In conversations with Republicans and conservatives, one common response when they are asked about the economic woes facing this country has to do with the rapidly expanding deficits and the national debt. To begin, it’s first important to understand exactly what these terms mean. A deficit is when the government spends more money than it takes in in any given year. The sum total of these deficits, constitute the national debt. Currently, the United States National Debt stands at just over 16 trillion dollars and if that sounds like a lot of money, that’s because it is. It is not however the greatest challenge currently facing the United States economy. This post will take a closer look at the underlying differences between the two major political parties, in terms of how they understand the struggles of the nation’s economy.
As pointed out earlier, conservatives, in recent years, have often warned of an impending debt crisis driven by what they perceive to be crippling budget deficits. Tensions are always high during election years, which only amplifies the urgency of their warnings. In the wake of the recession Republicans have taken to arguing that excessive government spending, particularly on social programs, has dampened the recovery by bloating deficits, often citing Obamacare yet not realizing that the CBO found the law actually cuts the deficit. In fact, Obamacare was one of the most popular rhetorical punching bags during the Republican primary (perhaps second only to the President himself) and still comes up regularly in Governor Romney’s stump speeches and other campaign messaging, regardless of the fact that the most reliable guide we have for the budgetary impact of these laws takes the exact opposite view. This is just a side note in the larger fight between Democrats and Republicans about the scale and scope of the U.S. government itself.
If Republicans, in general, were truly committed to the idea of cutting deficits then one would expect the economic vision laid out by the Republican nominee for President of the United States would work to cut the deficit. As the dramatic lead-in may have suggested, this has not proven to be the case. Romney’s plan actually calls for $2 trillion dollars more in military spending than the Pentagon has requested. The independent Tax Policy Center pointed out that Governor Romney couldn’t meet all of the specific commitments he had made on his tax plan, without either increasing the deficit or increasing taxes on families making under $200,000 a year, both of which he has openly and often vowed not to do. It’s also important to point out that the same study from the Tax Policy Center found that the Romney plan would raise taxes on families making under $200,000 a year while lowering the tax burden of families making over that amount. The average millionaire would see a tax cut of $175,000. It’s also important to note that a large portion of the current U.S. debt is from two wars which were never paid for, as well as from an expansion of Medicare and a giant economic collapse all under the Bush Administration. The Republican concern for budget deficits is, in reality, a feint, apparently meant to conceal the fact that their true intent is to cut the tax burden of the wealthiest Americans and to achieve this end Republicans are putting social programs on the chopping block. Tacked onto this strategy is a constant chorus of opposition to any attempt to regulate private enterprise in any way, which again disproportionately favors the wealthiest Americans. This straight line from a supposed entitlement society, propped up by onerous taxes on personal and corporate wealth, to a bloated, overburdened government and the collapse of 2008 basically encapsulates the collective Republican imagination of the economy. This belief lives in symbiosis with an understanding of government as an impediment to economic growth.
In contrast to Republicans, who point to deficits and debt as the primary concern in the current economy, many, if not most, Democrats would say the primary issue is the job shortage following the financial crisis. As a matter of economic theory, this fits in with demand-side economics. The gist of this theory is that lowering taxes on companies doesn’t encourage them to hire workers. Companies will only hire more workers when more is demanded than they can produce with the machines and labor already available to them, which means that cutting their taxes provides more benefit for people who own and manage companies than for the people who work for them or the people who can’t find any work at all. The easiest way to increase people’s general demand for things, is to increase the amount of money they have in their pockets. Here, in some sense, conservative (note that the word conservative is not necessarily synonymous with Republican) theory has a point. If one reduces the taxes that individual people pay, they will have more money to spend. The catch is that this effect is much less substantial for people with high incomes. Think about it this way, there are only so many CEO’s and a CEO only needs so many private jets and all the relatively few extravagantly wealthy CEO’s with all the private jets they buy with their newfound after-tax wealth don’t make up for the sheer volume of everyday consumer items families with more modest means would purchase if they suddenly had a few hundred extra dollars. Put simply, demand-side economics purports that the economy is driven by the sum total of all American consumers’ demand for stuff which makes tax cuts for lower and middle incomes much more effective than at the high end of the scale.
In fairness, Governor Romney has promised that his tax plan, will lower taxes on middle-income families, contrary to the findings of the Tax Policy Center, while the CBO points out that under Obama the average federal tax rate is the lowest it’s been in 30 years. Obama also supports the extension of the Bush Tax cuts only for people making under $200,000 dollars a year. Even if his claims about his tax plan were true, Governor Romney, as part of the Republican’s public focus on deficits, has promised to slash the budgets for social programs that provide help to low and middle income families. As a result of these proposed actions, individual families would be forced to spend more money out of their own pockets to pay for things like healthcare and education at the mercy of the private market. What remains, after one examines the proposals and the past actions of each of the two candidates, is a pretty good description of the core of each party. Republicans are primarily concerned with cutting taxes for wealthiest sections of America while Democrats believe that growing demand by helping out the middle class whenever possible, even if it sometimes means running a deficit.
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