The American Spectator : Supply-Side, the Next Generation

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The Tax and Spend Spectator

Supply-Side, the Next Generation

By W. James Antle, III from the December 2010 - January 2011 issue

Tax cuts aren't enough.

Even before its report was released, Washington hearts were aflutter and tongues were a-wagging about the Obama deficit reduction commission. The bipartisan blue-ribbon bunch solemnly vowed they would propose $3 in spending cuts for every $1 in tax increases, a ratio reminiscent of past tax-hiking budget agreements. Whatever fat is trimmed from the budget, overall both taxes and spending usually end up rising.

Anything adopted in response to the Bowles-Simpson recommendations is likely to follow this familiar pattern. After all, who is the White House more inclined to listen to: Americans for Tax Reform, which is sounding the alarm against trillions of dollars of new revenue on the table, or the AARP, which is already on the warpath against unspecified and improbable spending cuts? To ask the question is to answer it.

But the Bowles-Simpson commission's 15 minutes of fame is as good a time as any to examine the Republican divide over deficits. On the one side there are green-eyeshade Republicans who care about the national debt and believe in balanced budgets. Unfortunately, their approach to dealing with deficits and Democrats is often similar to Charlie Brown's approach to Lucy and the football: these Republicans go along with tax increases in the mistaken belief that FDR's disciples will cooperatively take an axe to entitlement programs. End result: what Newt Gingrich called tax collectors for the welfare state.

Then there are the Republicans who are such wild-eyed supply-siders that they believe things about tax cuts that the original supply-side economists never claimed. In just the past few months, we have heard the top two Republicans in the Senate say that tax cuts necessarily increase revenues, just as John McCain did in an interview with a conservative magazine before clinching the GOP nomination. There is the (possibly apocryphal) Dick Cheney quote about how Reagan taught us "deficits don't matter" and Jack Kemp's well-documented assertions that spending cuts are a form of "root-canal politics."

Thus even within the Republican Party, the alternatives are usually tax-and-spend versus borrow-and-spend. (Concord Coalition types like to imagine that tax-and-don't-spend is a viable option, but this is implausible in a democracy for reasons that should be obvious to anyone who has ever taken Poli Sci 101.) Indiana governor Mitch Daniels, profiled by your humble servant in the November issue of TAS, may have already fallen into the tax trap: a serious and sober deficit hawk, he has engaged in fisticuffs with fiscal conservatives over a value-added tax.

Not for the first time, Daniels should look to Phil Gramm for an example of what not to do as a potential pro-austerity Republican presidential candidate. Although Gramm was an early supply-side champion, he was bamboozled into supporting the tax-hiking budget agreements of 1982 and 1990. Gramm claimed he reluctantly backed the latter because President George H.W. Bush, a fellow Texan, needed his vote. What both Bush and Gramm really needed were the votes of millions of conservatives, which they didn't get after going with illusory deficit-reduction tax increases.

To some extent, both camps are reacting to each other's excesses. The anti-tax Republicans know that if neither party is willing to tackle our oversized spending commitments, one party has to remain steadfast on taxes. Otherwise, the deficit will be dealt with almost entirely on the revenue side of the equation, an economically destructive prospect. The anti-deficit Republicans understand that real spending cuts are difficult to achieve. They are willing to pay the price-and expand the political coalition-necessary to enact them.

In reality, the supply-siders and the deficit hawks are both right. High marginal tax rates are injurious to economic growth. Chronic red ink puts the country on an unsustainable fiscal path. Tax cuts make a platform of limited government politically possible; spending cuts make it arithmetically possible. Finally, the time may be right for conservatives to campaign as government-cutters rather than just tax- or budget-cutters.

Pat Toomey led the emphatically anti-tax increase Club for Growth. But as the Republican nominee for Senate from Pennsylvania, he did not ignore the spending side of the ledger. Toomey opposed the big Obama spending programs, from the stimulus to the health care program, as well as bipartisan bailouts of private industry. He was also one of a handful of GOP candidates, like Rand Paul in Kentucky and Sharron Angle in Nevada, to touch the third rail of entitlements.

