For some reason, the Republicans still hold to the mantra they know how to deal with federal finances.  However, the record clearly states otherwise.  Starting with Reagan, the Republicans have engaged in a shell game.  They cut taxes for the wealthy, replace revenues lost from the tax cuts with debt, increase spending on defense to appear hawkish, and pray the international currency markets won’t punish the dollar while the Republicans are in office.  Katrina stands the possibility of throwing a wrench into a rigged fiscal game that could eventually punish the US because of this mismanagement.
All the figures are from the Congressional Budget Office and the Bureau of the Public Debt.

Reagan started this madness. He cut taxes in 1981.  As a result, revenue from individual income taxes was stagnant from 1981-1893, with total revenue for 1981, 1981, and 1982 at 285 billion, 297 billion and 288 billion respectively.  During the same years, the Republicans increased spending on their favorite department — the Pentagon.  From 1981-1983, spending increased from 158 billion to 209 billion.  During the same time, general spending (which includes defense spending) increased from 678 billion to 808 billion.  While the Democrats controlled Congress during these years, it should be noted that Reagan had veto power over these spending measures that he obviously didn’t use.  As a result of this policy, the federal deficit ballooned from 73 billion to 207 billion.  As a result of this policy, the total amount of public debt increased from 930 million in 1980 to 2.6 trillion in 1988.  

20 years later, cutting taxes still does not increase revenue from individual taxpayers.  In 2000, individual tax receipts (receipts from individual tax payers) totaled 1.004 trillion dollars.  Many on the right will scream that I am using a boom year for comparison, so in 1997 and 1998 tax receipts were 737.5 billion and 828.6 billion respectively.  For the years 2001-2004, individual receipts were 994 billion, 858 billion, 794 billion and 809 billion, respectively.  Does anybody see a pattern here?  When you cut taxes, revenues decrease, in this case by 18% from 2001 – 2004.  Well, call me a liberal, but it looks like the laugher curve is wrong.  Also note that Bush’s tax receipts for 2004 were lower than Clinton’s in 1998.  As another comparison, individual income taxes as a percentage of GDP decreased over the same time from 9.9% to 7%.

Why bring this up now?  A sane fiscal policy does not expose the country to the risks inherent from unforeseen disasters.  While total federal spending on Katrina is still unknown, the figures are increasing:

Senate finance committee chairman Charles Grassley believes that federal spending after Katrina could hit 150 billion dollars. Republican Senator Jeff Sessions said a figure of 200 billion dollars was possible.

Merrill Lynch economist David Rosenberg bid “goodbye to the 2006 deficit projection” of 314 billion dollars, predicting it would shoot to a new record high to beat last year’s figure of 412 billion dollars.

“Katrina has now become a great valve for Congress to spend gobs of dough, keep the economy alive and save their re-election prospects in November 2006,” he said.

So, an unforeseen natural disaster – which in fact was foreseen for decades — will place the US federal budget deficit on the path to financial ruin, AGAIN.

What would have happened if this happened during the Clinton presidency?  Well, although he raised individual income taxes on the upper class, the economy grew for 8 years and created 22 million jobs.  The federal deficit decreased from 340 billion to a surplus of 86 billion in 2000.  In other words, if Katrina had hit during Clinton’s term, the federal government would have had the ability to increase spending (as it should in this situation) without creating a possible federal fiscal crisis.

As the federal situation currently stands, Katrina will place the US federal budget in the hole – again.    The international forex markets will probably start to look at the US as incapable of handling its internal finances and start to sell the dollar — again.  And the threat of interest rate increases to prop-up to the dollar will become far more likely — again.

Sound national fiscal management is the way we as a country plan for a rainy day.  If we plan well (balance budgets), the disaster’s long-term fiscal effects are diminished.  If we plan poorly (not balancing budgets), the disaster’s long-term fiscal impact runs far deeper causing far more problems.

Thanks to Republican fiscal mismanagement (again), Katrina’s overall fiscal effects will run deeper than they should.

Republicans – we can’t afford them anymore.

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