High time for Republicans to renew their commitment to standing tough in opposition to tax hikes — here’s how to win politically in doing so.
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(3) Democrats argue that the economy did very well after Bill Clinton raised income tax rates, so how much harm could there be in returning to those rates? Republicans are already calling their bluff by saying, “OK, I’ll go along with it if you’ll go back to Clinton-era levels of spending.” (It is a clever political retort, but not actually good economic policy to take that deal.)
But calling the bluff misses an important point: While there are many factors beyond tax rates that impact economic activity, the Clinton presidency had two distinct segments in terms of tax policy. First was the four years after the 1993 tax hike; next is the four years after the 1997 capital gains rate cut forced on Clinton by the Republican Congress. (Then-Speaker of the House Newt Gingrich and his GOP colleagues also kept spending under control and arm-twisted Clinton into grudgingly signing the remarkably successful welfare reform measures that President Obama now wants to gut.)
During the first four years of the Clinton administration, GDP growth averaged 3.3 percent while real wages (salaries adjusted for inflation) actually fell slightly. The first half of the Clinton administration ended with the federal government still running a $107 billion deficit. During the second half of the Clinton presidency, when tax and other policy was strongly impacted by Republicans, GDP growth averaged 4.4 percent, while real wages rose at an annual rate of 1.7 percent. It was this second period, following tax cuts, that the Clinton surplus appeared.
(4) From the “I know that you know that I know” files, Democrats recognize that Republicans are afraid of violating the Taxpayer Protection Pledge which many of them have made to Grover Norquist’s Americans for Tax Reform (ATR). So, Democrats are looking for ways to allow Republicans to vote for Democrats’ tax hike (raising taxes on individuals earning more than $200,000 or families earning more than $250,000) without technically violating the pledge.
One current idea is to allow all the Bush tax cuts to expire before bringing up “reform” for a vote, so that a vote to only lower taxes on part of the population would nominally be a vote for a tax cut. Norquist correctly says that this scheme “doesn’t pass the laugh test.” No Republican should give a moment’s consideration to the Democrats’ ploy which is cynical but not surprising, coming from the party of “deem and pass“ and other travesties of congressional malfeasance.
Mr. Norquist, who is one of the most powerful players in conservative politics, may be losing influence, even if only slightly, among Republicans. Over recent months, a handful of House freshmen, former Florida Governor Jeb Bush, his father, former President George H.W.Bush (“Who the hell is Grover Norquist, anyway?”), and most recently Senator Tom Coburn (R-OK) have rejected the Pledge as unnecessary and doing little other than giving Democrats political ammunition. Norquist takes none of this lying down, including saying that a recent op-ed by Coburn “is filled with ‘lies’” and that if Sen. Coburn wants to raise taxes, “he stands alone.” As far as “Bush 41” is concerned, conservatives might find criticism from a man who is perhaps best known for breaking his own “Read my lips: No new taxes“ pledge to be a badge of honor for Grover.
While it may be unnecessary for some politicians, the Pledge is an important influence on members of Congress who might otherwise cave in to their baser political instincts. The country is better for the Pledge, and while some flexibility for members of Congress is a good thing, too much isn’t. As my mother likes to say, “I promise to keep an open mind, but no so open that my brain falls out.” What remains to be seen is whether Republicans who claim that they remain faithful to the Pledge end up in a disagreement with Mr. Norquist about what represents a tax increase.
In particular — and this is the answer I gave to the congressman who e-mailed me with the unacceptable suggestion for a “balanced” approach — Republicans, including Mr. Norquist, should go along with almost any tax reform that closes loopholes and ends deductions and subsidies while lowering rates across the board if that tax reform is revenue neutral under a CBO static model. And they should not go along with any tax reform that is not revenue neutral, or which raises marginal tax rates on anyone other than people who currently pay zero federal income tax.
Static modeling, i.e. predictions of the impact of government policy on government cash flows, is always biased against tax cuts because it assumes that people’s behavior does not change in response to the policy changes. History shows that static modeling routinely underestimates the benefits to economic and job growth, and therefore to tax receipts, of tax cuts and other pro-growth economic policies. Therefore, any reform that includes tax rate cuts but statically scores as revenue neutral will, all else being equal, actually increase the amount of income received by the government.
Calls for political “cooperation,” “bipartisanship,” “balance,” or other weasel words designed to let Democrats grow government and let RINO Republicans evade politically difficult votes on spending reductions and entitlement reform must be rebuffed. While John Boehner cannot put wax in the Republicans’ ears to block the siren song of “can’t we all just get along,” some form of Ulysses Pact, even if not the ATR Pledge, is in order.
When Republicans consider any tax reform deal that includes raising tax rates on anybody who already pays federal income taxes or closing tax loopholes without reducing rates, they should think of Nancy Reagan and Just Say No.
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