Cheney Was Referring to the Bush Tax Cuts When He Said, ‘Reagan Proved Deficits Don’t Matter’ – But Even Bush Had Doubts about Them in 2002

O'Neill, Cheney
O'Neill, Cheney
Eight years ago this month, George W. Bush’s first secretary of the Treasury, Paul O’Neill, was asked to resign. O’Neill, the former CEO of Alcoa, had made a couple of gaffes, including one that temporarily caused a run on the dollar. But it was his opposition to the administration’s plan to give tax cuts to the wealthy — O’Neill worried the cuts might cause the federal deficit to balloon out of control — that got him canned.

Not long after O’Neill left office, author Ron Suskind wrote a book about O’Neill’s tenure as Treasury secretary titled, “The Price of Loyalty: George W Bush, the White House, and the Education of Paul O’Neill.” The book made headlines when it was published in late 2003, because, in it, O’Neill became the first high-ranking official from the administration to say publicly that war with Iraq had been a top objective of the Bush administration from the outset, and that the Sept. 11 attacks had merely provided a pretext for the invasion.

“Haven’t we already given money to rich people? This second tax cut’s gonna do it again. Shouldn’t we be giving money to the middle?”
– Bush in 2002

(It was also around this time that Ron Suskind reported on a conversation he’d had with an anonymous senior White House aide — now universally thought to have been Karl Rove. “The aide said that guys like me,” Suskind wrote, “were ‘in what we call the reality-based community,’ which [Rove] defined as people who ‘believe that solutions emerge from your judicious study of discernible reality.’ I nodded and murmured something about enlightenment principles and empiricism. He cut me off. ‘That’s not the way the world really works anymore,’ he continued. ‘We’re an empire now, 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.'”)

But the other controversial revelation in Suskind’s book was about the Bush administration’s reckless decision after the 2002 midterms to go for a second round of tax cuts for the rich. In a January 2004 article about the book, Julian Borger wrote in the Guardian:

The administration, as described by O’Neill, was … fixated on granting unprecedented tax cuts to the nation’s richest people who had bankrolled its election campaign. It was not prepared to listen to an anxious Treasury secretary warning of dangerously ballooning deficits. The president was “clearly signing on to strong ideological positions that had not been fully thought through”, Mr O’Neill says…

When the Treasury secretary went to the Oval Office for weekly discussions, he found he did all the talking. “I wondered from the first, if the president didn’t know the questions to ask,” he tells Suskind, “or if he did know and just did not want to know the answers?”

The one time the president does become engaged in economic policy discussion in Suskind’s book, it is to question the orthodoxy of his own administration’s policy during a White House discussion of a second round of tax cuts in November 2002, following triumphal midterm election results.

According to Suskind, who says he has a transcript of the meeting, the president asks: “Haven’t we already given money to rich people? This second tax cut’s gonna do it again.”

The president suggests instead: “Shouldn’t we be giving money to the middle?” But Rove, who has masterminded Bush’s election campaigns since his days in Texas, jumps in at this point in the transcript to urge the president: “Stick to principle. Stick to principle.”

“He says it over and over again,” Suskind said. “Don’t waver.”

In his own account, Mr O’Neill discovers the hard line on tax cuts is coming from Cheney. Not knowing he was in his last weeks as Treasury secretary, he went to see the vice president expecting to get a sympathetic hearing for his concerns over the deficit. Instead he is told: “You know, Paul, Reagan proved that deficits don’t matter. We won the mid-term elections, this is our due.”

O’Neill was booted out a few weeks after this exchange with Cheney. It’s probably cold comfort to him now, but, as was noted here earlier this week, history has proved that he was right about deficits:

The “Bush tax cuts,” passed in 2001 and 2003, remain the single largest cause of America’s structural deficit — that is, the deficit not caused by the collapse in tax revenue when the economy goes into recession. The Bush administration inherited budget surpluses from the Clinton administration. What turned these into deficits, even before the recession? There were three fundamental new costs: the tax cuts, the Medicare prescription-drug bill and post-9/11 security spending (including the wars in Iraq and Afghanistan). Of these the tax cuts were by far the largest, adding up to $2.3 trillion over 10 years. According to the Congressional Budget Office, nearly half the cost of all legislation enacted from 2001 to 2007 can be attributed to the tax cuts.

The Bush tax cuts are technically known as the “Economic Growth and Tax Relief Reconciliation Act of 2001,” or EGTRRA, and the “Jobs and Growth Tax Relief Reconciliation Act of 2003” or JGTRRA.

The first bill, EGTRRA, was rammed through the Republican-controlled House and passed the Senate, which was then evenly divided between the parties but controlled by Republicans under Majority Leader Trent Lott, 62 to 38.

The second bill, JGTRRA — the bill that Secretary O’Neill worried might lead to exploding deficits — passed the Republican-controlled House 231 to 200, but when it got to the Senate, which was by then under the leadership of Democrat Tom Daschle, the final vote was a 50-50 tie.

As per the U.S. Constitution, the tie was broken by Cheney, the vice president, who also serves as president of the Senate.

2 Comments

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  • Patchdee
    December 11, 2010 - 10:44 pm | Permalink

    Excellent article. I read O’Neil’s story when the book first came out and was outraged at the stories he recounted. I will never understand how the American people were so blinded by Bush, Cheney & Rove for so many years.

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