Bruce Bartlett on Where the Right Went Wrong from BillMoyers.com on Vimeo.

Bill Moyers talks with conservative economist Bruce Bartlett, who wrote "the bible" for the Reagan Revolution, worked on domestic policy for the Reagan White House, and served as a top treasury official under the first President Bush. Now he's a heretic in the conservative circles where he once was a star. Bartlett argues that right-wing tax policies -- pushed in part by Grover Norquist and Tea Party activists -- are destroying the country's economic foundation.

BILL MOYERS: Heather McGhee speaks of how the neoliberal economic experience of the last 30 years – including cutting taxes on the rich and waiting for the wealth and prosperity to trickle down -- has left her generation of Millennials standing under a spigot someone forgot to turn on. After a few drips and drops, it went dry. So did the very notion of equal opportunity for all. And today we’re living in a country deeply divided between winners and losers. Nowhere is that more evident than in our tax system – so distorted by loopholes, exemptions, credits, and deductions favoring the already rich and powerful that it no longer can raise the money needed to pay the government’s bills.

Among the people who saw this crisis coming was the conservative economist Bruce Bartlett, the supply-side champion who wrote the manifesto for the Reagan Revolution. Bartlett became a senior policy analyst in the Reagan White House and a top official at the Treasury Department under the first George Bush. Yet for all those credentials, he is today an outcast from the very conservative ranks where he was once so influential. That’s because Bruce Bartlett dared to write a book criticizing the second George Bush as a pretend conservative who slashed taxes but still spent with wild abandon.

The subtitle says it all: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy.

For his heresy Bartlett was sacked by the conservative think tank where he worked. Undaunted, this card-carrying advocate of free markets and small government has been a prolific writer for popular and academic journals and has just published a new book: The Benefit and the Burden: Tax Reform - Why We Need It and What It Will Take. It’s a layman’s guide through the jungle of a tax system that, thanks to rented politicians and anti-tax ideologues like Grover Norquist, enable the one percent to make off like bandits while our national debt soars sky-high. I talked to Bruce Bartlett soon after he had finished his new book.

BILL MOYERS: You've made the point that America's top earning one percent had an effective 33.1 percent federal income tax rate in 1986, and an effective rate of only 23.3 percent in 2008. And you say if the top one percent had kept paying at the 1986 effective rate, quote, "the federal debt today would be $1.7 trillion lower." That's a lot of money.

BRUCE BARTLETT: Well, that's right. And when I say effective rate that means the taxes that they paid divided by their income. So that tells you what the revenue is that the government gets from taxing them. And clearly, they were doing okay at the beginning of that period.

And that was Ronald Reagan's administration. Up until 1986, the top marginal rate, the top statutory rate was 50 percent. Now it's 35 percent. And all the pressure is on to lower that even further. And this just doesn't make a great deal of sense to me. When people say, 'Oh, we can't raise taxes on the rich. They'll go on strike, they'll move to another country.' But within recent memory, it hasn't been that long ago that we had rates that were substantially higher. And these people did just fine.

BILL MOYERS: Well, when I was growing up in the '50s the top marginal tax rate, if I remember correctly, was 91 percent.

BRUCE BARTLETT: That's right. And I just think that there's a disconnect between the facts of what taxes do and the sort of mythology of what they do.

I think in many ways, the tax debate is a code for an attitude towards the individual vis-à-vis government. If you think government is bad or incompetent, if you glorify the individual against the state, then taxes is sort of your, the territory where you're going to fight these battles.

It's a signaling mechanism. It tells people you're one of us on the tax issue. You're for tax cuts and low tax rates and things like that. And that translates into an attitude towards government that goes into spending and lots of other issues.

BILL MOYERS: It's also a case, though, isn't it, that if you pay taxes, whatever taxes you pay, you want to get some services in return. You want your mail to be delivered on time, the potholes to be fixed, the bridge to be safe, the schools to teach your children. And there is that dissatisfaction with government because it hasn't been delivering the services that people really have a right to expect.

BRUCE BARTLETT: That's true. The composition of government spending has changed enormously over the last 50 years or so. The vast bulk of federal spending goes to Medicare, Social Security, Medicaid, interest on the debt. And that has a lot to do with, I think, people's attitudes towards government. They view this redistribution policy as taking from me and giving to them, so there is an antagonistic attitude towards that kind of just shuffling money around. And, but people don't seem to be willing or able to confront that fact, and instead, have concentrated solely on the tax side of the equation. But you can't do one without the other. You just can't keep cutting taxes unless you're going to start cutting spending meaningfully, which means essentially, cutting Medicare. That is the 600 pound gorilla.

