I hate to say this, but as much as I agree with Boehner &
Company about the debt limit, I think Republicans are playing a
losing hand. The problem is that if they go to the wall and shut
the government over raising taxes, it’s going to be 1995 and Newt
Gingrich all over again. As much as the Democrats may be at fault,
the public is going to blame the GOP.
Look at the polls now. More than 70 percent of the public
doesn’t see any problem with “raising taxes on millionaires and
billionaires” and “making the rich pay their share.” I don’t
believe in making decisions by polls, but you have to take this
into account in approaching such a big risk. If the Washington
Monument closes down or maybe even Social Security checks get
delayed, the story is going to be — as it has been for the last
century — that Republicans are the “party of the rich” while the
Democrats are the “party of the common man.”
That is certainly not true anymore. The Democrats may have
a solid block of votes among people of lower income, but their main
strength comes from their support in the elites of the East and
West Coasts. If you were looking for a historical analogy, the Age
of Andrew Jackson would be the best example, when a frontier
populist majority united behind a nationalistic military hero in
opposition to the New England elites that had assumed leadership of
the young republic in the generation after the American Revolution.
After all, what was the National Bank — which Jackson abolished,
to the dismay of East Coast elites — except an earlier version of
the Federal Reserve? John Quincy Adams, who had defeated Jackson in
1824 without winning the popular vote, thought one of the most
pressing issues in the election of 1828 was the establishment of a
national astronomical observatory — probably an 1828 equivalent of
global warming. Contrary to what you hear at all the Democratic
Jefferson-Jackson Day dinners around the country, Old Hickory’s
core constituency was the growing legions of freeholders and small
business people who were sprouting up all over the country and
suddenly found themselves confronting a European-style mercantile
elite that wanted extensive government control of the economy. With
Jackson at the helm, America instead became the Land of Free
Enterprise.
Political rhetoric being what it is, however, none of this
is going to penetrate. Instead, with Obama harping on corporate
jets and “tax breaks for the wealthy,” the stereotypes of the last
century will remain — Republicans are the “party of the rich”
while Democrats are the “party of the common man.” Who is closer to
Wall Street, Michele Bachmann and Tim Pawlenty or Timothy Geithner?
But no matter. Obama knows his strengths and will only ratchet up
the rhetoric as the deadline approaches, with the press trotting
along behind.
The only dissenting voice out there comes from Marc Rubio.
Listen to what he is saying. As a second-generation Cuban refugee,
Rubio knows that every country in Latin America has at one time or
another been ruled by some tinhorn demagogue whose entire political
platform consisted of “tax the rich.” Read how Juan Peron ruined
Argentina’s economy in less than a generation by doing exactly what
Obama is doing — going around to the wealthiest corporations and
saying, “They can afford to buy gold-plated insurance for their
employees, why can’t every small business do the same?” Hence,
Obamacare.
Adding up the numbers, as
Charles Krauthammer has done, would convince any intelligent
person that raising taxes on the rich can make only the slightest
dent in a $1.4 trillion annual deficit and a $14 trillion national
debt. “If you collected all the corporate jet taxes and oil
depreciation allowances for 100 years, you wouldn’t cover the
amount that Obama added to the national debt last February,” he
said on Fox News. But that’s not really what Democrats
have in mind. In their hearts, they have become convinced that
Reaganomics never worked and that only a small minority at the top
ever benefitted from that 25-year run of prosperity. Therefore the
only way to restore justice to this country is to tax the rich into
submission.
The origin of this delusion lies in a simple change made
in the tax code in the Tax Reform Act of 1976. Until that point,
corporate tax rates had been lower than personal income taxes. You
may recall in the early 1980s there was a big movement afoot of
doctors and lawyers incorporating themselves in order to lower
their tax rate. All this changed after 1986. Now small corporations
and start-up businesses began
unincorporating and filing under
Subchapter S in order to get the lower personal income tax rate.
This lumped $5 million computer start-ups and even some $10 million
banks in the same pool with retail clerks working 30 hours a week
or teenage busboys reporting income from a summer job.
Now enter two French Marxists, Thomas Picketty and
Emmanuel Saez, who parachuted into Berkeley in the 1990s and —
without ever taking a look at the country around them — started
parsing the nation’s personal income tax returns. Treating $10
million banks and teenage busboys on the same plane, they soon
discovered — mon dieu! — that the United States had about the
same income disparities as Old Russia. Their work has been the
touchstone of liberals ever since. Paul Krugman rarely goes a month
without mentioning P&K. In order to disabuse yourself of this
delusion, you have to read Alan Reynolds’ Income and
Wealth, which lays the whole thing out in excruciating
detail.
But none of this is going to deter the Democrats. They are
hell-bent on restoring income equality by taxing “millionaires and
billionaires” to death. What they are going to hit, instead, is
small businesses, which just happen to be
responsible for half the new job creation in the country year after
year. Going after these “rich” taxpayers is only going to make
unemployment worse and prolong the recession.
SO WHAT CAN REPUBLICANS do to dramatize all this to the
American public? Here’s what I would suggest. I think the Boehner
& Company should publicly offer the following deal to President
Obama: “In the interest of avoiding a disastrous default and
risking a lowering of the nation’s credit rating, we will agree to
your ‘tax on millionaires and billionaires’ plus the longer
depreciation allowances on jets and other provisions designed to
extract more money from businesses. In exchange, we ask you to
agree to all the spending cuts we have outlined, including the
initial steps toward reforming entitlement programs, along the
lines outlined by Paul Ryan’s ‘Roadmap.’
“However, we do this only as a 15-month experiment leading
up to the 2012 election. Should these tax increases and spending
reductions immediately set off a Reagan-like boom that raises
growth rates above 2 percent and lowers unemployment below 7
percent, we will be happy to vote for you in your 2012 re-election.
If, however — as we thoroughly anticipate — these tax increases
only further stifle small business and keep unemployment and
economic growth at or near their present levels, then we will ask
the American people to elect an all-Republican Congress and a
Republican in 2012. If they do, we solemnly swear to repeal these
new tax rates, jettison Obamacare, level personal incomes taxes at
a lower rate with fewer deductions, bring corporate taxes into line
with the rest of the world, ease government regulations, end the
effort to run the economy through Washington, and do all the things
necessary to turn America once again into a young and vigorous
nation.”
By November 2012 I suspect more than half of America will
agree that the time has come for Obama to go.
