The Second Coming of Reaganomics

Perhaps even more stunning than the Republican landslide in the November elections is the GOP's claim to be the party of change. Long a reactionary bastion, the Republican party has been associated with balking at change in areas such as civil rights, the environment and social reform. Now, the new majority party is trumpeting the causes previously endorsed by liberals--change, progress, new ideals--and presenting the Contract With America as proof of its sincerity.

The Contract With America, however, is not a fresh approach to solving America's problems. Like the Republican rhetoric that accompanies it, much of the Contract is a cleverly packaged attempt to return to the policies of Ronald Reagan and George Bush. The Republican electoral strategy, as well as the issues and themes that the party continues to stress, also represents an intensified attempt to appeal to the racism, xenophobia and prejudice that has continued to divide America.

In the early 1980s, Ronald Reagan told Americans that their problem was government itself and promised that his plan to cut taxes would spur economic growth, increasing tax revenue. This brand of "supply-side economics" was known as "Reaganomics," but was best described by George Bush in a 1980 campaign debate as "voodoo economics."

The result of these policies? According to an article in U.S. News and World Report: "In the early 1980s, the Treasury Department lost $644 billion in foregone revenues...and there was no special burst of worker productivity or investment activity" ("The Repackaging of Reaganomics," Dec. 12, 1994). In fact, Congress overturned most of Reagan's economic strategies by 1986, but the Reagan-Bush team managed to increase the federal debt from under $1 trillion to over $4 trillion. At the end of the decade, income inequality had increased (due to gains for only the top five percent), and six million more people were living in poverty, bringing the total number of poor Americans to 30 million.

Yet, the Contract includes many tax cuts that mirror Reaganomics. It proposes cutting and indexing the capital gains tax, which would mostly benefit the wealthiest Americans. Capital gains already enjoy tax loopholes not available to other investments or income; for example, the top tax rate is 39 percent, but the capital gains tax rate is only 28 percent.

Indexing refers to adjusting taxable profits for inflation. However, interest profits are not indexed, so why index capital gains? Indexing only one type of investment would create distortions in the economy and many possibilities for new tax shelters. Furthermore, capital gains tax reform could result in the Treasury collecting no revenue from the tax--according to revisions in the tax code proposed by some conservative economists such as Harvard's own Professor Martin S. Feldstein '61. The claim that Treasury shortfalls from capital gains tax cuts will be compensated because the cuts will create growth (and thus tax revenues) from other areas is as fraudulent now as it was 15 years ago.

The Contract also includes generous tax breaks for corporations, such as increased depreciation allowances. After Reagan rewrote depreciation codes for businesses, big corporations such as Boeing. DuPont and Bankers Trust were able to avoid paying federal taxes while making huge profits, but Republicans evidently believe that more businesses should enjoy this opportunity.

The Republicans have become more shrewd, so they keep emphasizing the middle class tax cuts in their Contract. However, by their own estimates, the combination of their tax cuts is $200 billion over the first five years, which they plan to pay for with spending cuts. Since they also want to work towards a balanced budget and deficit reduction, even further cuts are necessary ($1.2 trillion in spending cuts are necessary just to balance the budget by 2002, the target year in the Contract). Social Security, Medicare and the retirement, defense, and agriculture programs together with the interest on the debt make up over 75 percent of the budget; making any attempt to drastically cut any of these items is virtually impossible.

Although the Contract leaves most spending cuts unspecified, it does call for decreased social spending--less money for crime prevention and tutoring programs for youth, and more money for prisons. Newt Gingrich is a fan of orphanages, but evidently not of food programs such as school lunches or breakfast programs.

Republicans rant about personal responsibility and the damaging effects of the welfare state, but their solution is to create an army of low skilled labor for workfare and minimum wage dead end jobs. Those who would rather raise their children, receive job training or cannot find jobs will be forced to rely on private charities, and more of the poor may end up on the street. While the Republicans can find no money for job training for welfare recipients, they are willing to increase the bloated Pentagon budget. Nevertheless, they are opposed to foreign intervention, even on a small scale such as the action in Haiti. President Clinton has even proposed a $25 billion increase for the military, but Republicans are anxious to outdo him.

The Contract With America attacks safety and environmental protections and regulations, especially under the guise of cost-effectiveness. Callous disregard for public safety is not new; in 1982, for example, the Reagan administration stopped the Department of Health and Human Services from issuing warnings that aspirin could cause Reye Syndrome if given to children with flu or chicken pox infections. Reye Syndrome caused about 360 deaths per year, as well as brain damage to many survivors, but the administration met privately with aspirin manufacturers who feared losses of $100 million, and was able to block warnings for three years. Another example is the administration's fight to block a ban on certain asbestos products which had been linked to cancer.

In his farewell speech as Governor of New York, Mario Cuomo said that many politicians had given up on the idea that political leaders should serve as shepherds, not merely parrots of public opinion who appeal to the lowest common denominator. The Contract is representative of this perverse brand of populism--promising the impossible to placate voters, and offering scapegoats for their frustration.

One of Gingrich's top advisors, Frank Luntz, encourages Republicans to agree to perform the inherently contradictory wishes of the electorate--cutting spending, cutting taxes, increasing military spending and balancing the budget. The Contract is cloaked in Orwellian language ("The Taking Back Our Streets Act," "The American Dream Restoration Act") that demonstrates the GOP's reliance on demagoguery and simplistic propaganda techniques.

Luntz also encourages Republicans to ignore Blacks and to try to appease angry white males. One of the best means of pandering to angry or frustrated voters is by blaming others for their problems. Thus, Republicans focus on getting tough with welfare recipients, although cash payments to them only account for one percent of the Federal budget. They feel free to attack illegal and legal immigrants and blame Democrats for mothers who kill their children. Republicans are also pressing for the repeal of Affirmative Action programs and civil rights statutes to provide a scapegoat for whites who are increasingly afraid of losing their jobs (especially to "unqualified" Blacks).

The Contract contains not one provision designed to increase the quality of life for the millions of impoverished poor children in the world's wealthiest nation. Republicans are also not addressing the serious long-term decline in real wages that is more critical to the middle class than tax cuts.

Instead, they are trying to feed on prejudice and promote class warfare. They are fostering an "us vs. them" division between "normal Americans" (the middle class) and the "parasites" (the poor), while the wealthiest quietly continues to amass a greater share of the economic pie. The American principles they claim to support are but a thin veneer for their ugly intentions.

While the Republicans are attempting to return to the policies of the 1980s, they are reaching further into the past to employ the same hatred that fueled Richard Nixon. Although he has passed away, his venal spirit clearly lives on.