Ronald Reagan won an overwhelming landslide victory—an undeniable public endorsement for both his personality and his politics—when he ran for reelection to a second term in 1984. But not every Democratic voice had been stilled. In his ringing “Tale of Two Cities” keynote speech at the Democratic National Convention in San Francisco, New York Governor Mario M. Cuomo made a case for a different direction. “We believe as Democrats,” he said that night, “that a society as blessed as ours, the most affluent democracy in the world’s history, one that can spend trillions on instruments of destruction, ought to be able to help the middle class in its struggle, ought to be able to find work for all who can do it, room at the table, shelter for the homeless, care for the elderly and infirm, and hope for the destitute.” And then Cuomo paraphrased his personal hero, Abraham Lincoln: “We believe in only the government we need, but we insist on all the government we need.” Cuomo’s case energized and inspired Democrats pining for a Lincolnian commitment to government for the people, but the majority of Americans remained committed to Reagan’s rhetoric and politics.
Reagan could not simply reject Lincoln’s approach to a middle-class society based on “government of the people, by the people, for the people.” Lincoln remained one of the most admired and iconic presidents, and his legacy endured. Rather than pushing Lincoln aside, Reagan instead adopted Lincoln as one of his own, claiming that his new economic approach came directly from Lincoln.
At the Republican National Convention of 1992, former president Reagan made his most vigorous claim that his economic policies were consistent with Lincoln’s teaching. He did so by presenting to the delegates a set of principles Reagan declared had been “eloquently stated” by Lincoln generations earlier. The fortieth president went on to quote what he described as the sixteenth president’s most enduring maxims:
You cannot strengthen the weak by weakening the strong.
You cannot help the wage earner by pulling down the wage payer.
You cannot help the poor man by destroying the rich.
You cannot help men permanently by doing for them what they could and should do for themselves.
Former President Ronald Reagan at the 1988 Republican National Convention that crowned his vice president, George H. W. Bush, as his successor. Bush, a Lincoln admirer in his own right, went on to win the White House that fall.
COURTESY OF RONALD REAGAN LIBRARY
To no one’s surprise, the Republican convention floor erupted in delirium. Reagan had brilliantly resurrected a tablet of political commandments better than any of his earlier presidential speeches. No one had ever said it better than the Great Communicator claiming to quote the Great Emancipator.
As it turned out, it was too good to be true. The fact is, Lincoln had never said a word of it. The lines turned out to be written by an obscure German-born minister from Brooklyn in 1916, fifty-one years after Lincoln’s death. The minister’s pamphlet was called Lincoln on Private Property. It featured some words of Lincoln on one page followed by the words Reagan quoted—which were authored by the minister—on the next.
It took Herbert Mitgang, a veteran New York Times writer who also happened to be a Lincoln scholar, to burst the balloon the following day. Few of the millions who heard Reagan that summer night ever read the story by Mitgang or the corrections published in newspapers during the days following Reagan’s remarks. Yet three full years after Mitgang had discredited Reagan’s purported quotations from Lincoln, the most popular newspaper columnist in America, Ann Landers, published the quotes all over again—as Lincoln’s.
The words Lincoln had never spoken have been treated time and time again as Lincoln’s contribution to conservative gospel. And Republicans continue to gain some mileage with their unwarranted claim that Lincoln was the father of their conservative economic philosophy.
Twelve. THE NEW ECONOMIC DEBATE
CLINTON, BUSH, AND OBAMA
LINCOLN CONTINUES TO PLAY AN IMPORTANT ROLE in the thinking of our most recent presidents. They are all mindful of the place Lincoln has in the eyes of historians and voters as one of the three most revered presidents—considered the most revered of all by many citizens and historians. The Lincoln legacy is an even stronger touchstone for our most recent Democratic presidents than for Republican presidents.