Most Republican candidates remained abysmal even this year, slinking away from Social Security reform and engaging in demagoguery about the Obamacare Medicare cuts. Nevertheless, the small group National Review editor Rich Lowry called the "honesty caucus" could grow as Republicans realize it is possible to be either a big-spending or low-tax party but not both.

An even more important development is that the Tea Party movement isn't just a tax revolt; it is anti-debt and anti-spending. The $700 billion Wall Street bailout and the $787 billion stimulus -- both of which the elites hysterically and implausibly say "worked" -- brought it into existence before there were any broad-based tax increases. Even if some Tea Partiers are more principled than others, real grassroots activism against federal largesse is an important hedge against Republican statism.

REP. PAUL RYAN, the Wisconsin Republican whose lonely "Roadmap" is the closest thing his party has to a blueprint for dealing with the entitlements crisis, has described himself as a "second-generation supply-sider." During the Reagan years, it was a bit more justifiable -- if still usually imprecise and often technically incorrect -- to say that tax cuts of the Kemp-Roth variety "paid for themselves."

Back then, there were 14 tax brackets. The top marginal income tax rate was a stupefying 70 percent in 1981. When George W. Bush took office 20 years later, it stood at 39.6 percent. After the Bush tax cuts, it was 35 percent. While the capital gains tax cuts of 2001 and 2003 paid off handsomely, to imagine that 35 percent is far out enough on the Laffer Curve to produce revenue reflow effects sufficient to pay our way out of the current mess is to engage in fantasy.

Under Reagan, we could briefly experience what David Frum billed as "post-Great Society government at pre-Great Society prices." And even then, the deficits and spending piled up on Reagan's watch -- however necessitated by the need for a late Cold War defense buildup and further inflated by Democratic intransigence -- nearly undid all the work he did on tax cuts. Even the core Kemp-Roth cuts began to erode as early as 1990, the first year in which the Bowles-Simpson commissions of their day began to monkey with deficit reduction.

The damage done during the Bush years is even harder to calculate, having set the stage for the Obama administration both politically and fiscally. The number-crunching young conservative reporter Stephen Spruiell compared the Bush-era spending increases to the subsequent Obama spending spree. "A $220 billion increase isn't nothing, and the damage it will do is likely to be compounded by the fact that it represents an addition to the baseline," he observed. "But it isn't a gargantuan blowout compared to where we would be if the Bush-Reid-Pelosi trends had continued." Especially since the wars could have been at least partially paid for by cutting domestic spending, as then budget director Mitch Daniels publicly recommended.

If Republicans are serious about charting a different fiscal path for this country, they will abjure both the tax-raising ways of Bush the Father and the borrow-and-spend of Bush the Son. It's time for a new generation of fiscal conservatism.

About the Author

W. James Antle, III is associate editor of The American Spectator. You can follow him on Twitter at http://Twitter.com/Jimantle.

Letter to the Editor View all comments (27) | Leave a comment

Alan R| 12.22.10 @ 6:45AM

Good article, but please get informed on this: it was not "demagoguery" to be against the drastic cuts in Medicare Advantage, because it is the only major privatization we have achieved, and Obama's purpose in gutting it was to strangle the privatization movement in the cradle.

Medicare Advantage is a great conservative tactical victory, because it was the partial PRIVATIZATION OF MEDICARE. The half-informed among we conservatives bash it because Bush had to sweeten the deal with drug coverage to get it through Congress. They're the same ones who think of themselves as courageous for supporting the Ryan roadmap. Well, Bush accomplished part of what Ryan so far only talks about: a privatized option of Medicare.

By the way, Medicare Advantage is the first time in history that a government medical program came in under budget, and would have proved to the public - if conservatives had not been too dense to promote it instead of attack it - that privatization can work.

