Exposing the Republican Party's Sleazy Playbook to Destroy Social Security

Ronald Reagan was the first national Republican politician to suggest that he could cut taxes on rich people and businesses, that those tax cuts would cause them to take their surplus money and build factories or import large quantities of cheap stuff from low-labor countries, and that the more stuff there was supplying the economy the faster it would grow. George Herbert Walker Bush -- like most Republicans of the time -- was horrified. Ronald Reagan was suggesting "Voodoo Economics," said Bush in the primary campaign, and Wanniski's supply-side and Laffer's tax-cut theories would throw the nation into such deep debt that we'd ultimately crash into another Republican Great Depression.

But Wanniski had been doing his homework on how to sell supply-side economics. In 1976, he rolled out to the hard-right insiders in the Republican Party his "Two Santa Clauses" theory, which would enable the Republicans to take power in America for the next 30 years. Democrats, he said, had been able to be "Santa Clauses" by giving people things from the largesse of the federal government. Republicans could do that, too -- spending could actually increase. Plus, Republicans could be double Santa Clauses by cutting people's taxes! For working people it would only be a small token -- a few hundred dollars a year on average -- but would be heavily marketed. And for the rich it would amount to hundreds of billions of dollars in tax cuts. The rich, in turn, would use that money to import or build more stuff to market, thus increasing supply and stimulating the economy. And that growth in the economy would mean that the people still paying taxes would pay more because they were earning more.

There was no way, Wanniski said, that the Democrats could ever win again. They'd have to be anti-Santas by raising taxes, or anti-Santas by cutting spending. Either one would lose them elections.

When Reagan rolled out Supply Side Economics in the early 80s, dramatically cutting taxes while exploding (mostly military) spending, there was a moment when it seemed to Wanniski and Laffer that all was lost. The budget deficit exploded and the country fell into a deep recession -- the worst since the Great Depression -- and Republicans nationwide held their collective breath. But David Stockman came up with a great new theory about what was going on -- they were "starving the beast" of government by running up such huge deficits that Democrats would never, ever in the future be able to talk again about national health care or improving Social Security. And this so pleased Alan Greenspan, the Fed Chairman, that he opened the spigots of the Fed, dropping interest rates and buying government bonds, producing a nice, healthy goose to the economy.

Greenspan further counseled Reagan to dramatically increase taxes on people earning under $37,800 a year by increasing the Social Security (FICA/payroll) tax, and then let the government borrow those newfound hundreds of billions of dollars off-the-books to make the deficit look better than it was. Reagan, Greenspan, Winniski, and Laffer took the federal budget deficit from under a trillion dollars in 1980 to almost three trillion by 1988, and back then a dollar could buy far more than it buys today. They and George HW Bush ran up more debt in eight years than every president in history, from George Washington to Jimmy Carter, combined. Surely this would both starve the beast and force the Democrats to make the politically suicidal move of becoming deficit hawks.

And that's just how it turned out. Bill Clinton, who had run on an FDR-like platform of a "new covenant" with the American people that would strengthen the institutions of the New Deal, strengthen labor, and institute a national health care system, found himself in a box. A few weeks before his inauguration, Alan Greenspan and Robert Rubin sat him down and told him the facts of life: he was going to have to raise taxes and cut the size of government. Clinton took their advice to heart, raised taxes, balanced the budget, and cut numerous programs, declaring an "end to welfare as we know it" and, in his second inaugural address, an "end to the era of big government."

He was the anti-Santa Claus, and the result was an explosion of Republican wins across the country as Republican politicians campaigned on a platform of supply-side tax cuts and pork-rich spending increases. Looking at the wreckage of the Democratic Party all around Clinton by 1999, Winniski wrote a gloating memo that said, in part: "We of course should be indebted to Art Laffer for all time for his Curve... But as the primary political theoretician of the supply-side camp, I began arguing for the 'Two Santa Claus Theory' in 1974. If the Democrats are going to play Santa Claus by promoting more spending, the Republicans can never beat them by promoting less spending. They have to promise tax cuts..."

Ed Crane, president of the Libertarian CATO Institute, noted in a memo that year: "When Jack Kemp, Newt Gingich, Vin Weber, Connie Mack and the rest discovered Jude Wanniski and Art Laffer, they thought they'd died and gone to heaven. In supply-side economics they found a philosophy that gave them a free pass out of the debate over the proper role of government. Just cut taxes and grow the economy: government will shrink as a percentage of GDP, even if you don't cut spending. That's why you rarely, if ever, heard Kemp or Gingrich call for spending cuts, much less the elimination of programs and departments."

George W. Bush embraced the Two Santa Claus Theory with gusto, ramming through huge tax cuts -- particularly a cut to a maximum 15 percent income tax rate on people like himself who made their principle income from sitting around the pool waiting for their dividend or capital gains checks to arrive in the mail -- and blowing out federal spending. Bush even out-spent Reagan, which nobody had ever thought would again be possible. And it all seemed to be going so well, just as it did in the early 1920s when a series of three consecutive Republican presidents cut income taxes on the uber-rich from over 70 percent to under 30 percent.

In 1929, pretty much everybody realized that instead of building factories with all that extra money, the rich had been pouring it into the stock market, inflating a bubble that -- like an inexorable law of nature -- would have to burst. But the people who remembered that lesson were mostly all dead by 2005, when Jude Wanniski died and George Gilder celebrated the Reagan/Bush supply-side-created bubble economies in a Wall Street Journal eulogy: "...Jude's charismatic focus on the tax on capital gains redeemed the fiscal policies of four administrations. ... [T]he capital-gains tax has come erratically but inexorably down -- while the market capitalization of U.S. equities has risen from roughly a third of global market cap to close to half. ... These many trillions in new entrepreneurial wealth are a true warrant of the worth of his impact. Unbound by zero-sum economics, Jude forged the golden gift of a profound and passionate argument that the establishments of the mold must finally give way to the powers of the mind. ... He audaciously defied all the Buffetteers of the trade gap, the moldy figs of the Phillips Curve, the chic traders in money and principle, even the stultifying pillows of the Nobel Prize."

In reality, his tax cuts did what they have always done over the past 100 years -- they initiated a bubble economy that would let the very rich skim the cream off the top just before the ceiling crashed in on working people. The Republicans got what they wanted from Wanniski's work. They held power for 30 years, made themselves trillions of dollars, cut organized labor's representation in the workplace from around 25 percent when Reagan came into office to around 8 percent of the non-governmental workforce today.

Next year, when the Disability Trust Fund runs out of money, the GOP's plan is for force Democrats to become the anti-Santa, yet again. If Congress does nothing because the "easy fix" is unavailable due the Republican rule change, Disability Santa will take a 19% cut.

Reed said of his rule change, "Anyone who cares about finding a fair solution for both the catastrophically disabled who depend on SSDI and senior citizens who depend on Social Security knows that we must find a long-term solution which protects both of them rather than a short term band aid which threatens them both." It is clear that the GOP plan is to use this unnecessary, manufactured crisis as an opening to "reform" Social Security -- translated: cut and privatize. Thus, forcing Democrats to become the Social Security anti-Santa a different way.

When this happens, Democrats must remember Jude Wanniski -- and accept neither the cut to disability payments, nor the entree to Social Security "reform." They must demand the the House rule be changed back, and that the fix used many times in the past, be used again.