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.
