By Peter Ferrara on 1.11.12 @ 6:07AM
And his economic policies would be warmed-over Bush Sr. and Dole.
In 1980, George H.W. Bush was making the same argument against Ronald Reagan that Mitt Romney is making this year. Bush argued that he was the most electable against Jimmy Carter. The big money Republican establishment was behind Bush because they feared that Reagan was too radical to win, and would carry the entire party down to historic defeat, like Goldwater did.
Reagan even lost Iowa to Bush on that argument. But Reagan carried forward the pro-growth, supply-side economic message that ultimately swept him to the nomination. That message then led to landslide victory in the fall, carrying the Republicans to control of the Senate, and effective control of the House.
Real world election results showed just who was the most electable. After two Reagan landslide wins, it took George Bush just one term to trash the Reagan coalition, crawling out of town in 1992 with just 38 percent of the vote, barely better than Alf Landon in 1936.
Long History of Rejecting Conservatism
Romney assured Massachusetts voters when he was running for the Senate in 1994 that he did not want to go back to Reaganomics. He said during that campaign, “I was an independent during the time of Reagan-Bush. I’m not trying to return to Reagan-Bush.”
Romney was also one of the few Republicans in 1994 to refuse to sign on to Newt Gingrich’s Contract with America. He said during that campaign, “In my view, it is not a good idea to go into a contract, like what was organized by the Republican Party in Washington, laying out a whole series of things that the party says ‘these are the things we are going to do.’ I think that’s a mistake.” That mistake led to an historic Republican takeover of Congress in 1994. But Romney was one of the few Republicans to lose that year.
True to form, even today Romney is effectively promising not to take America back to pro-growth Reaganomics. Cowed by President Obama’s class warfare rhetoric, Romney promises to eliminate taxes on capital gains, interest, and dividends, but only for middle income Americans. He says he would do that because they, not the wealthy, were the ones most hurt by the recession.
But effective tax policy does not distribute tax cuts based on who “needs” a tax cut the most. That is Obama neo-socialist class rhetoric. Effective tax policy enacts tax cuts that will do the most to promote economic growth and prosperity.
That is what Reagan did in cutting tax rates across the board for everybody, including the wealthy who have the most resources to invest. That is what the middle class and working people actually need most, cutting tax rates that will promote their jobs, higher wages, and personal prosperity.
Romney the Republican establishment businessman is telling us with his limited, crabbed policy kowtowing to Obama’s class warfare rhetoric that he feels, like Bush I and Republican RINO moderates generally, that he cannot explain and defend good supply-side policy to the public. Given his background and who he is as a rich Wall Street takeover artist, he personally may be right about that. Who is going to take seriously a Wall Street millionaire calling for tax cuts for millionaires? That is why he personally is not a good vessel for carrying the Republican standard this year. He is actually a perfect caricature for the neo-Marxist class warfare arguments of Obama and the Occupy Wall Street rabble. That is one reason why Romney, in fact, is the least electable.
Romney’s understanding of economic policy as a businessman is overblown. There is no real history of those with private business experience coming to Washington and making good policy there as a result. See, for example, Bush Treasury Secretary Henry Paulson. The term that free market activists use in Washington to refer to the business reps they know from first hand experience is “corporate pukes.”
Only those from private business steeped in ideology and intellectual battle have done well advancing the free market cause in Washington, such as William Simon.
RINO Country Club Republican Establishment Takeover
On monetary policy, Romney again thinks like an establishment, country club, Republican businessman. He thinks devaluing the dollar against the Chinese currency is the key to restoring growth to America. But that cheap dollar policy actually only discourages the investment in America essential to getting the economy booming, as investors fear lower returns from a declining dollar, inflation, and the boom and bust cycles that such policies cause. Reagan favored a strong dollar policy that slew a historic inflation, and drew skyrocketing investment capital to America from around the world, resulting in a historic, 25 year, economic boom.
With Mitt Romney as the nominee, the Republican Washington Establishment will be back in charge, and the Reagan Revolution will be long forgotten history. That was the meaning of the endorsement of Romney by John McCain, embraced by Romney with such relish.
