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Tax reform unleashes latest round of DC deficit hypocrisy

  • Democrats are attacking the GOP tax reform bill for raising deficits and calling the Republicans debt hypocrites.
  • But not all debt is created the same way.
  • Neither party has had the guts to truly attack debt when they've had the chance.
Steven Rattner
Adam Jeffery | CNBC
Steven Rattner

Not all deficits are created equal.

At least that's what we hear from the leadership of both major political parties in America.

To Democrats tax cuts are generally suspect because they reduce revenue and increase deficits.

Republicans traditionally put the blame for deficits on government spending. To them, it's the spending that causes deficits, not tax cuts.

Add to that the Laffer Curve argument that tax cuts eventually boost revenues, and you have what the Republicans consider to be a slam dunk response to the deficit attacks. Of course, Democrats generally reject the Laffer Curve and often ridicule it as well.

Why is the above review of the last 50 years or so of Democratic and Republican Party dogma necessary? The answer is because it goes a long way to ending an annoying hypocrisy being leveled at the GOP right now. As usual, the party out of power is waving the deficit red flag even though it ran up big debts when it was in power. This sudden amnesia afflicts both parties during every change in White House and/or congressional control.

One of the Obama administration's top economic advisers is pointing the finger now:

His tweet helps illustrate why Republicans and Democrats think that spending that boosts debt is different from tax cuts that boost debt. The answer is that they achieve different political goals with different winners and losers who the politicians expect to vote accordingly.

The problem is the result is the same either way. Economic booms and busts come and go, but deficits and growing debt are a constant. Since 1970, we've had a grand total of four years that didn't have the federal government finishing up in the red.

In a twist, it was a Bill Clinton, a Democrat, who was president during those lonely four years of budget surpluses from 1998-2001. Spending under Clinton's budgets still went up in those years, but revenues soared after Clinton cut the capital gains tax rate in a compromise with the Republican Congress.

The Clinton surplus is a great example of what happens when the parties work together. But that's rarely the norm. Most of the time, neither the Democrats nor the Republicans have the guts to follow through on what they say is their fiscal philosophy.

Republicans who say they're for tax and spending cuts to boost the economy and reduce deficits never follow through on the spending cut part of that promise. There are always plenty of excuses. Reaganites like to blame the Democrats in Congress for blocking the spending cuts they wanted to make back in the 1980s. The George W. Bush administration blamed the needed extra spending after 9/11 for homeland security and then the war in Iraq for not cutting spending.

Democrats may talk a big game about raising taxes to reduce deficits, but in recent decades they've only made token tax hikes when given the chance. The excuse when President Obama was in the White House and the Democrats had a Congressional super majority was that they couldn't raise taxes when the country was suffering such a steep economic recession. Two years later, the Democrats lost control of Congress and that was that.

But the real reason is political cowardice, on both sides. The GOP talks a good game about cutting spending, but they never really try to hit the big ticket items of Social Security and Medicare. Democrats know that tax hikes, even on the so-called "rich," will come with some heavy pushback. They also would risk hurting many of their own high-earning campaign donors and other supporters. Fear is truly bipartisan in Washington.

Whatever economic philosophy you believe when it comes to taxes and deficits, it's clear neither party has ever really tried them. Democrats don't really raise taxes as much as they promise their base and Republicans don't cut spending as much as they promise their base.

The result is the red ink keeps flowing. It's flowing even now as revenues break record highs month after month. Yet through it all, people like Steven Rattner think they can keep blaming one party or the other for the problem. It's time to stop letting both parties get away with it.

Commentary by Jake Novak, CNBC.com senior columnist. Follow him on Twitter @jakejakeny.

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