WED 2-22-06 EDITORIAL >> Rewriting History
Anyone who could do that makes a good argument for being governor of Arkansas, although the state government does not have a problem with deficits. The state government never runs deficits because it can’t. But we could use that kind of savvy in the chief executive’s office, couldn’t we?
The trouble is, Hutchinson’s ac-count doesn’t square with history.
Here, exactly, is what he said, according to the account in the Arkansas Democrat Gazette:
“When I went to Congress in 1997, we had a $200 billion deficit. We had deficits as far as you could see in the future and we hadn’t had tax cuts in 16 years. Well, we wanted to enact tax cuts to spur our economy on, to put more trust and confidence and money in the entrepreneurs of our country. We did that, and people said you’ll never be able to pay for the needs and address the problems of the deficit. Well, we enacted tax cuts and balanced the budget three years ahead of time and reduced that $200 billion and balanced the budget.”
The Rotarians surely wondered: “Wait, balanced budgets? Isn’t the country running mammoth deficits now, and aren’t they projected for ‘as far as you can see in the future’? And haven’t the same Republicans been in charge of government?”
But we’re getting ahead of ourselves. Hutchinson’s first error was claiming that the United States ran a $200 billion deficit in 1997. The deficit that year was only $21.9 billion, the smallest one since 1974. The tax cuts that Hutchinson spoke of were enacted at the end of July, two months before the fiscal year ended. The deficits, which peaked at $290 billion in President George H.W. Bush’s last year, had been going down by big leaps every year afterward, starting after the tough budget package (spending cuts and tax increases for the well-to-do) that President Clinton pushed through Congress in the spring of 1993. By July 1997, the government had finally turned the corner and was running in the black. Fiscal 1998, which began Oct. 1, 1997, produced the first surplus since 1969 and the largest one in history. By 2000, Clinton’s last year as president, the surplus hit $236 billion.
Hutchinson later said he was not saying that the deficit was exactly $200 billion in 1997. He meant that there were forecasts back then that all the deficits combined over the next five years could total $200 billion.
His point, nevertheless, was that the tax cuts the Republicans put through in 1997 ended deficit spending and caused a big economic surge that produced balanced budgets and surpluses. Supply-side theorists may believe that, but it is nonsense. The tax cuts for the wealthy were phased in over several years and their full impact was not supposed to occur until 2002.
The package also included smaller tax cuts for the middle class that Clinton insisted upon, major non-defense spending cuts and a costly new children’s health-insurance program that Clinton demanded. By 2002, President Bush and Hutchinson and his colleagues had adopted a new tax-cut program and the nation was running annual deficits again that dwarfed those of the halcyon Reagan-Bush days.
If easing taxes on investors’ earnings a little in 1997 produced such wonders, why did even bigger tax cuts for the same people in 2001, 2002 and 2003 lead to staggering deficits, job losses and a sluggish economy? And can we expect the tax cuts that he promises as governor (he has mentioned one: a tax loophole for energy-using manufacturers) to be as fruitful?
He will get to those questions maybe if the Rotarians will invite him back.