Wise up, conservatives: the reason Obama made gutting Medicare Advantage his first non-negotiable demand in "health reform" is because he shrewdly appreciates that he can't allow the American people to see privatization succeeding in controlling costs and making patients happy. That would wreck his drive to socialism.

Barry Obama is quietly very happy that clueless conservatives fail to trumpet the real policy success they won in the successful partial-privatization of Medicare Advantage. So, go ahead, keep making his case that private solutions have failed and the government needs to take it over. Some conservatives are so used to being losers that they lack the socialist's ability to sieze tactical victories and expand them.

Tim the Enchanter| 12.22.10 @ 1:18PM

"Strangling in the cradle" is quite familiar to the Kenyan if I recall the Born Alive Act correctly.

SonOfSam| 12.22.10 @ 8:16AM

Taxation is theft
Washington is run by criminals
they have no right to OUR money

daddio| 12.22.10 @ 9:57AM

No kidding-Washington is run by the Mafia...

Dixie Pixie| 12.22.10 @ 2:41PM

Actually the Federal and State governments were taken over by a organized criminal syndicate long ago. That is why the Federalist Papers warned against the formation of political parties.

Louis Jenkins| 12.22.10 @ 8:42AM

"It's time for a new generation of fiscal conservatism."

Unfortunately the Ryan's candle is hidden under a bushel basket. If the District of Criminals think we can continue down the road we're currently on they need to get real. This current congress have proven themselves inept. The next congress will be the proof in the pudding so to speak.

Ken (Old Texican)| 12.22.10 @ 8:44AM

Alan R,
Thank you for the round out above. I turned 65 this summer and saw the filleting knife coming regarding Medicare Advantage.

I finally decided, (at the very last day of "assured coverage"), that I would go with traditional Medicare...and pray a lot that I can finish my assigned tasks on earth before they kill me.

Haha| 12.23.10 @ 12:50PM

Wow. So Ken is "against" socialism but has enrolled in a socialist program himself.

What a hypocrite. Old Texican, a Welfare Queen! Haaahahaha

Dan Hirsch| 12.22.10 @ 9:30AM

Mr. Antle;

Please stop with the 'tax cuts don't increase government receipts.' This is statism at its most insidious. This is only true in the vacuum of the economics lecture hall where the bearded one speaking, if he is honest, also says, "Everything else remaining the same." BUT everything NEVER stays the same.

One hundred million striving Americans find out that when income taxes go down, it's more worthwhile to chase that extra income. And one hundred million people striving a little harder, inevitably increases economic activity, far more than the amount the government has NOT taken, or why would they strive? They wouldn't.

So Mr. Antle III, leave the economics lecture hall where there is no oxygen, come into the real world and discover that people respond to change and that the government can collect more taxes by collecting less. This seemingly impossible contradiction (to most simple minded politicos) needs to be understood by all the electorate. You should do a better job of understanding this and explaining it!

If you are remain unclear, dig up some old Milton Friedman books and read them. He was and remains right.

C'mon!

W. James Antle III| 12.22.10 @ 3:00PM

Mr. Hirsch,

The entire point of the Laffer Curve was that reductions in marginal income tax rates only increase revenues under certain circumstances. When rates are outside the prohibitive range, cutting them won't necessarily increase revenues.

Then there are tax cuts like the child tax credit which don't cut marginal rates at all. The money is used more effectively than if it went to the government, but such tax cuts do not increase revenues.

So yes, I agree with you that you can collect more revenues with lower tax rates and yes, the change in incentives means that even when tax cuts lose revenues they often lose less than the static scoring projects. But not all tax cuts increase revenues.

Amin| 12.26.10 @ 5:01AM

Well put Mr. Antle. One must be careful not abandon the regard for truth in the pursuit of promoting a free market.

Ralph Baskett| 12.26.10 @ 10:25PM

Mr. Antle,

Shouldn't the first concern be maximizing economic growth not government revenue? More economic growth means more jobs and wealth for everyone outside the government sector.

