Determined to Cut Taxes Once Again, Republicans Use New Math to Reshape Reality

In 2004, an unnamed senior White House staffer, widely thought to be political adviser Karl Rove, gave a famous interview to Ron Suskind, “The aide,” Suskind wrote, “said that guys like me were ‘in what we call the reality-based community,’ which he defined as people who ‘believe that solutions emerge from your judicious study of discernible reality.’”

But, the anonymous man told Suskind, that wasn’t the way the world worked. “We’re an empire now,” he’s quoted as saying, “and when we act, we create our own reality. And while you’re studying that reality — judiciously, as you will — we’ll act again, creating other new realities, which you can study too, and that’s how things will sort out. We’re history’s actors . . . and you, all of you, will be left to just study what we do.’”

The staffer may not have known it, but he was identifying one feature of the kind of crisis era into which the United States had just entered. Great political crises like those of the American Revolution, the Civil War, the Depression and the Second World War, and the one that began in 2001 and continues today are also struggles over the meaning of words—words like democracy and dictatorship, freedom, free enterprise and socialism, and so on. They also become struggles over the most basic facts. Writing during the great worldwide crisis of the Second World War, George Orwell identified a number of competing world views whose adherents could not accept various obviously true statements about the world around them. Within ten years more—that is, by the mid-1950s—that was no longer the case. Victory in war and postwar economic growth had created a new consensus in the western world.

But today, divisions over reality are as deep as they have been for a very long time, and Republicans and Democrats inhabit different factual universes. One obvious area of disagreement is climate change. While President Obama seeks agreements with foreign nations to reduce greenhouse gas emissions, Republicans almost unanimously reject the consensus of scientific opinion and argue that those emissions have not been proven to heat up the planet. Another very important area of disagreement concerns fiscal and economic policy — and this week it became clear that some Republicans are struggling to make their version of economic reality prevail in Washington, too.

The New York Times reported on a campaign by prominent Republican conservatives and some Tea Party Congressmen to replace the director of the Congressional Budget Office, Douglas W. Elmendorf, with someone who would calculate the effects of tax cuts in a different way. Led by the anti-tax activist Grover Norquist and the Heritage Foundation, these Republicans specifically want a new director who would use what they call “dynamic scoring” to predict the impact of tax cuts. “Dynamic scoring” is based upon the theory of supply-side economics. That theory, first popularized under Ronald Reagan, held that tax cuts, particularly on the highest income brackets, would unleash extraordinary economic growth, and therefore bring in more, rather than less, revenue within a few years. Dynamic scoring is a theoretically more sophisticated application of this idea. Rather than simply deduct the projected cost of tax cuts from federal revenues to estimate their future impact, dynamic scoring actually predicts how much new tax cuts will increase GDP by unleashing economic growth, and how much they will tax revenues and mitigate the effect of the cuts upon the deficit. Since the new Republican majorities in Congress are determined to cut taxes yet again while claiming to move closer to a balanced budget, this is an idea they need to validate in order to justify their plans.

The history of dynamic scoring is closely tied to the history of Republican economic policy since Ronald Reagan. When Reagan took office in 1981, the federal deficit was $79 billion. His Administration immediately adopted policies based on supply-side economics. It didn’t work. When he left office eight years later after several rounds of tax cuts on the higher brackets, the annual deficit was $152 billion, down from a peak of $221 billion in 1986. Despite George H. W. Bush’s tax increases, which split the Republican Party, a severe recession had raised the deficit back up to $255 billion when he left office in 1993.

Bill Clinton began his Administration with an income tax increase on nearly all Americans. It helped cost the Democrats the House of Representatives in 1994. It was at that point that Newt Gingrich, then the new Speaker of the House, and his fellow Republicans began to advocate dynamic scoring as a means of calculating the impact of further tax cuts. Once again, they claimed they could accurately estimate the beneficial impact of leaving more money in the hands of the wealthy and ease fear of deficits. But Clinton refused to go along, and eventually, the Clinton Administration ran a budget surplus in fiscal 2000.

George W. Bush inherited a deficit of only $32 billion in 2001, and came into office determined to cut taxes again. By 2003, the Bush Administration was basing calls for a second round of cuts on dynamic scoring estimates that once again claimed that the cuts would generate increased revenue. The cuts passed, but their impact, combined with the Iraq war and the Great Recession, was to balloon the deficit up to $641 billion in fiscal 2008, and $1.55 trillion in fiscal 2009. Together, President Obama and the Republican Congress have now reduced the deficit to $483 billion in the fiscal year that was just completed. This pattern actually dates from the 1950s. Beginning with Dwight D. Eisenhower, every Republican President has substantially increased the federal deficit, while every Democratic President except Jimmy Carter has reduced it during his term of office.

Few theories of public policy have been tested so repeatedly and failed tests so spectacularly, as the idea that tax cuts in the high brackets will ultimately increase revenue and lower deficits. But led by Representative Paul Ryan, the Republican majority, by pushing for personnel changes that will lead the non-partisan Congressional budget office to adopt dynamic scoring, is eager to try it again. It is hard for me to believe that any Republican activists seriously believe that a new round of top-bracket and corporate tax cuts will increase revenues. Their real agenda, I suspect, is the one that Grover Norquist—a prime mover in the campaign to replace Elmendorf—has repeatedly spoken of: to force further reductions in government spending by reducing government revenues still further. Meanwhile, wealthy Republican donors will get even wealthier, and, presumably, even more generous in their contributions. Once again the Republicans are trying to create their own reality: a world in which making the rich richer will bring down deficits, while only a few poor benighted members of the “reality-based community” take the trouble to notice that this is not so.

David Kaiser, a historian, has taught at Harvard, Carnegie Mellon, Williams College, and the Naval War College. He is the author of seven books, including, most recently, No End Save Victory: How FDR Led the Nation into War. He lives in Watertown, Mass.

This post has been updated to include additional economic data.