Budget Lessons from the Past

Riding on the T last week, I heard a faint groan, and looked up to see several people shaking their heads as they scanned the Globe's front page.

"What's wrong?" I asked. They glanced at me and then each other. "Oh, we're just reading about Clinton's economic proposals."

Incredibly enough, that was their only reaction: an apathetic head-shaking. These were the hard working people who will be most hurt by Clinton's proposals.

Watching the president's economic address last week, I could muster a great deal more than a head shake. I was outraged: yelling at the television, covering my eyes, pulling at my hair. After the initial shock, all I could do was mutter, "How could he do this?" My roommate, a strong Clinton supporter during the campaign, even chimed in to say that he was glad he wasn't a senior in search of a job.

Most presidents are well intentioned, and Bill Clinton is such a president. However, his economic plans are mis-calculated if he believes that they will lead to expansion and decrease the deficit.

Jimmy Carter, the last liberal to serve as president, was also well intentioned. He, like Clinton, wanted to cut the growing budget deficit. He knew that he needed revenue to offset the spending programs on his liberal platform.

But Carter was devoted to that spending, and stuck with high tax rates in an attempt to fund his programs. When Carter was president, personal and corporate income tax rates were among the highest they have been in U.S. history. The result was stagflation: high inflation, growing unemployment, loss of consumer confidence, and, contrary to the president's goal, an ever increasing budget deficit. This type of deficit spending crowds out investment, discouraging growth and job creation.

Jimmy Carter raised taxes and spent the revenue on government programs.

Ronald Reagan acted differently. He recognized that the deficit was a growing problem, but had the judgment to realize that it was a problem of spending, not of revenue. Reagan, a realist, knew that Congress members--whose main goals were re-election--would resist any spending cuts the administration proposed.

So Reagan worked to spur expansion, lowering taxes and giving Uncle Sam less involvement in the lives of Americans.

The result was the most sustained peacetime growth in the nation's history. Nineteen million jobs were created, inflation dropped, consumer confidence was restored, and government revenues grew at a faster rate than they had under Carter's heavy tax rates in the late 1970s.

Under Reagan, the deficit didn't shrink--in fact, it grew. But blaming Reagan for the soaring deficit isn't entirely just; only Congress can cut spending.

Ronald Reagan expanded the economy and avoided deadlock on spending cuts.

Reagan did what he could to help the American economy. He pursued policies that were certain to increase government revenues--and that were certain to pass. By avoiding deadlock on spending cuts, Reagan ensured himself political clout for his economic growth programs.

George Bush--expected to be a Reaganomics disciple--proved himself more similar to Carter than to Reagan. Bush didn't continue the program of low taxes and decreased government intervention that had produced years of growth. Instead, he reverted to raising income taxes and wound up in a recession. The economic downturn would have been worse if not for Federal Reserve Chair Alan Greenspan, who kept interest rates and inflation low.

In November, Bill Clinton capitalized on Bush's failures, promising us hope and change. But so far, he has instilled little of either in Washington.

It's hard to be hopeful when you know the damage that large tax increases will cause. Higher taxes decrease the money that people have to spend, which is what drives the economy. Taxes also decrease Americans' savings, which are used to fund investment and growth.

And Clinton's proposed increases in corporate taxes will decrease business' incentives to grow, leaving fewer new jobs for college graduates or anyone else. Bill Clinton said he knows that the private sector creates jobs, yet his intended policies will discourage that same sector of the economy from doing so.

And what about Clinton's "change" rhetoric? The president's plan rings of Carter liberalism, and is reminiscent of the mistakes that cost George Bush an election. Sure, Clinton offers some nifty little items, like summer jobs and highway construction, that should stimulate short term growth. But that's short term fluff, not growth. It boils down to more government spending. Not much change there.

Clinton only vaguely outlined his plans to curb spending. He only specifically mentioned cuts from the Pentagon budget, and he ear-marked all of those savings to support a host of new social programs.

Bill Clinton is operating in a dream world if he thinks lobbyists are weak and members of Congress don't worry about re-election. Thirty-four of the senators that Clinton addressed last week are up for re-election this year. It is hardly in their best interests to raise taxes a great deal and cut spending.

Lobbyists for many special interest groups hold a great deal of power in Washington, and always have. After all, lobbyists finance re-election campaigns and provide many of the perks that low-paid senators and representatives have come to expect. Why does Clinton think they will suddenly become impotent? He doesn't seem to understand how Washington works.

Jimmy Carter critics said that the president stayed too long in Georgia before he came to Washington, and therefore lacked a good feel for federal politics. Bill Clinton may have remained in Arkansas too long.

Clinton is an intelligent man who seems sincerely passionate about improving this country. I want him to succeed--so do my roommate and the Globe readers on the T. But repeating the mistakes of the past will not help us. To retain our economic leadership position, we need policies based on code words like "expansion" not retrogressive terms like "sacrifice."

The President should learn from a man whom he claims to emulate in style if not in practice: Ronald Reagan. The growth in the 1980's speaks for itself. In a recent New York Times op-ed piece, Reagan laid out a lesson for the current president: "But let us remember that deficits are caused by spending. By the very terms of our Constitution, only Congress has the power to spend [or cut spending.]"

Bill Clinton should do what's right and back off of his new tax-and-spend proposals, especially now that the economy is beginning to grow. He should leave the responsibility of spending cuts where it belongs--on Congress's shoulders.