BILL MOYERS: You write the Bush tax cuts have added at least $3 trillion to the debt. When Bush took office, budget projections showed a $6 trillion surplus, enough to pay off the pending $6 trillion national debt.

Instead, by the time Bush left office, the national debt had ballooned to over ten trillion, and the Republicans are refusing to take responsibility for having driven the borrowing binge that put the nation in the hole it is in now.

BRUCE BARTLETT: That's exactly correct. One of the things that Bush argued during the campaign, not so much after he took office, is that budget surpluses are a bad thing. Because they might get spent. It really sounds silly when you say that. But he did say this over and over again.

And so, the idea of cutting taxes was a part of a policy that I call starving the beast. It's you take away the government's credit card, as Ronald Reagan said. And this will force spending down. This will shrink the size of government. And conservatives believe that there's only so much freedom out there. And the more the government, the more power government has, there's less freedom for the people.

And they have a tendency to look at this in terms of spending as a share of GDP. So it can be measured very precisely. So if the federal government takes 25 percent of GDP, then essentially, we have only 75 percent freedom. We're not 100 percent free. You know, if we could cut government spending down to 20 percent of GDP, then we would gain five percent freedom. We'll go from being 75 percent free to being 80 percent.

I'm serious. This is the way they think. And this drives a lot of these policies that on the surface don't make any sense. They're just about taking away the government's resources to force it to shrink to -- if you cut the budgets of the regulatory agencies, then they can't regulate. This is a good thing.

They really believe that there's absolutely nothing good that comes out of government, unless it comes out of the Pentagon.

And the starve the beast theory is really extraordinarily pernicious, because one of the things that it is related to is the so-called tax pledge, which my friend Grover Norquist came up with. And which has become a ban on raising taxes at any time for any reason.

But at the same time, all tax cuts are okay. So you just have this constant ratchet down. Every time you can cut taxes, you've lowered the threshold that you can never then go up against. So it's like you're coming down a series of stairs. And this is all very conscious, because Grover believes that if you take away the government's ability to tax, it will necessarily be forced to spend less. Government will shrink. Freedom will increase. It's that simple.

BILL MOYERS: Grover Norquist is the one who famously said that he'd like to shrink the government to the size where it could fit into a bathtub and be drowned, take it back to the size it was before World War II.

BRUCE BARTLETT: Well, we'd have to go back before World War I, really, to get to that size.

BILL MOYERS: You remember back when the first George Bush was in the White House, and he raised taxes because even though he had said, "Read my lips, no new taxes," in his convention speech, his acceptance speech, he raised taxes because he felt the economic situation necessitated new taxes. And the conservative Republicans went after him. They were willing to take down one of their own.

BRUCE BARTLETT: Yes. And they did. Remember, you had Ross Perot running. You had -- and a great many Republicans voted for him because they thought that George Bush was a turncoat, and I think Mr. Bush's support for a tax increase in 1990 was an enormous act of courage that no Republican has been willing to show since, and probably never will.

I mean, would you want to be a Republican running in a Republican primary, where Grover Norquist comes in and says, ‘This guy must be defeated because he violated the pledge, or he refused to sign the pledge’? The members of the Tea Party don't need to know anything else. That guy's history.

And we saw during the 2010 campaign that these Tea Party people are capable and perfectly willing to defeat incumbent Republicans even when -- at the cost of having that seat go to the Democrats. You saw guys like Robert Bennett in Utah, who is no liberal by any means.

BILL MOYERS: He was the epitome of the conservative--

BRUCE BARTLETT: That's right.

BILL MOYERS: Stalwart. And--

BRUCE BARTLETT: But he wasn't conservative enough. And so, they tossed him out.

And Republicans lost seats in places like Colorado and Delaware, where the Tea Party people were so insistent that their own people be in there, and that they don't have these RINO Republicans, you’ve probably heard that term, stands for Republican in name only. And believe me, among Republicans there's nothing worse that you can be called. But there’s other groups as well. The Club for Growth has been extraordinarily important.

Because they ensure that there will always be unlimited or virtually unlimited financing available to anybody who runs against a RINO, against a tax pledge breaker, or somebody who refuses to sign the pledge. They're very, very obsessed about this.

And they just have vast sums of money. And even before the Citizens United decision made it easier for them to raise money, they still had an enormous amount of money available. And I honestly don't know where it's coming from or what we can do about it.

BILL MOYERS: You've made it clear that the Bush cuts were worth little to those making $150,000, but a huge amount to those making five, ten, 15, $25 million. Do those folks in the Tea Party get that?

