By Peter Ferrara
(Forbes) In 1980, George H.W. Bush was making much the same argument against Ronald Reagan that Mitt Romney is making this year. Bush argued that he was the most electable against hapless Jimmy Carter. The big money Republican establishment was behind Bush because they feared that Reagan was too radical to win, and would carry the entire party down to historic defeat, like Goldwater did.
Reagan even lost Iowa to Bush on that argument. But Reagan carried forward the pro-growth economic message that ultimately swept him to the nomination, and then to landslide victory in the fall, his coattails handing the Republicans control of the Senate, and effective control of the House.
After two Reagan landslide wins, it took George Bush just one term to trash the Reagan coalition, crawling out of town in 1992 with just 38% of the vote, barely better than Alf Landon in 1936.
Romney assured Massachusetts voters running for the Senate in 1994 that he did not want to go back Reaganomics. He was one of the few Republicans that year to refuse to sign on to Newt Gingrich’s Contract with America. He was also one of the few Republicans to lose that year.
True enough, even today he is promising not to take America back to pro-growth Reaganomics. Cowed by President Obama’s class warfare rhetoric, Romney promises to eliminate taxes on capital gains, interest, and dividends, only for middle income Americans. He says he would do that because they were the one’s most hurt by the recession, not the wealthy.
But effective tax policy does not distribute tax cuts based on who “needs” a tax cut the most. That is Obama neo-socialist class rhetoric. Effective tax policy enacts tax cuts that will do the most to promote economic growth and prosperity.
That is what Reagan did in cutting tax rates across the board for everybody, including the wealthy who have the most resources to invest. That is what the middle class and working people actually need most, cutting tax rates that will promote their jobs, higher wages and personal prosperity. But Romney the establishment businessman does not seem to understand this, and certainly feels, like the Bush I Republicans, that he cannot explain or defend this to the public.
On monetary policy, Romney again thinks like an establishment, country club, Republican businessman. He thinks devaluing the dollar against the Chinese currency is the key to restoring growth to America. But that cheap dollar policy actually only discourages the investment in America essential to getting the economy booming, as investors fear lower returns from a declining dollar, inflation, and the boom and bust cycles that such policies cause. Reagan favored a strong dollar policy that slayed an historic inflation, and drew skyrocketing investment capital to America from around the world, resulting in an historic, 25 year, economic boom.
With Mitt Romney as the nominee, the Republican Washington Establishment will be back in charge. Given those advisors, I predict the first thing President Romney would do is agree to the same 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. As a result the deficit soared after that 1990 budget deal as well, from $221 billion in 1990, to $269 billion in 1991, to $290 billion in 1992. No wonder the voters booted him out.
Today, Romney cheerleader and former Bush White House Chief of Staff John Sununu is 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.
That 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 CBO with a projection of $2.7 trillion in deficits over the next 10 years.
Those 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 to 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%. By 2000, total federal discretionary spending was still about the same as it was in 1995 in constant dollars. 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 5 short years.
This was accomplished not just by reducing discretionary spending, but through fundamental structural reforms of some programs, such as the old AFDC program. The Gingrich Congress succeeded in block granting that program back to the states, after further showdowns and 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 phaseout of Depression era farm subsidy programs through Freedom to Farm, which was later unfortunately reversed under Speaker Hastert and President George W. Bush after Gingrich left.
The result of these policies was balanced budgets sooner than expected. 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 4 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.
Since 1896, only Republicans who have campaigned on a pro-growth platform have been elected. Mitt Romney, instead of being the most electable, is firmly in the tradition of Thomas Dewey, Jerry Ford, Bob Dole, and John McCain.