When the Democrats captured the White House in 1992, President William Jefferson Clinton argued for a middle-ground approach to economic policy. Clinton did not directly challenge Reagan’s economic emphasis on the centrality of the market and the importance of investment to the growth of the economy. Nor did he reject Reagan’s emphasis on the importance of fiscal responsibility—especially by reducing government spending in an effort to balance the federal budget. At the same time, he supported legislation to eliminate government regulations that he considered to be counterproductive to economic growth. Clinton also supported reduced government regulation of Wall Street and the banking industry by signing the bill repealing the Glass-Steagall Act—the New Deal legislation that prevented commercial banks from risking their depositors’ funds by engaging in investment banking and trading directly in stocks and bonds.
Like many of the presidents before him, Clinton made it clear that he was hoping to follow in the footsteps of Abraham Lincoln. He kept a very visible Lincoln bust behind his Oval Office desk, where it was always prominent during televised White House addresses. On a nearby table stood a small statuette of Lincoln and Douglas in debate. A larger Lincoln bust dominated the walkway that leads to the Rose Garden.
The first thing Clinton installed in the Oval Office was a photo of Lincoln. And he said he “felt, as Abraham Lincoln did when he wrote as a young man, ‘I will study and get ready, and perhaps my chance will come.’” Clinton continued to express his admiration for Lincoln in speech after speech—long into his postpresidential life.
Clinton loved telling the story of one old lifelong southern Democrat he had invited to spend the night in the White House. Clinton’s guest shocked the president by telling him he would not sleep in Lincoln’s bed. Clinton told him it wasn’t really Lincoln’s bed, or even his bedroom, and besides, wasn’t Lincoln the greatest president in history? Yes, the old gentleman conceded, he certainly was—for a Republican. But he asked that Clinton put him up somewhere else all the same.
Clinton saw himself in the tradition of Lincoln as a proponent of “communitarian” objectives. He described his approach as a “third way” between the classic conservative and liberal approaches to public policy. He sought to balance the government’s commitment to sustain the individual rights of American citizens with the equally important responsibility to promote the general welfare. Clinton’s commitment to the “third way” was perhaps his most enduring contribution to America’s economic future.
In a clear shift from Reagan’s policies, Clinton insisted that government had a “critical” role to play in the economy. He took direct action to restore Lincoln’s and Roosevelt’s vision of positive government action in support of a middle-class society. Recognizing the new realities of a nation dominated by two-earner families, he initiated legislation spearheaded by the Family and Medical Leave Act of 1993, which “cleared the path” for women to participate more fully in the economy. He supported federal spending for education and training to encourage the growth of “human capital.” He strengthened regulations to provide cleaner air and water and safer food.
Clinton also rejected Reagan’s claim that lowering taxes on wealthy citizens would increase national economic growth. He acted directly to add two new high marginal income tax rates of 36 percent and 39.6 percent. After the marginal tax rates paid by the highest-income taxpayers were raised, the country experienced a period of rapid economic growth that would be seen as Clinton’s greatest achievement as president. Clinton’s tax reforms eliminated federal deficits for the first time in decades and generated large federal surpluses to support the government’s social welfare programs.
A pensive Bill
Clinton strolls along the Rose Garden, past an 1860 Leonard W. Volk bust of Lincoln. Clinton also kept a smaller Lincoln bust on the table behind his Oval Office desk—as had many of his predecessors, including Richard M. Nixon.
WHITE HOUSE PHOTOGRAPH, COURTESY OF HAROLD HOLZER
Clinton made the case for his positive government initiatives in the State of the Union address on January 27, 1998.
These are good times for America. We have more than 14 million new jobs, the lowest unemployment in 24 years, the lowest core inflation in 30 years. Incomes are rising, and we have the highest home ownership in history. . . . We have moved past the sterile debate between those who say government is the enemy and those who say government is the answer. My fellow Americans, we have found a third way. We have the smallest government in 35 years, but a more progressive one. We have a smaller government, but a stronger nation. . . . Now if we balance the budget for next year, it is projected that we’ll then have a sizable surplus in the years that immediately follow. . . . What should we do with this projected surplus? . . . Save Social Security First. . . . Because these times are good, we can afford to . . . raise the minimum wage.
