America’s old right has a bad fiscal memory

America’s old right has a bad fiscal memory
America’s old right has a bad fiscal memory

In the ongoing battle to determine the future of American conservatism, Republicans championing the tax cuts, free trade and union-busting that dominated the party before the rise of Donald Trump want to cast themselves as the authentic choice. But GOP voters have become deeply skeptical of globalization, big business and Wall Street. They identify more and more with the interests of workers. The corporate Republican agenda, formulated more than 40 years ago, is no longer particularly attractive, writes Oran Kass, executive director of American Compass, for the Financial Times.

Thus, the old right, looking for a favorable terrain on which to confront what it perceives as a harmful “populist” new right, has fervently claimed the mantle of “fiscal discipline.”

In an op-ed for the Wall Street Journal, former US Senator John Danforth warned that “populists are now trying to uproot policies deeply rooted in Republican conservatism. We are the party of fiscal discipline, but the national debt has grown by nearly 40 percent during the Trump presidency.”

Robert Doarr, president of the business-friendly American Enterprise Institute, cited Danforth’s arguments approvingly of “traditional conservative principles against the howling of the populist New Right” and warned that “the statist policies that populists embrace have much more in common with Democratic progressivism, than with the conservatism of the limited state’.

In his analysis of the GOP’s January House Speaker saga (recently ousted Kevin McCarthy was elected by double-digit votes), former Speaker Paul Ryan declared that Trump is “fading fast.” and applauded “Republicans returning to their mantra of fiscal responsibility.”

During her campaign for the Republican presidential nomination, Nikki Haley criticized Trump on similar grounds, complaining that he “did nothing on fiscal policy and spent a lot of money, and we’re all paying the price.”

Which Republican party are they thinking of? Certainly not for the US, which has doggedly increased deficits at every opportunity for more than four decades. Danforth is correct that the national debt has grown by nearly 40 percent during Trump’s presidency, but that is downright modest by the standards of his predecessors.

The national debt rose 72 percent during Ronald Reagan’s first term, another 66 percent during his second, and then 54 percent under George W. Bush. George W. Bush saw debt increases of 31% and 36% respectively during his two terms as president.

For one thing, percentage growth may not be the right measure. The 40 percent increase in the $20 trillion debt that Trump inherited is far greater in absolute terms than the 72 percent increase in the $1 trillion debt at the start of the Reagan presidency. Debt growth as a share of GDP is a more useful measure, and by that standard Trump’s 22 percentage point increase is far greater than the “contribution” of other recent Republican presidents.

On the other hand, the last year of Trump’s term included the onset of an unprecedented global pandemic that caused large one-time spending and accounted for more than 90 percent of the growth in the debt-to-GDP ratio. In Trump’s first three years, that ratio increased by just 2 percentage points — less than in the first years of previous Republican presidencies.

Perhaps more importantly, the source of the Trump-era deficits deserves a closer look. In 2016 (at the end of which he was elected), US government revenue was 17.6% of GDP, while spending was 20.8%, resulting in a deficit of 3.2%. In 2019, the Trump administration’s last pre-pandemic year, the deficit had risen from 3.2% to 4.6% of GDP, but spending increased by just 0.2 percentage points while revenues fell by 1.2 points , thanks to the budget-eroding tax cuts proposed by then-House Speaker Paul Ryan and vocally supported by the old-right faction of Congress, which is now pushing for a return from Trump’s extravagance to fiscal discipline.

Not only did this tax cut fail to “self-finance,” it also failed to achieve significant economic benefits. In fact, according to the measure favored by the Economic Council of the Trump White House, business investment contributed no more to growth after the tax cuts than before. Growth itself has slowed. The story should sound familiar, given that it echoes the experience of George W. Bush’s tax cuts 15 years ago, which also saw tax revenues fall and deficits grow.

Yet the lesson has not been learned. If conservatism is to regain its footing, the new right will need better solutions than what Trump is proposing. But going back to what was before it is not a solution at all.

The article is in bulgaria

Tags: Americas bad fiscal memory


NEXT The housing market is tired of the euphoria