.

George W. Bush is showing that he wants the United States to stay in debt.  You know what would be the right thing to do if this were your personal debt: pay down the principal when you have the money!  Don't let a Republican sales pitch for a tax cut now steal your right to much bigger tax savings later.  It's up to Congress now: let them know that you want freedom from debt, not a tax cut for people who are already getting a share of the taxes you pay.  Tell them that Dubya's second tax cut must wait until we have a budget surplus again.

Postscript:  I have recently heard from one of the few people out there who argues that federal debt and high interest payments are a good thing.  Never before had I heard anyone advocate this view.  Sure enough, the guy was not only a big fan of Ronald Reagan, he was a professional investor.