The greatest tipoff of Romney’s Bush III establishment Republicanism is the Bush retread economic advisers around him. Given those advisers, I predict the first thing President Romney would do is agree to the same type of budget deal that President Bush did in 1990. In that deal, Bush agreed to permanent tax increases that are still with us. But the economy declined into recession as a result, so revenues actually declined as a percent of GDP as well.
In return, Bush was supposed to get spending cuts. But spending actually rose as a percent of GDP after the 1990 budget deal. As a result, the deficit soared after that deal as well, from $221 billion in 1990, to $269 billion in 1991, to $290 billion in 1992. No wonder the voters booted Bush out in the 1992 election.
Today, Romney cheerleader and former Bush White House Chief of Staff John Sununu has been lambasting Gingrich in New Hampshire for leading a House Republican revolt against that budget deal. Sununu was the genius who brought us liberal Supreme Court Justice David Souter, who denied conservatives the Supreme Court majority they had earned at the ballot box.
But the rejection of Bush’s failed budget deal by his own House Republicans was the defining moment that led to the historic Republican takeover of Congress in 1994, after still another tax increase to balance the budget in 1993. Gingrich’s leading role in that is a primary reason for conservatives to be supporting him. But so far it is being used against him, in New Hampshire and in the so-called mainstream, Democrat-controlled media. Shouldn’t conservatives be standing up for one of their own who fought so bravely and successfully against the odds for them before?
Clinton’s 1993 tax increase failed as well. The new Republican majorities in 1995 were greeted with a Clinton 1996 budget that still projected $200 billion deficits indefinitely into the future. That was confirmed by the CBO with a projection of $2.7 trillion in deficits over the next 10 years.
Those Gingrich Republican Congressional majorities then balanced the budget the supply-side way, cutting tax rates, on investment, and cutting spending. They adopted the largest capital gains tax cut in history, reducing the rate by nearly 30%, from 28% to 20%. Despite that cut, actual capital gains revenues soared $84 billion higher for 1997-2000 than projected before the rate cut.
Total federal discretionary spending, as well as the subcategory of non-defense discretionary spending, declined from 1995 to 1996 in actual nominal dollars. In constant dollars, adjusted for inflation, the decline was 5.4%. As a percent of GDP, federal discretionary spending was slashed by 17.5% in just 4 years, from 1995 to 1999. Total federal spending relative to GDP declined from 1995 to 2000 by 12.5%, a reduction in the federal government relative to the economy of about one-eighth in just five short years.
This was accomplished not just by reducing discretionary spending, but through fundamental structural reforms of some programs, such as the old New Deal AFDC entitlement program. The Gingrich Congress succeeded in block granting that program back to the states, after two vetoes from Clinton. Those block grants replaced the old federal matching funding formula with fixed finite funding that left the states responsible for 100% of increased spending, but gaining 100% from any savings. With those radically reversed incentives, within a few years two-thirds of those on the old AFDC program went to work, ultimately saving taxpayers 50% from where spending was heading under prior trends. But the poor going to work benefitted as well, with documented income increases of 25%. This is a model for further entitlement reform today. Gingrich also led his Republicans to adopt a phase-out of Depression-era farm subsidy programs through Freedom to Farm, which was later unfortunately reversed under Speaker Hastert and President Bush after Gingrich left.
As a result of these policies, the $200 billion annual federal deficits, which had prevailed for over 15 years, were transformed into record breaking surpluses by 1998, peaking at $236 billion by 2000. Over four years, the national debt held by the public was reduced by a record $560 billion in surpluses. When Gingrich left office, instead of CBO projections of $2.7 trillion in deficits over the next 10 years, CBO projected surpluses of $2.3 trillion over the next 10 years, a positive turnaround of $5 trillion.
This is what we need again today. But that is not what we will get from Romney’s establishment Republicans, who like the Bourbons of France, forget nothing, and learn nothing.
