Three of the last four Republican presidents campaigned for tax cuts that Congress passed and the presidents signed into law. These go primarily to businesses and wealthy individuals, which widens the gap between the wealthy and middle class.

Corporations buy back large portions of stock to enhance stockholder wealth rather than investing in plants and people. In each case the cuts led to major expansions of the deficit.

What are the consequences? Bill White in America’s Fiscal Constitution argues that reducing deficits remains part of our fiscal DNA. It follows that tax increases should occur in periods of prosperity. Before President Ronald Reagan, this strategy regularly produced budget surpluses.

Recent Republican presidents persuaded Congress to enact tax cuts in periods of prosperity. The theory, based on the “Laffer Curve,” was that a cut would stimulate additional growth leading to long-term gains in revenue. In each case the loss of revenue only led to an increase in debt.

President George W. Bush inherited a budget surplus that could’ve reduced the deficit or improved infrastructure. He opted for a prosperity tax cut that grew the debt and widened the gap between the wealthy and the middle class. The 9/11 attack delivered a shock that led to greatly expanded defense spending. This spending without taxation ballooned the deficit. The bubble burst in 2008 with the collapse of several financial institutions.

The subsequent response and “bailouts” began to mitigate the Great Recession. President Barack Obama maintained the recovery with a gradual easing of stimulus packages that led to sustainable growth in the economy, a rise in employment and a gradual reduction in the deficit.

President Donald J. Trump persuaded Congress that new tax cuts in the period of emerging prosperity would accelerate the expansion. The Congress responded and also spent money on defense rather than infrastructure. Again, a major redistribution of income from the middle class to corporations and the wealthy occurred. No mechanism to react to economic shocks was enacted.

Two shocks hit almost simultaneously. First, Saudi Arabia and Russia engaged in a series of oil price cuts to break the competitiveness of U.S. oil and gas development. This threatened the highly leveraged oil companies of West Texas and the Gulf of Mexico. Several fell into bankruptcy.

Then came the COVID-19 respiratory illness outbreak. U.S. intelligence agencies for decades had forecast the dangers of a pandemic but were routinely ignored. By 2020, policy had shifted to a trade rapprochement with China.

In spite of widely reported news of the pandemic in Europe and Asia, our focus remained on improving China trade policy. President Trump on Feb. 29 said: “We’re starting on another trade deal with China — a very big one.” Subsequently, the U.S. economy experienced a crash much worse than in 2008.

The prosperity tax cuts have again led to a collapse in the face of an oil price war and a pandemic. As predicted, our economy lacks the resilience that used to be part of our fiscal DNA.

Dan Freeman is an occasional columnist for The Daily News and lives in Galveston.

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(14) comments

Carlos Ponce

This column is filled with factual errors and omissions. The surplus GW Bush inherited was due to the efforts of Speaker of the House Newt Gingrich. Congress gave President Clinton a line item veto later ruled unconstitutional.

The tax cuts gave me extra money but I'm not a businesses nor wealthy. Apparently Dan forgets JFK's line, " A rising tide lifts all boats".

The increase in debt came from Congress. During Reagan's administration it led to a government shutdown as he tried to rebuild the military but Democrat s wanted to increase their salary. GW Bush's tax cuts would have worked to reduce the deficit if it were not for 911. And Obama sustained the economy by extending the GW Bush tax cuts in his administration. With over regulation what could have been more prosperous led to a modest economy.

The 2008 recession was not due to the tax cuts but to the housing bubble brought on by Barney Frank's actions.

Trump called for infrastructure spending but the Democrat House just wanted to impeach him. Pelosi's claim they could walk and chew gum at the same time was not met.

If you remember, Trump campaigned on bringing back manufacturing jobs to the United States. He knew of our over dependence on China for goods especially in the medical field.

He put out an Executive order in September 2019 to expedite the creation and production of vaccines for a flu pandemic which crossed over to the Wuhan Coronavirus. They've had a vaccine, in fact several vaccines in the works which are undergoing testing.