Clinton went on to focus on other communitarian objectives, including education, child care, and funding for medical research.
A month earlier, at a private meeting to discuss his forthcoming State of the Union address, Clinton had explained his successes in terms of Lincoln’s efforts on behalf of the nation. He said then, “Today the Republicans want to tear down government to liberate private power and private interest. Democrats . . . believe government can serve justice and remedy inequality. . . . What’s happened today is the reflection of a two-hundred-year-old struggle, starting with the Federalists and coursing down through Lincoln’s battle for Union. Yes, it’s this legacy of Lincoln the modern Republicans have betrayed.” Clinton viewed himself as a legitimate successor to Lincoln based on his commitment to positive policies to improve the economic conditions of all the people.
The Clinton presidency was characterized by accelerated economic growth and the eventual generation of substantial federal surpluses in contrast to the annual government deficits that were typical of the Republican and Democratic presidents who immediately preceded and succeeded Clinton. The substantial economic growth in the wake of Clinton’s increase in the top marginal tax rates posed a direct challenge to Reagan’s claim that tax cuts for wealthy “job providers” were the only way to produce significant economic growth. More than 23 million jobs were added to the American workforce during Clinton’s eight years in office, compared to fewer than 6 million during Reagan’s eight years and only 1.5 million during George W. Bush’s subsequent eight-year administration. Such growth undermined Republican supply siders’ claim that the best way to increase growth is to decrease taxes on wealthy Americans. Indeed, the Clinton economy presented new evidence to support Roosevelt’s demand-side view that a principal source of economic growth in the United States comes from public and private programs that generate rising middle-class and working-class incomes, which in turn increase American consumer demand for the products made by American companies. Clinton was fully prepared to use the expected government surpluses to support positive government action to fund the Social Security program and increase the minimum wage of American workers.
There is no leap of faith required here. Since the end of World War II, American consumer demand has consistently accounted for close to 70 percent of American gross domestic product. The data for the decades after World War II show clearly that positive changes in American employment and consumer demand are closely correlated with positive changes in total US GDP (see Appendix). Government programs to support employment are clearly consistent with Lincoln’s legacy of government action “for the people.” By contrast, there is no substantial evidence that low marginal income tax rates or low federal estate tax rates are correlated with high employment or high business investment or high GDP growth. Clearly, there is nothing in the Republican low-tax regime that is consistent with Lincoln’s legacy.
The explosive economic growth following the Clinton administration’s increase in the top marginal tax rates in 1993 might well have spelled the death knell of Republican supply-side economics focused on lowering taxes on corporations and wealthy individuals. But the economic successes of the Clinton years had a short life in political terms. Entering the White House in 2001, President George W. Bush began to see signs that the economy was edging into recession. Using the recession as a convenient rationale, President Bush aggressively propounded the Reagan Republican economic philosophy and pursued a major restructuring of the tax code based on supply-side ideas.
Bush engineered a cut in marginal income tax rates, as well as tax cuts on dividends and capital gains. Even the estate tax—a centerpiece of Progressive Era legislation—was repudiated as a “death tax.” By the beginning of Bush’s second term, the tax burden shouldered by the wealthiest households had significantly declined, even as these households absorbed an ever-increasing share of the nation’s total yearly income. Yet Bush argued that this was all for the common good. In terms reminiscent of the Gospel of Wealth, President Bush repeatedly cited the entrepreneur as the true engine of economic growth—the key to a vibrant economy. The goal, he argued, was to free this enterprising individual from the burdens of excessive taxes and government regulation and collective bargaining with unions. Indeed, Bush seemed to imagine that America—where the vast majority of citizens still labored for wages and salaries—had transformed itself overnight into a nation of independent entrepreneurs and business owners. He spoke repeatedly of an “ownership society.” But in truth the ownership society was one in which government policies increasingly favored wealthy business owners and investors over middle-income and low-income wage earners. This clearly reversed the priorities that Lincoln favored emphasizing government policies supporting the efforts of the “prudent, penniless beginner” to rise.