BRUCE BARTLETT: I'm not sure. I'm not sure if they really know very much about taxation. Back when the Tea Party first came into existence, back in 2009 they had a big demonstration in Washington. And we went around and we surveyed a good percentage of the people in this demonstration about what they knew about taxes, what they thought the top rate was, what they thought their tax rate was. You know, questions of just straight factual knowledge, not opinion.

And it turned out that these people all thought taxes were vastly higher than they really are, and that they were paying exorbitantly high tax rates that would be impossible for them to pay. And so, I think that this is part of what's going on here, is simple misinformation.

And there have been other polls and things that are showing the same thing. I mean, if you really thought, if you're a typical middle class person, you really believe the government was taking half your income, you'd be out demonstrating. But the fact of the matter is that the vast majority of people pay less than 10 percent federal income taxes. So they simply have a wrong understanding of what they pay.

BILL MOYERS: Well, there are all the other taxes, of course. State taxes, sales taxes, toll fees and all of that.

BRUCE BARTLETT: That's true. But all taxes taken together as a share of GDP is only about a third, or even less. More -- it's like 30 percent. That's all federal, state and local taxes all put together. So that you're not going to have taxes being much higher than that for anybody.

BILL MOYERS: You remind me that ideology is a worldview that can be believed despite all the evidence to the contrary.

BRUCE BARTLETT: Well, it's very much like religion. And I think that it's not a surprise that so many very, you know, devout Christians are a part of the Republican Party and accept a lot of this. Because the nature of deep religious belief is faith, which means you accept things for which there is no proof.

And so, I think it's not that hard to shift that faith over to believe a lot other things that you've been told are true so many times that you just accept that on faith as well. That if you cut taxes, revenues will go up, you know, and things of this sort. That all tax cuts are good and all spending cuts are good, and all government is bad.

BILL MOYERS: Are you pessimistic?

BRUCE BARTLETT: Oh, absolutely. I'm very pessimistic.

BILL MOYERS: What makes you most pessimistic right now?

BRUCE BARTLETT: The gridlock in Congress. Or I don't know. It's the lack of willingness to discuss issues in a reality-based way. We just seem to live in a zone in which people no longer really seem to care about facts or analysis. And we talk in sound bites.

And the media of course contribute to this. The decline of the major media. People don't want to read magazines. They don't even want to read a newspaper article if it's more than a couple of inches. And if it doesn't mention Lindsay Lohan, they move on.

Clearly people don't seem to know as much. And they don't seem to care that they don't know as much about public policy or just the basic facts of, you know, how much does the government tax, how much does the government spend? What does the government spend money on? I've seen more than one poll that shows people believe that 20 percent of government spending goes to foreign aid.

20 percent. It's actually one percent. But of course if you believe a huge percentage of government spending is going to just giveaways to foreigners then why not cut taxes and slash spending? It's not coming out of anything that matters to you. People have to be given the factual information they need to make decisions. And they're not getting it. And they may not even want it.

BILL MOYERS: I just read a summary of a study done at the University of Michigan that over a period of time shows that people have confronted with facts they believe to be true will reject them nonetheless if they offend or undermine their belief system. That their beliefs -- our beliefs are more important to us than the facts.

BRUCE BARTLETT: Oh, I think we need some -- instead of talking to economists like me, we need to be talking to psychologists and sociologists to try to get at the root of this problem.

BILL MOYERS: You wrote in the Washington Post, "The growing inequality of wealth and income distribution is both a moral and economic problem." How do you see it as a moral problem?

BRUCE BARTLETT: Well, I think it's wrong to have people with such extraordinary wealth that pass it down from one generation to another, with people not having to work for a living, being able to have control perhaps over government. Clearly wealth and power are interrelated at least to some extent. And, of course you see members of both parties now going hat in hand to the exact same group of people on Wall Street.

And it's naïve to think that they're not getting something for their contributions. I don't think it means that politicians are being bought. But when the class of people that they spend all of their time with, talking to and so on, they're bound to pick up part of their point of view, their attitude. And, of course, many politicians these days hope to be able to join those groups of people.

BILL MOYERS: When they leave office--

BRUCE BARTLETT: When they leave office, that's right.

BILL MOYERS: 300 former members of Congress are now lobbying in Washington.

BRUCE BARTLETT: Yes indeed. But it’s more, I don't know, class consciousness is the only word I can think of, but it doesn't really get quite at what I'm talking about. It's the community of shared interests.

But we have public policy problems. For example, we have a large budget deficit that many people, myself included, believe will require higher taxes to deal with at some point. But -- and so, if the wealthy don't contribute more, then the rest of us are going to have to contribute more.