The oil price drop was due to actions by Saudi Arabia and Russia.

Bottom line is our economy is resilient as will be noticed in gains within a few months.

Jason Furman, President Barack Obama's former economic adviser told a group of Democratic and Republican officials on a Zoom call in April 2020, “We are about to see the best economic data we’ve seen in the history of this country."

https://www.politico.com/news/2020/05/26/2020-election-democrats-281470

Charles Douglas

...and he did not even give a shout out nor a hello to Oft! How disrespectful to Oft!

Emile Pope

Garbage. When the country thrived under Bill Clinton, you give a republican house credit even though for the first few years the House was in Democratic control and well on the way to prosperity. The tax increases that brought about the economic boom were passed in 1993, two years before Gingrich became speaker. Furthermore, the actions President Obama took to restore the economy were done when the house AND senate were Democratic. It's always the same. The Democrats create prosperity and a surplus and then the Republicans come along and give tax cuts to their rich friends and drive up the deficit. All you do is give lame excuses for the failures of Republican presidents ("it was 911, it was the Saudis, it was Barney Frank...). Was Barney Frank president? Did he sign the bills into law?

Carlos Ponce

"for the first few years the House was in Democratic control and well on the way to prosperity." So that's why the House flipped RED in the 1994 midterms.

"he actions President Obama took to restore the economy were done when the house AND senate were Democratic. He did extend the GW Bush tax cuts.

Barney was a ranking committee chairman who refused to heed GW Bush's warning in his State of the Union message to fix the problem. No reform led to the recession - but he did get his boyfriend the job to head Fannie Mae who then bought up risky mortgages leading to the housing bubble..

Emile Pope

The President is responsible for the economy. He sets the tone and signs the bills into law for his agenda. To blame or give congress credit is ridiculous...

Carlos Ponce

"he signs the bills into law for his agenda" - And when there is no bill to sign, blaming the president is inane. GW Bush asked for a bill, Barney and friends chose to ignore that request.

Emile Pope

What you wrote is totally false. In fact the opposite was true. Frank tried to pass a bill to tighten regulations but Bush and the Republicans opposed it.

Carlos Ponce

Proof?

Carlos Ponce

Here's help for you, Emile:

"H.R. 3838 (110th): To temporarily increase the portfolio caps applicable to Freddie Mac and Fannie Mae"

https://www.govtrack.us/congress/bills/110/hr3838/text/ih

By the way, the 110th Congress House was run by DEMOCRATS, Speaker Nancy Pelosi. Democrats had 233 members, Republicans 202. It never got pass the House. It died in committee. Never made it to the Senate. Never made it to President Bush. And you posted, "but Bush and the Republicans opposed it". Seems that Democrats opposed it.

Emile Pope

You proved my point. The financial crisis started when Congress and the presidency were in republican hands. How could Frank be responsible for something that happened before he was in control of anything?

Carlos Ponce

Emile, the problem started thirty years prior. I remember when discussion of these risky low interest mortgages was discussed during the Jimmy Carter administration and they could lead to problems in the future - and they did. Fannie Mae started in the 1930s during the FDR administration. Freddie Mac was created in 1970 during the Nixon administration. But their role was altered during the Jimmy Carter administration to allow more risky mortgages.

Bailey Jones

The economy will do just fine. It's people who will suffer.

Stuart Crouch

Sad, but true. (And apparently, some of them will never understand, nor accept the truth as to why.)

Carlos Ponce

" It's people who will suffer."

"And the God of all grace, who called you to his eternal glory in Christ, after you have suffered a little while, will himself restore you and make you strong, firm and steadfast."1 Peter 5:10

"For our light and momentary troubles are achieving for us an eternal glory that far outweighs them all."2 Corinthians 4:17

Pray for those who suffer -

" Carry each other’s burdens, and in this way you will fulfill the law of Christ."

Galatians 6:2

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