The New Administration: Reagan In Reverse

Gary Andres is vice chairman of research at Dutko Worldwide in Washington, D.C., and a regular contributor to The Weekly Standard Online.

Bernanke said policymakers need a bold plan to correct the deficit or else face dire consequences. Our "near-term challenges must not be allowed to hinder timely consideration of the steps needed to address fiscal imbalances. Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth."

He's not alone. The Congressional Budget Office and private forecasters share these worries. Concern about the president's handling of the deficit and debt are also spreading to the general public. While 67 percent approve of Obama's job performance overall, only 45 percent of Americans approve of Obama's handling of federal spending, and 46 percent of his handling of the federal budget deficit, according to a new Gallup poll.

The White House is a lot better at dealing with public criticism than balancing the budget. Earlier this week Obama called for restoration of "pay as you go" (PAYGO) rules to curb the mounting debt, which means any new spending would be offset by other cuts or tax increases. But as Senate Budget Committee Chairman Kent Conrad (D-ND) has said, it may be too little to late. He told ABC News, the plan "does not address the deficits and debt projected under existing policy."

For now, the White House's posture of periodically genuflecting to the altar of deficits while conducting a revival of new spending at least makes political sense. The new president campaigned on a platform of change and activism. His instincts and ideology lead him to larger government. Large majorities in Congress further empower his goals. His liberal backers waited at least eight years for this moment. Truly promoting fiscal austerity at this moment in time is like ordering rice cakes at a steakhouse.

But Obama may have a broader ambition. He wants to be Ronald Reagan in reverse. Running up the debt, creating a host of new budgetary commitments and enlarging the government's role in the economy will take generations to unwind. And the engines of bigger government also require fuel in the form of taxes.

Reagan did the opposite. He cut taxes to make government expansion harder. Obama is transposing Reagan. He is growing government to make future tax cuts more difficult.

True, Obama promised tax cuts to 95 percent of Americans. That leaves a small percentage of individuals and businesses to bear the burden. Based on budget forecasts and other White House policy proposals, his math seems fuzzy. Maybe most Americans won't pay higher federal income taxes for the time being, but Obama's plans to enlarge the federal government could mean higher out-of-pocket costs for individuals and businesses due to legislation ranging from climate change to health care reform.

Further, Democrats in Congress are determined to outbid even Obama in federalizing more programs. For example, buried in the energy bill the House will consider in upcoming weeks is a provision giving the federal government new powers over local building codes, according to a recent Washington Post editorial. And based on the Democratic majority's plans in a host of other areas, there is a lot more to come.

But one thing is clear: tax cuts don't fit into the White House's long-term fiscal picture. And for a president who wants to be Reagan in reverse, that's just fine. Just as Reagan used tax cuts to trim the size and scope of Washington's ambitions, Obama is enlarging the government to take them off the table.

Liberal budget experts already join the chorus. Given the grim fiscal realities, cutting taxes would be "irresponsible." How can we reduce revenues given all our obligations and a sea of red ink?

Many still think Obama will pivot at some point in time and get serious about the deficit. But new federal programs and regulations develop stakeholders and interest group support. Like dandelions, they tend to multiply rather than go away on their own. And the President's PAYGO gambit won't make much of a difference either. Iowa senator Charles Grassley said on Tuesday the plan is a "fig leaf to appease those who say they support fiscal discipline but continue to vote for more spending." Many believe PAYGO also makes future tax cuts more difficult--another reverse Reagan outcome.

Finding fuel for new economic growth is Obama's larger challenge. Reducing the tax burden is more than just ideological symbolism; it's an important tool to propel economic growth. With an enlarged public sector, and tax cuts off the table, we run the risk of entering a fiscal death spiral: a sluggish economy means shrinking tax revenues, producing even larger deficits and debt. Financing these growing obligations also means higher interest rates, which hampers economic growth even more. It's hard to see how the current path doesn't lead to higher taxes to close budgetary gaps, which again, is a reverse Reagan outcome.

Reagan believed tax cuts served not only as a stimulus for economic growth, but as a tool to keep the size of the federal government in check. Obama is trying the antithesis. By growing the size and reach of Washington he makes tax cuts seem like an impossible dream--truly a nightmare for those who agree with Ronald Reagan's belief that a bloated federal leviathan is inconsistent with both fiscal stability and economic growth.

By Gary Andres
Reprinted with permission from The Weekly Standard