A Warning From Reagan’s Budget Director

In this era of out-of-control political spin I find myself more and more drawn to former political figures – people who have permission to address reality.  David Stockman is old favorite of mine who, in that outsider role, keeps delivering the goods.

I’m probably revealing a bit too much about the giant nerd that I am when I explain that Stockman was a childhood hero of mine.  As a bright-faced wunderkind he led Reagan’s negotiations with Congress over his hallmark 1981 tax cuts.  He was always too candid for politics and his mouth kept him in hot water throughout his four turbulent years as Reagan’s Director of the Office of Management and Budget.

He warned at the time that the tax cuts the Administration was pursuing must be accompanied by reductions in spending or they could lead to catastrophe.  He was rewarded by being  “taken to the woodshed” for his lack of message discipline.  His old warning is poignantly prophetic now and he hasn’t abandoned the theme.

While preparing more comments about the competing deficit proposals I found Stockman’s latest New York Times editorial.  It stopped me in my tracks, saying everything I wanted to express in much clearer language.  I can’t reproduce it entirely, though I very much want to.  You just don’t see this kind of candor in our politics.  I encourage you to read the whole thing here, but I’ve pasted an excerpt below:

“It is obvious that the nation’s desperate fiscal condition requires higher taxes on the middle class, not just the richest 2 percent. Likewise, entitlement reform requires means-testing the giant Social Security and Medicare programs, not merely squeezing the far smaller safety net in areas like Medicaid and food stamps.

“Unfortunately, in proposing tax increases only for the very rich, President Obama has denied the first of these fiscal truths, while Representative Paul D. Ryan, the chairman of the House Budget Committee, has contradicted the second by putting the entire burden of entitlement reform on the poor. The resulting squabble is not only deepening the fiscal stalemate, but also bringing us dangerously close to class war.

“This lamentable prospect is deeply grounded in the policy-driven transformation of the economy during recent decades that has shifted income and wealth to the top of the economic ladder. While not the stated objective of policy, this reverse Robin Hood outcome cannot be gainsaid: the share of wealth held by the top 1 percent of households has risen to 35 percent from 21 percent since 1979, while their share of income has more than doubled to around 20 percent.

“The culprit here was the combination of ultralow rates of interest at the Federal Reserve and ultralow rates of taxation on capital gains. The former destroyed the nation’s capital markets, fueling huge growth in household and business debt, serial asset bubbles and endless leveraged speculation in equities, commodities, currencies and other assets.

“At the same time, the nearly untaxed windfall gains accrued to pure financial speculators, not the backyard inventors envisioned by the Republican-inspired capital-gains tax revolution of 1978. And they happened in an environment of essentially zero inflation, the opposite of the double-digit inflation that justified a lower tax rate on capital gains back then — but which is now simply an obsolete tax subsidy to the rich.”

***

And on it on it goes.  This candid assessment comes from the architect of Reagan’s campaign to remake the federal government.  He helped build the system he’s now working to reform.

When you’re so used to being shilled this kind of candor is a deeply mixed pleasure, like facing the noonday summer sun after you’ve been working in a dark basement.  Call me naive, but I actually believe that the country would embrace a credible political figure from either party who had the brass cajones to tell us the truth.  I really wish someone would try.

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