Learning from defeat

Mainstream pundits seem convinced that Republicans will be the majority party for the foreseeable future. Republicans advocate popular themes: low taxes, political decentralization and national security. Just to be safe, they inoculate themselves against potentially harmful attack from the left with a little compassion for public schools and prescription-challenged seniors. That this recipe has worked in the short run is clear.

Yet will the agenda succeed over the next decade? Can Democrats – or any opposition party – develop a politically viable response?

Pundits assume that the Republican agenda is internally consistent. Yet low taxes may not easily co-exist with Republican conceptions of national security, let alone with even modest investments in schools and prescription drugs. Current discussions of adding nearly $50 billion to the military budget are often accompanied with caveats that even this amount is only a down payment.

Low taxes and boosts in military spending will surely be accompanied by rising deficits. Whether these deficits are economically – and politically – sustainable depends on the strength of the economic rebound. Wars, especially troop call-ups, can stimulate economies by absorbing some of the recently unemployed. Nonetheless, high-tech military spending offers few long-term economic advantages. Spin-offs to the civilian economy have become more rare. Large military budgets also may deprive the economy of capital needed for long-term energy, transit and research and development expenditures.

In the short term, the residue of the current slowdown still haunts us. The last two years have left governors of both political parties with agonizing choices. Former Budget Director Alice Rivlin reports that even before signs of a stalling recovery, state governments faced base line spending targets totaling $57 billion more than anticipated revenues.

Republicans argue that such projections reflect years of bloated state programs and that these deficits should occasion major cuts. Syndicated columnist Neal Peirce has recounted one Republican state official’s careful effort to accept the implications of its budget projections: “Wisconsin … faces a $2.8 billion budget gap. Mark Bugher, a 12-year veteran of former Gov. Tommy Thompson’s administration, recently headed a blue-ribbon, bipartisan panel trying to figure out what the state can possibly do. The panel’s bottom line: slashing spending alone won’t suffice. As Bugher recently told Stateline.org: ‘It would entail closing departments like corrections ,… shutting down major universities. It would be a traumatic evisceration of public services.'”

Even Republicans from Maine to California will likely reject closing prisons or state university systems. Since state governments, unlike the federal government, cannot incur operating deficits, it will be a rare Republican or Democratic governor who does not soon resort to some tax or fee increase.

For many key programs, the social and economic consequences of raising taxes will be less severe than major cuts to the programs. Nonetheless, the problem is that state level tax increases in the midst of an already sluggish economy threaten to dampen both state and national economic recovery.

The time is ripe for Democrats to become the party of Federal tax reduction and federalism with a human face. Heretofore the party has played a losing hand by critiquing Bush’s tax reductions on the grounds that the deficit is rising. Increases in the deficit during an economic slowdown are expectable and appropriate. Aside from equity issues, the problem with Bush’s tax cut is that wealthy citizens spend less of their tax cuts – and much of their savings goes to nonproductive stock market speculation and to real estate. Molly Ivins is right to suggest: “Every single nickel of tax relief in [the Bush] package will stay in it, but instead of giving 50 percent of the cut to the richest 1 percent … we’re going to put that tax relief into a payroll tax cut. The money goes into the pockets of people who go right out and spend it.”

Democrats also ought to demand that Republicans put their money where their mouths are. The GOP often denounces “unfunded mandates.” Nonetheless, unless the party intends to treat public and university education and even prisons as local options, it cannot leave states in a position where major economic downturns necessitate either closure or self-defeating local tax increases. Richard Nixon, the first Republican to advocate a “new federalism,” also backed up his rhetoric with a commitment to revenue sharing. More recently, Alice Rivlin has proposed “counter-cyclical revenue sharing” – a formula for federal support for states to be triggered by rising joblessness or other indicators of a weakening economy. The aid would phase out as the economy recovers.

In current circumstances, the emergence of a new Democratic majority might depend on the willingness of the party to learn some lessons both from its recent defeat and even from some of its historic archenemies.

John Buell is a political economist who lives in Southwest Harbor. Readers wishing to contact him may e-mail messages to jbuell@acadia.net.