If the wealthy are unwilling to pay more taxes, then this is going to lead to spending cuts. And if you put off the table things like national defense, then you're going to end up cutting more and more out of programs that aid the poor. So, I think there are consequences to this idea that tolerance for inequality requires us to -- to just do nothing to make the wealthy contribute a higher share of resources to fund the government.

BILL MOYERS: Here's some data from the nonpartisan Congressional Budget Office. Let me see what you think about this.

Between 1979 and 2007, about 30 years there, roughly 40 percent of all income growth, post-tax, post-benefit, accrued to the upper one percent. And in just the five years between 2002 and 2007, over half went to the top one percent. What do you make of that?

BRUCE BARTLETT: It's extraordinary. But I think it's even worse than the data show because if you disaggregate the one percent, you find out that the vast bulk of the gains made by the one percent were by the top 0.1 percent. So -- and this also makes another point, which is that if you ignore the top one percent, the increase in inequality is not that great.

The income classes of the bottom 99 percent have moved more or less together. It's the top one percent that has just skyrocketed up out of proportion to everybody else. So, in other words, there's a huge difference between being in the ninety-eighth percentile and being in the ninety-ninth percentile. And it's important not to lump in people who merely make, you know, a couple hundred thousand dollars a year with people who are making millions upon millions, and even billions of dollars a year.

And that's something that I think is not -- doesn't always come through in the context of the debate. We're talking about a really small number of people, in the hundreds, who have really acquired a huge outsized share of all of the gains that this country has made in terms of income and wealth over the last few years.

BILL MOYERS: More than any other group, the tax rates for the wealthiest Americans have been coming down these last 30 years. This couldn't have happened without a bipartisan consensus that it's a good thing.

BRUCE BARTLETT: Yes.

BILL MOYERS: How did that happen?

BRUCE BARTLETT: Clearly, ideology has a great deal to do with it. The conservative side of our political spectrum has had an outsized voice over the last few years. I think especially since the establishment of Fox News, which has created an echo chamber in which people just hear the same ideas repeated ad infinitum.

And you know, it's just basic advertising, basically. You hear the same idea over and over again. Or you can call it propaganda if you like. It's broadly believed and people just keep saying these things all the time, that ‘Rich people create jobs.’ ‘Yes, rich people create jobs.’ ‘They're motivated primarily by taxation.’ ‘Yes, they're motivated by taxation.’ ‘We must cut their taxes.’ ‘Yes, we must cut their taxes.’

BILL MOYERS: Becomes a mantra.

BRUCE BARTLETT: That's right. Year after year after year of people watching Fox News and listening to talk radio, had conditioned them in advance to believe that the government is responsible for all of our problems.

BILL MOYERS: Your old boss, Ronald Reagan, said government is the problem, not the solution. And Bill Clinton, Democrat, echoed that refrain when he was in office.

BRUCE BARTLETT: One idea that a friend of mine, Mike Lofgren came up with, is that the conservative side of this political spectrum hates government, per se. And it's in their interest to make it be ineffective. And so, they'll cut the budget, for example, for a regulatory agency such as the Securities and Exchange Commission.

And then, when some problem arises on Wall Street, they will then say, ‘Ha-ha, this proves that the SEC doesn't work.’ And this will justify further cuts in the agency's budget, so that everything that they do reinforces their basic ideology, which is that government is the source of all of our problems. Government doesn't work. And then they make sure that it doesn't work by cutting its budget and tying its hands so that everything is a race to the bottom and it didn't use to be that way.

I think coming out of World War II in particular, people had a much more positive attitude towards government. It was something that was capable of doing good. And, of course, that led to the creation of many programs, to aid the poor and the middle class. Housing programs, things of that sort.

BILL MOYERS: But if it's true that in some profound way Washington, the government, has made the rich richer, and turned its back on the middle class, you can hardly blame Tea Partiers and others for saying, ‘Why should I be taxed more for the government? The government's working for them. It's not working for me.’ Isn't that dynamic working out here?

BRUCE BARTLETT: I think so. I mean, certainly the Occupy Wall Street group has some similarities with the Tea Party group in that regard. And I've always thought that a lot of these Tea Party people could easily switch sides, like, overnight depending on the circumstances. For example it's obvious that a lot of Tea Party members tend to be elderly. You've seen that famous sign, "Tell the government to keep its hands off my Medicare." And I think as long as the government does keep its hands off their Medicare, they're fine with talking about low taxes.

But once they start to realize that the Republicans really do want to not just cut Medicare, but essentially abolish it, you know, I just think those people are not going to be part of the Tea Party. They're going to be over with the Occupy Wall Street.

BILL MOYERS: Bruce Bartlett, thank you very much for sharing this time with us.

BRUCE BARTLETT: Thank you.