And his economic policies would be warmed-over Bush Sr. and Dole.
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The greatest tipoff of Romney’s Bush III establishment Republicanism is the Bush retread economic advisers around him. Given those advisers, I predict the first thing President Romney would do is agree to the same type of budget deal that President Bush did in 1990. In that deal, Bush agreed to permanent tax increases that are still with us. But the economy declined into recession as a result, so revenues actually declined as a percent of GDP as well.
In return, Bush was supposed to get spending cuts. But spending actually rose as a percent of GDP after the 1990 budget deal. As a result, the deficit soared after that deal as well, from $221 billion in 1990, to $269 billion in 1991, to $290 billion in 1992. No wonder the voters booted Bush out in the 1992 election.
Today, Romney cheerleader and former Bush White House Chief of Staff John Sununu has been lambasting Gingrich in New Hampshire for leading a House Republican revolt against that budget deal. Sununu was the genius who brought us liberal Supreme Court Justice David Souter, who denied conservatives the Supreme Court majority they had earned at the ballot box.
But the rejection of Bush’s failed budget deal by his own House Republicans was the defining moment that led to the historic Republican takeover of Congress in 1994, after still another tax increase to balance the budget in 1993. Gingrich’s leading role in that is a primary reason for conservatives to be supporting him. But so far it is being used against him, in New Hampshire and in the so-called mainstream, Democrat-controlled media. Shouldn’t conservatives be standing up for one of their own who fought so bravely and successfully against the odds for them before?
Clinton’s 1993 tax increase failed as well. The new Republican majorities in 1995 were greeted with a Clinton 1996 budget that still projected $200 billion deficits indefinitely into the future. That was confirmed by the CBO with a projection of $2.7 trillion in deficits over the next 10 years.
Those Gingrich Republican Congressional majorities then balanced the budget the supply-side way, cutting tax rates, on investment, and cutting spending. They adopted the largest capital gains tax cut in history, reducing the rate by nearly 30%, from 28% to 20%. Despite that cut, actual capital gains revenues soared $84 billion higher for 1997-2000 than projected before the rate cut.
Total federal discretionary spending, as well as the subcategory of non-defense discretionary spending, declined from 1995 to 1996 in actual nominal dollars. In constant dollars, adjusted for inflation, the decline was 5.4%. As a percent of GDP, federal discretionary spending was slashed by 17.5% in just 4 years, from 1995 to 1999. Total federal spending relative to GDP declined from 1995 to 2000 by 12.5%, a reduction in the federal government relative to the economy of about one-eighth in just five short years.
This was accomplished not just by reducing discretionary spending, but through fundamental structural reforms of some programs, such as the old New Deal AFDC entitlement program. The Gingrich Congress succeeded in block granting that program back to the states, after two vetoes from Clinton. Those block grants replaced the old federal matching funding formula with fixed finite funding that left the states responsible for 100% of increased spending, but gaining 100% from any savings. With those radically reversed incentives, within a few years two-thirds of those on the old AFDC program went to work, ultimately saving taxpayers 50% from where spending was heading under prior trends. But the poor going to work benefitted as well, with documented income increases of 25%. This is a model for further entitlement reform today. Gingrich also led his Republicans to adopt a phase-out of Depression-era farm subsidy programs through Freedom to Farm, which was later unfortunately reversed under Speaker Hastert and President Bush after Gingrich left.
As a result of these policies, the $200 billion annual federal deficits, which had prevailed for over 15 years, were transformed into record breaking surpluses by 1998, peaking at $236 billion by 2000. Over four years, the national debt held by the public was reduced by a record $560 billion in surpluses. When Gingrich left office, instead of CBO projections of $2.7 trillion in deficits over the next 10 years, CBO projected surpluses of $2.3 trillion over the next 10 years, a positive turnaround of $5 trillion.
This is what we need again today. But that is not what we will get from Romney’s establishment Republicans, who like the Bourbons of France, forget nothing, and learn nothing.
Social Security Tax Increases
Besides an income tax increase through a 1990 style budget deal, Romney’s establishment RINOs will bring us a payroll tax increase as well. That is because they are promoting substantial Social Security benefit cuts from what is promised under current law, including delaying the retirement age, and changing the basic Social Security benefit formula to reduce future benefits to be paid under current law eventually by as much as one-third.
The liberal Washington establishment will never allow such future benefit cuts even to be considered without accompanying payroll tax increases (for upper income workers no doubt). That would be a “balanced” package that will not solve Social Security’s long-term financing problem entirely “on the backs of seniors,” as the liberal establishment will put it. Just mark my words and pay me homage when it comes true. No such benefit cuts will ever see the light of day without accompanying payroll tax increases.
That is one reason why the intelligent, conservative, free market solution to Social Security is personal savings and investment accounts, which have worked in the South American nation of Chile so successfully for over 30 years now. Such personal accounts would reduce government spending far, far more than trying to cut benefits would, because the accounts don’t just trim the growth of benefits. They shift vast realms of such spending out of the public sector altogether into the private sector.
At the same time, because market investment returns are so much higher than what Social Security can even promise, let alone what it can pay, with purely tax and spend redistribution and no investment whatsoever, future seniors with personal accounts would enjoy much higher not lower benefits. That has been proved out in the real world, as has been seen in Chile, and other real world examples of such reform, such as for local government workers in and around Galveston, Texas. This is why personal accounts for Social Security are far more politically feasible than trying to cut Social Security benefits, which will never make much progress in cutting future government spending.
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