The increase in income inequality effected by the Bush tax cuts was more profound than it might have seemed at first glance. It was not simply that the rich received a larger tax cut than the middle class, though that was certainly the case. As the population aged, new crises were looming ahead in Social Security and Medicare. The Clinton-era federal surpluses might have gone a long way toward meeting the future liabilities of these programs, certainly of Social Security. But the Bush tax cuts had eliminated these surpluses and replaced them with sizable domestic deficits. Moreover, the enormous military costs of the wars in Afghanistan and Iraq, which were not even counted in the federal budget, multiplied the total federal government deficits exponentially.
The government had been drained of resources; taxes as a percentage of GDP were at their lowest level in a generation. At the beginning of his second term, Bush announced a “crisis” in Social Security. Under the Bush program, the wealthiest households were enjoying a windfall of billions in income and estate tax cuts, while future middle-class retirees could be subject to the prospect of substantial reductions in Social Security benefits. By 2007 the wealthiest 20 percent of the population had increased its share of the nation’s after-tax income to 53 percent at the expense of all other income groups. The lowest-income 20 percent declined in share to a mere 4 percent.
Source: Congressional Budget Office
Even more striking, between 1979 and 2007, the wealthiest 1 percent of American taxpayers had more than tripled their share of the nation’s after-tax income at the expense of the other 99 percent of Americans. The average after-tax income of the top 1 percent was well over $1,100,000, ten times larger than the average income of the next 19 percent and more than thirty times larger than the average income of all taxpayers.
Lincoln’s version of the American Dream had been betrayed. The new Republican conservative ethos under Reagan and Bush completely reversed the policies advocated by Lincoln and Roosevelt to use the government to build and sustain an American middle-class society. The continuing
efforts by conservative politicians—supported by lobbyists for the business community—to reduce taxes on the wealthiest Americans was in sharp contrast to Lincoln’s Civil War initiative that established the first American income tax, one paid only by the wealthiest Americans.
President Bush’s conservative supporters could hardly have been more delighted. In 2003 Grover Norquist, probably the most important behind-the-scenes strategist of the Republican antitax program, candidly stated that the goal of the movement was to turn back the nation’s clock not only to the 1920s just before the New Deal, but to the period before the Progressive Era—to the Gospel of Wealth policies dominant during the Gilded Age.
In his First Inaugural Address in 1980, President Ronald Reagan had said, “The taxing power of the government must be used to provide revenues for legitimate government purposes.” But the major thrust of Reagan and his successors was to put increasingly sharp limits on the definition of “legitimate government purposes” in order to reduce taxes on the wealthy. Reagan and his successors were strikingly successful in their efforts. As this book goes to press, the highest marginal federal income tax rate is 39.6 percent, down from 70 percent when Reagan took office, and the highest federal estate tax rate is 40 percent, also down from 70 percent.
As Reagan and his Republican successors knew, the emphasis on cutting taxes of the wealthiest Americans was more than an economic policy. It was a political initiative to gain the continuing support of the richest members of American society and ensure a preponderant flow of political campaign funds to Republican political candidates. For the past forty years, Republican candidates and officeholders have emphasized their increasing commitment to low income and estate taxes. Politicians typically argue for reducing government expenditures in a low-tax environment based on the “commonsense” idea that the government budget should be treated like a household budget—it must be balanced. The argument is made that what were once considered normal demand-side counterrecession programs such as Social Security, unemployment insurance, food stamps, public health programs, and government investment in infrastructure need to be cut back in favor of reducing the tax burden on wealthy “job creators.” They have claimed that “there is a large body of data” to support their claim that low taxes on the wealthy support economic growth. But, in fact, there is little, if any, data to support this argument. The low-tax regime created and sustained by Republican officeholders has not been shown to increase investment in either physical capital or human capital. Rather, it leads to a government incapable of investing in infrastructure or education for the future.
A Just and Generous Nation Page 24