Ret. Marine| 12.22.10 @ 9:39AM

Here's a noble idea, get the government out of our pockets and they have no reason to exist other than the reasons stated in Our Constitution. Now this might sound a tad bit foolish to some, but consider the only tasks assigned to the feds and it becomes a little like reality when you think of it.
Call me naive but it works for me. We had better get the urgent desire to restrain this big bloated mess some call our Government, its not mine I didn't ask for them to borrow the trillions, and then hand it over for political favors, didn't contribute to it and damn sure am not having any part of paying it off for them. I have a budget in which I learned years ago that cannot be breached, so why is it any different for the supposed gubmnint. These whores are going to get their comeuppance believe me they are going to receive it fairly soon. If you have any doubts, look at how many States run by the district of criminals party leaders are now going to default on their loans all for political favors they know will never be paid back.
The current GOP, had better get the investigations started on "day one" of their new majority, if not all this is going to do (the article) is prove we actually have criminals running this Country into the ground deliberately.

Chuck| 12.22.10 @ 10:32AM

I noticed the Grace and Bowles commissions failed to address the problem of the unconstitutional central bank. Until the Federal Reserve is removed from the equation the economy will never make a comeback.

axbucxdu| 12.23.10 @ 1:05PM

Once again, the core problem is clearly stated. The excess spending is a mathematical consequence of an untenable and dishonest monetary system, not the other way round. See the Triffin Dilemma.

Imagine the pols chagrin were they forced to deal with a world that does not permit them to borrow reserves created "from thin air" and instead had to tax every citizen in full to keep their sacred castles in the air.

They'd redicover fiscal sanity tout de suite.

MikeBee| 12.22.10 @ 11:44AM

What is actually needed is a three-pronged attack:
1) lower taxes, especially corporate taxes
2) increase spending in the private sector
3) dramatically reduce spending in the public sector

As Laffer's curve demonstrates (and previous tax cuts demonstrated), reducing taxes increase revenues to the government, to a point. I don't believe that we have hit that point of no return, yet. Particularly, corporate taxes should be lowered dramatically.

Increasing spending in the private sector has been done in the past, with good effect. Most recently, W increased spending for the private sector in the latter part of the last decade, and created jobs in so doing. For example, during W's term, the Post Office put out a contract to the private sector to build 120,000 postal trucks (the semi trucks), to replace an aging fleet. International Truck won the contract, and they and all their supply base put a lot of people to work building these trucks (at the time, I worked for Lenawee Stamping, a supplier to International Truck, and saw hiring increase as a result of this contract).

At the same time, government spending must be dramatically reduced. Whole departments should be closed, never to be reestablished. Governments need to learn what businesses learned over the past few years. A leaner, meaner entity will be able to both perform its mission well and save a lot of money. This will increase available revenues for the government, as well, while tax cuts provide the funds.

The Democrats propose doing exactly the opposite of the above. They wish to increase taxes, and increase spending in the public sector, making governments even bigger, and, therefore, needing even more taxpayer money to sustain. The Dems do not desire to place contracts out there for the private sector, as this would help those evil corporations.

The three-pronged approach above will work very well to put this economy back on track.

Ken (Old Texican)| 12.22.10 @ 1:23PM

Folks,
As CEO of three pretty large national/international companies over the last forty years, here is the secret...

TEN YEARS OF PREDICTABILITY...vis a vis taxes and regulation.
Once we have the rules of the game we can make our stockholders money. Duh!