Social Security Tax Increases
Besides an income tax increase through a 1990 style budget deal, Romney’s establishment RINOs will bring us a payroll tax increase as well. That is because they are promoting substantial Social Security benefit cuts from what is promised under current law, including delaying the retirement age, and changing the basic Social Security benefit formula to reduce future benefits to be paid under current law eventually by as much as one-third.
The liberal Washington establishment will never allow such future benefit cuts even to be considered without accompanying payroll tax increases (for upper income workers no doubt). That would be a “balanced” package that will not solve Social Security’s long-term financing problem entirely “on the backs of seniors,” as the liberal establishment will put it. Just mark my words and pay me homage when it comes true. No such benefit cuts will ever see the light of day without accompanying payroll tax increases.
That is one reason why the intelligent, conservative, free market solution to Social Security is personal savings and investment accounts, which have worked in the South American nation of Chile so successfully for over 30 years now. Such personal accounts would reduce government spending far, far more than trying to cut benefits would, because the accounts don’t just trim the growth of benefits. They shift vast realms of such spending out of the public sector altogether into the private sector.
At the same time, because market investment returns are so much higher than what Social Security can even promise, let alone what it can pay, with purely tax and spend redistribution and no investment whatsoever, future seniors with personal accounts would enjoy much higher not lower benefits. That has been proved out in the real world, as has been seen in Chile, and other real world examples of such reform, such as for local government workers in and around Galveston, Texas. This is why personal accounts for Social Security are far more politically feasible than trying to cut Social Security benefits, which will never make much progress in cutting future government spending.
Indeed, with personal accounts, rather than the government specifying the retirement age, each worker chooses his or her own retirement age, with market incentives to delay it as long as possible. That is because the longer the worker waits to retire, the more the account funds will accumulate, and the more the worker can ultimately enjoy in benefits, and/or leave to his family. With those incentives, many millions of workers employed in more intellectual work that is not physically taxing will work well into their 70s, a result that could never be imposed through politics. But workers in more manual occupations who really cannot work past their early 60s can still plan to retire then, perhaps with extra contributions from employers during working years to make that more possible and comfortable.
But all of this is far too sophisticated for Romney’s establishment Republicans.
The Least Electable
Since 1896, only Republicans who have campaigned on a pro-growth platform have been elected. Mitt Romney, instead of being the most electable, is firmly in the tradition of Thomas Dewey, Jerry Ford, Bob Dole, and John McCain. His timid, scared proposals do not offer the promise of booming economic growth that Reagan’s bold reforms delivered.
Moreover, his weak record on social conservative issues will only discourage voters who are inspired to participate in political action on those grounds. It’s not just his dramatic flip flops on the core pro-life issue, with clips on the Internet of him protesting that he is so definitely pro-choice on the issue. As Governor, Romney kowtowed to liberal activist court rulings on gay marriage, issuing gay marriage licenses right out of the Governor’s office, when even the liberal Massachusetts legislature was balking at making the legal changes to authorize such licenses as demanded by the court. Contrast that with the bold policies to counter liberal activist judges that have been promoted by Newt Gingrich.
On fiscal issues, Romney was not tough on spending as Governor of Massachusetts. Nor does he have a record on defense and foreign policy issues.
As the Republican candidate, he would be the least electable most of all because he would not inspire the maximum vote from grassroots conservatives, failing just where his friend John McCain did, as Bob Dole did before him. That effect would be felt all the way down the ticket, as Republicans fail to win the Senate and Congressional seats with a disappointing turnout that they could have with a grassroots earthquake, as was inspired by the Reagan Revolution in 1980.
And even if Romney managed to squeak to victory in the fall, he would be the most disappointing, failing to win the dramatic reforms that would be possible after this most promising of all election cycles.
Peter Ferrara is Director of Entitlement and Budget Policy at the Heartland Institute, General Counsel of the American Civil Rights Union, Senior Fellow at the National Center for Policy Analysis, and Senior Policy Advisor on Entitlements and Budget Policy at the National Tax Limitation Foundation. He served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush.
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