“It’s Not a Revenue Problem. It’s a Spending Problem.’

Tracing the history of a GOP talking point.

President Reagan

A good talking point needs to fulfill two goals. One: Hammer home a message until it’s embedded in the brain like a Rebecca Black track. Two: Make it clear that there will never be a new answer to an irksome question.

Republicans have latched on to a very good talking point, and it’s been all over the place in the run-up to Tax Day. On April 14, when asked why Republicans wouldn’t consider tax increases as a way to reduce the deficit, Speaker of the House John Boehner explained: “Washington does not have a revenue problem. Washington has a spending problem.” That same day, Majority Leader Eric Cantor got the same question. “The fact [that] I think most Americans get, Washington does not have a revenue problem. It’s got a spending problem.” Also on the same day, speaking to an annual event put on by Grover Norquist’s Americans for Tax Reform, Orrin Hatch completed the loop. “We don’t have a revenue problem,” said Hatch. “We all know we have a spending problem.”

If you teleported to three different parts of the Capitol Building and talked to three different Republicans, you would have gotten the same answer. How did Republicans develop this line, and how much sense does it make?

The first question’s easy. When Republicans start Xeroxing a pleasant-sounding aphorism, odds are that they got it from Ronald Reagan. On March 28, 1982, Reagan addressed the National Association of Realtors in Washington. His first tax cuts had been passed into law. The economy was still in the dumps. Unemployment was 9 percent. The eggheads wanted to know why, during a recession, they shouldn’t worry about shrinking tax revenue when defense and entitlement costs were ballooning.

“We don’t have a trillion-dollar debt because we have not taxed enough,” said Reagan, “but we have a trillion dollar debt because we spend too much.”

That was where the spending/revenue line began. It got shortened by a decades-long game of telephone and focus-grouping, and only a few Republicans, like Ways and Means Chairman Dave Camp, try to credit the line to Reagan.

Perhaps it shouldn’t be credited to him. When Reagan spoke to Realtors, taxes were far higher than they are now. The top marginal rate—there were then 12 rates—was 50 percent. The bottom rate was 12 percent. But Reagan’s tax cuts didn’t shrink the debt, and they didn’t increase tax revenue as a percentage of GDP. In 1981, tax receipts were 19.6 percent of GDP; outlays were 22.2 percent. For the next six years, as Reagan agreed to some tax increases, revenue stayed lower and outlays stayed higher. It wasn’t until 1987, the year after a massive tax simplification that cut the rates and the number of brackets, that outlays fell below where they had been in 1981. It wasn’t until 1998 when revenue got back to that level.

And what about the debt? Oh, yeah. The “trillion-dollar debt” Reagan told Realtors about was about $994 billion when he took office. When he left office, it was $2.87 trillion. Democrats love to point that out. Republicans love to punch right back and say that Reagan had to wrestle with a Democratic Congress, so his ability to cut spending was limited.

Of course, politics in 2011 are a mirror image of the politics of 1982. One party controls the White House and Senate; one party controls the House. But when Reagan riffed on revenue and spending, there was no real panic about the debt or the deficit. Now there is. And the “It’s a spending problem, not a revenue problem” line is intended to close off one response to the debt panic, the response that has always made supply-siders sweat: raising taxes.

Republicans are fighting that off with a combination of honesty and audacity. The honesty began with Paul Ryan’s budget rollout. It’s true that Ryan’s budget doesn’t balance the budget until 2035. But it does voucherize Medicare and turn Medicaid into a system of block grants.

That would do some good, as far as the deficit’s concerned. Earlier this year, when the International Monetary Fund assessed ways for America to tackle its debt, its economists decided that doing so would mean “raising all taxes and cutting all transfer payments immediately and for the indefinite future by 35 percent.” Allowing the pre-Bush tax rates to return would balance the budget, eventually—the budget would be balanced even faster if that was combined with entitlement reform. But the Ryan budget cuts spending and taxes, lowering the top marginal rate to 25 percent.

How does the Ryan budget handle the apparent paradox? Go to Page 17. “The U.S. government is not running sustained deficits because Americans are taxed too little,” the authors write. “The government is running deficits because it spends too much.” A few paragraphs later, we get the short version. “Washington has a spending problem, not a revenue problem.” Say it enough, and maybe it’ll become true.

On Monday, S&P revised the outlook on American bonds to “negative” because its analysts feared there’d be no serious deficit-reduction plan by 2013. Republicans jumped all over the report. “Today’s announcement makes clear that the debt limit increase proposed by the Obama administration must be accompanied by meaningful fiscal reforms that immediately reduce federal spending and stop our nation from digging itself further into debt,” said Cantor.

Curiously, no Republicans (and, to be fair, no Democrats) highlighted this piece of S&P advice:“Standard & Poor’s takes no position on the mix of spending and revenue measures the Congress and the Administration might conclude are appropriate.”

There’s a simpler way of putting that: We have a spending problem and a revenue problem. And if you talk about one, and not the other, you’re not taking either problem very seriously.