Bruce Michael Anderson| 12.22.10 @ 3:42PM

Publication 557 (06/2008), Tax-Exempt Status for Your Organization, go to IRS.gov look it up. it is the paper work to file for a 501 c-3 group. This bill or Dods Frank an H.R. 5175 in the House and S. 3295 " disclosure Act" (S. 3295). Act is already written in it the tax Codes an it's unconstitutional to write laws to say you have no rights of free speech, or block the right to the redress of a grievance, The Blacks Law Dictionary Calls it Congressional direct Constitutional Contempt, Historical Fact Federal Taxes was to be based on the statesmen Common defense Historical view voluntary, No war on US Soil No Forced Federal Taxes, Inpart the reason Obama faced Facts as with the Tax Cuts.
George Washington , Mr.Bush and Mr. Limbaugh the time and views of may the peace of the great Iam Find him in the next life Mr. Ronald Reagan are timeless and True. A Farmer and hunter Understands You can Not eat gold it grows Nothing "Black Elk Speaks",

The State was to only one to be able to force Taxes with out with a War being fought on US Soil.

The Historical Views are in the Words or terms, The Stamp Act and or the Hemp Act , The home Stead Act an as well the Daws Act of 1887.

So mote it be
The Rights to Arms Shall Not Be Infringed
Reader of Imprimis
is it time to fight back Sanctum Mcgallium and U.S. Title 42 usc section 1983

http://gunowners.org/netb.htm HR 2640 the "Veterans Disarmament Act" and & S 2084) dereliction of duty to the Oath of office as the leadership of common defense Direct Criminal Constitutional Contempt of Court The Supreme Court ruled Your Bans Unconstitutional

Bruce Michael Anderson| 12.22.10 @ 3:05PM

I am Not so sure the Leadership of Mitch Daniels is worth seeking to run for Obama's place. I will surly not vote for him, I was not very happy to find out that Indiana has such a High Number of Veterans on back Logs with the Va we are looking about 6,000, many of them have Been awaiting for many years just do penssion's many have had food stamp Cut Backs, Section Eights Cut's and Left Homless, then I found out that a Place Called Stone Belt of Bloomington Indiana was having to take Cuts of 700,000 its a place that cares for the Adult Mentaly HAndycap in Bloomington Indiana many of them are having food stamp Cuts as well,

All the While Before Obama come into office Indiana government was Helping the Colts and the NFL and the Building of the Lucs Oil Stadium and the Over long term Maintaining of as the NFL makes Millions a year...how was they Helping the Government raised State and County Taxes... Hikes --that have Not been Stoped or forced to pay back. Again Why They Make millions....Tax was for the Welbeing of we the people Not Abortion and Ball Teams that Makes millions a Years.

http://Writing.Com/authors/epistemology
Bruce Michael Anderson

Bruce Michael Anderson| 12.22.10 @ 3:21PM

Publication 557 (06/2008), Tax-Exempt Status for Your Organization, go to IRS.gov look it up. it is the paper work to file for a 501 c-3 group. This bill or Dods Frank an H.R. 5175 in the House and S. 3295 " disclosure Act" (S. 3295). Act is already written in it the tax Codes an it's unconstitutional to write laws to say you have no rights of free speech, or block the right to the redress of a grievance, The Blacks Law Dictionary Calls it Congressional direct Constitutional Contempt, Historical Fact Federal Taxes was to be based on the statesmen Common defense Historical view voluntary, No war on US Soil No Forced Federal Taxes, Inpart the reason Obama faced Facts as with the Tax Cuts.
Bush and Limbaugh the time and views of Ronald Reagan are timeless and True.

So mote it be
The Rights to Arms Shall Not Be Infringed
Reader of Imprimis

Len| 12.22.10 @ 4:17PM

Mr. Antle, you get what you want. Since you choose to lie by omission, you shouldn't be taken seriously. Ron Paul has long had plans ( long before Paul Ryan) for reducing government spending and those plans include getting rid of entitlement programs.

The biggest problem is the federal reserve and your, along with most republicans and so-called conservatives, ignoring this instrument that enables the government to continue to spend on credit (our backs in truth) shows you to be an economic ignoramus at best, or one who is for upward wealth redistribution.

