NRO’s eye on debt and deficits . . . by Kevin D. Williamson.

Mr. Watts, Mr. Gingrich, and Mr. Deficit


Newt Gingrich has received the endorsement of J. C. Watts, a former member of Oklahoma’s delegation to the House and an influential conservative even after nearly a decade in political retirement. The endorsement speaks well of Gingrich.

Among other things, Watts had this to say:

When you consider where we are today, and you think about the good old days — of balanced budgets, entitlement reform, and paying down our national debt, getting tax relief — as a Republican majority, Newt Gingrich was the speaker. We haven’t seen things like that in the last thirteen years.

No, we sure haven’t. I am pleased that Watts put the balanced budget at the center of his case for Gingrich (even though the budget was not really balanced, once you account for the debt held by the so-called trust funds associated with Social Security and Medicare — it still was a good start).

But I wonder if Watts has considered all the implications of his argument. As speaker, Newt Gingrich superintended a real reduction in federal spending as a share of GDP: It was 21 percent in 1994, and down to 18.2 percent by 2000. That is, in my view, his most praiseworthy legislative accomplishment. But, as I argue in the current edition of National Review, the notional surpluses of the Gingrich era were the result of a double-barreled approach to fiscal balance, built in part on two significant tax increases. Gingrich et al. opposed those tax increases, but did not rescind them.

In 2000, the year of our largest notional surplus, tax collections hit nearly 21 percent of GDP. In 2011, they’ll be about 14.4 percent of GDP, according to the Congressional Budget Office, only about 70 percent of their 2000 level.

Economic conditions and tax policy are of course quite different in 2011 from what they were in 2000. Consider the longer-term picture: From 1994 to 2000, taxes averaged 19.2 percent of GDP, hitting a high of 20.6 percent in 2000. Even accounting for the surpluses, we ran a net deficit during that period, with the average annual deficit at 0.3 percent of GDP. In contrast, 2000–11 tax collections averaged 16.8 percent, a difference of 2.4 percent compared with the Gingrich era. The average deficit from 2000–11 was 4.2 percent of GDP. Put another way, the difference in tax collections during those two periods was 2.4 percent, and the difference in deficits was 3.9 percent. Spending increased during the post-Gingrich era, and increased radically in recent years: From 1994–2000, spending averaged 19.6 percent of GDP; from 2000–11, spending has averaged 20.8 percent of GDP. That’s a significant difference, but not an earth-shaking one. On the other hand, consider that from 2009–11, spending has averaged a much larger 24.7 percent of GDP, a level that would be sustainable at no level of tax collections in American history, including the years of World War II. 

As a share of GDP, Americans paid higher taxes in the Gingrich years than they pay now — significantly higher. Likewise, government spending as a share of GDP was substantially lower. So, my fancy new economic theory goes like this: higher taxes + lower spending = smaller deficits. Democrats might recall that the 1990s were not a time of Dickensian austerity or a national policy of Social Darwinism; Republicans ought to remember that the 1990s, despite the higher taxes, did not result in the Swedenification of America. For comparison, consider that the average tax level of the Reagan years was 18.2 percent of GDP, closer to the Gingrich years than to the present.

A balanced budget is the result of tax policies and spending policies. If Watts is calling for a return to the taxing-spending balance of Gingrich’s speakership, he is calling for a significant tax increase, which puts him at odds with the man he just endorsed. Practically speaking, anybody who is calling for a balanced budget who has not proposed something on the order of $1.5 trillion in annual spending cuts is calling for a tax increase. That does not mean that he is calling for a tax increase of the sort that Barack Obama and his congressional allies wish to see implemented. But it does mean that he is calling for a tax increase of some sort.

Gingrich, of course, is not calling for a tax increase, but for a very large tax cut. Which is to say, he wishes to return to the attractive fiscal outcomes of the 1990s without returning to the policies that produced them. This does not seem very sensible to me.

It bears repeating — daily — that taxing and spending is in the main the outcome of decisions made in Congress, not in the White House, which is why it makes sense to write about the Gingrich surpluses, rather than the Clinton surpluses. And which is why an intelligent Republican presidential candidate might want to begin his fiscal agenda with this guiding principle: “I shall be joined at the hip with Paul Ryan.”

A final thought: Those Gingrich supporters who dismiss Jon Huntsman on the grounds that he served as an ambassador under the Obama administration should take to heart this 2008 Associated Press report:

J. C. Watts, a former Oklahoma congressman who once was part of the Republican House leadership, said he is thinking of voting for Obama. Watts said he is still a Republican, but he criticizes his party for neglecting the black community. Black Republicans, he said, have to concede that while they might not agree with Democrats on issues, at least that party reaches out to them.

“And Obama highlights that even more,” Watts said, adding that he expects Obama to take on issues such as poverty and urban policy. “Republicans often seem indifferent to those things.”

Now, who wants to call J. C. Watts a RINO? Anybody?

Tags: Fiscal Armageddon , Politics


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