The federal reserve prints money, not actual wealth, but credit that is supposedly private but is backed by the taxpayers, not the fed, and this fiat money enables the government to continue to fund programs that should not even exist, even were one to hold the constitution as being in effect. Worse though is that this fiat money is given to the banks and corporations at negligible rates and these banks and corporations then use that credit to buy real assets or make loans based on fractional reserve banking whereby they are only responsible for 10% of that loan, while those receiving the loan are responsible for all. If you understand event his little bit of the picture, you understand that this leads to the people being nothing more than serfs working their lords in the high rise edifices.

WHY OH WHY do so called conservatives never address this? This is not your mom and pop business we're talking about, but corporations unjustly (got that religious/social conservatives? UNJUSTLY!) using a government granted monopoly to redistribute wealth upward.

Mr. Antle are you just a shill for big business, or the state, or are you truly so ridiculously economically ignorant? Not to mention constitutionally ignorant, for the US constitution would prohibit the granting of a monopoly privilege of printing money and force the congress to actually be responsible for putting actual specie (or specie backed paper) into circulation.

axbucxdu| 12.23.10 @ 1:11PM

Hear, hear. Even though I'm at work, I'm banging my shoe on the table!

Oldefarte| 12.22.10 @ 8:26PM

Spending reduction is NOT DIFFICULT TO ACHIEVE, if one has what is known as GUTS; and is the only solution to our fiscal problem. Politicians kick around the revenue can, but the spending can is all that matters. Democrats always raise social services spending and taxes, while Republicans lower taxes and are unable to correspondingly lower spending. The crucial problem is SPENDING, and what required is politicians with the courage to seriously reduce same. Don't try to convince me that it's difficult to do this [or that certain expense areas are off limits for cuts], because it is not! Cut foreign aid, farm aid, space travel, all WELFARE, education, excessive military hardware. Eliminate/consolidate redundant military bases. Politicians need to do this now, or taxpayer-voters need to remove them all from office [and replace them with those that will do this]. California voters need to show some intelligence by not voting for morons like Brown, when he's part of the Democrat problem they have with a $20 billion budget defecit. All [federal, state and local governments] need to begin eliminating excessive/wasteful departments, programs and employees NOW [or we'll follow Europe off of the economic cliff into bankruptcy from the excessive spending]!!!!!!

gary siebel| 12.22.10 @ 10:18PM

Spare us the conservative economics balderdash. It was conservatives who said exporting manufacturing was a great idea, and look where it got us. Maybe they should just move to China.
Milt Friedman was amongst the worst, but both he and Reagan sailed off into teflon heaven.
Economists never admit they were wrong; they prefer to blame changed conditions instead. As a first step to recovery we might consider hunting down and exterminating every single last one of them, no matter which political persuasion they maintain.

axbucxdu| 12.23.10 @ 6:30PM

Yes, but. First on the list should be Keynes. Ah, but he too is lately deceased.

As I walk along the road to serfdom he inspired, reflecting on the General Theorist reminds me of Sir Christopher Wren's epitaph in St. Paul's, London:

SI MONUMENTUM REQUIRIS, CIRCUMSPICE.

Mike Y| 12.25.10 @ 2:04AM

what the government needs to do is fairly simple - then allow for the private market to sort out the complexities. Taxes: broaden base - lower the rate i.e. bowles-simpson plan (corporate taxes included). Next comes massive spending cuts, especially mandated programs (Medicaid, Medicare, SS, etc), Military & Defense spending, and other entitlements. As a recent John Stossel segment noted, "We are transitioning from a nation of MAKERS to a nation of TAKERS". People need a change of perspective, it starts with government... mandate term limits for all elected officials like the office of President (FDR and others did not and cannot understand the word precedent), make all forms of lobbying for special interests illegal and punishable (corporations, unions, non-profits, states, etc.) and reduce the pay of government. What we need most is government to be out of our lives. The best government is one that does nothing but ensure our liberties are maintained as stated in the constitution.