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The Spoils of Victory

Mises Daily: Monday, November 11, 2002 by

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As sure as grey winters follow green summers, the Republicans are working to lower expectations following their election sweep. The Washington Post delivers the pathetic if predictable news in its headline "GOP Revises Agenda of Extensive Tax Cuts"—and you just know that the revision is not to the benefit of taxpayers.

Rather than pursue extensive tax relief, the new leadership will push a "modest tax agenda that is probably more symbolic than substantive." This is a fitting follow-up on the Bush tax cut, which was similarly more symbolic than substantive. All throughout the campaign, Republicans promised to "lock in the Bush tax cut," which is to say lock in the symbolism. Meanwhile Democrats decry the manner in which the rich are said to benefit from drastic cuts. Neither side has incentive to tell what's true.

To review, Bush passed a tax reform early in his term that has yet to kick in. Barring some change, starting this year and next, it provides a miniscule half point reduction in rates, and four years from now, once fully phased in, reduces rates by 2.5 percent. Note that it makes no dent in the payroll tax, which is the real source of the rising burden. And there's another rub: the Alternative Minimum Tax, which the law allows to take effect on millions starting in 2004. The AMT exemption is not inflation adjusted, so that 35 million people in middle and upper incomes are going to have to start paying in ways they do not anticipate or understand.

Say what you will about the Bush tax reform--and maybe it was worth supporting--it does not approach revolutionary, and, in fact, is barely noticeable at all. Meanwhile, thanks to the largest increases in domestic spending since the Great Society, combined with the recession, deficits have returned and with them the growing sense that tax cuts would be irresponsible. Republicans contribute to the problem with a constant demand to vastly increase military spending, even though at $400 billion per year, the US spends more than six times that of the second largest military power (Russia) and 26 times the combined spending of our most likely adversaries.

As to the question of "locking in" Bush's tax cuts and making them permanent, the Post is correct to point out that "nothing Congress does is permanent, and if the federal budget situation continues to deteriorate, Congress and the White House will almost certainly have to revisit the original tax cut long before it is set to expire in 2010." Not only that: Congress is likely to revisit the tax cut before there really is a tax cut of any size.

Yes, there may be some increases in the per-child tax credit and some raised ceilings for IRAs. Half a cheer.Why the reticence to go further? The Post tells us that it is a matter of learning from history, an effort to avoid repeating the "mistakes" of the 1994 revolution by "overreaching." Well, what does overreach look like? Recall that all through the 1994 campaign, candidates at the local level blasted government with the most libertarian rhetoric of any campaign in the second half of the 20th century. It was another clean sweep for the GOP.

Unnoticed to any great extent during the 1994 election, however, was a document drawn up by a small group of people who would eventually seize control of the House leadership after the Congress assembled. It was called the "Contract with America," and it consisted of huge amounts of bluster combined with small procedural reforms that had nothing to do with bringing about the essentially libertarian feel of the campaigns. After the GOP swept in, the drafter of the Contract claimed full credit and sidelined everything not in the Contract (which the Brookings Institution rightly called "the final consolidation of the bedrock domestic policies and programs of the New Deal, the Great Society, the post-Second World War defense establishment.")

In those days, it was commonly claimed, as a matter of political fashion, that all proposals for cutting taxes had to be "paid for" dollar-for-dollar with spending cuts or, even more desirably, other tax increases. You were considered a fiscal lout if you proposed a tax cut without, in the same sentence, saying precisely where the money would "come from" to make the cut possible and thereby achieving "fiscal neutrality." Of course the whole discussion was off track, because it implied that cutting taxes was a form of irresponsible fiscal recklessness, no different in kind from spending other people's money.

Nonetheless, the new GOP leadership went right along with the fashion. As Murray Rothbard wrote after the election, "The crucial point is that Gingrich and the other leaders are committed to the disastrous Bush-Clinton-bipartisan (a dread word that itself signifies duopoly and sellout of principle) concept of never reducing total government revenue, so that any tax cuts anywhere must be compensated by tax increases (or 'fee' increases) somewhere else. In particular, until drastic cuts in the monstrous income tax are at least proposed, let alone passed, by the Republican elites, the leadership's alleged embrace of small government will continue to be a fraud and a hoax."

So it was. The freshmen class arrived in January of 1995 ready to slash taxes, only to have cold water thrown in its face by the new leadership, which followed the advice of two pundits. First, there was Haley Barbour, chairman of the Republican Party, who was concerned that if the GOP cuts taxes, Clinton would triangulate and claim credit for the cuts and thus the hated Clinton would benefit politically. Barbour promised that the GOP could "outmaneuver" Clinton by calling off all discussion of tax cuts. Now there's an idea: outmaneuver Clinton by doing what he would otherwise want you to do!

Second, there was William Kristol, then running a D.C. policy boutique, who advised the GOP not to do anything "reckless" like actually cut the government. Why? Because the most important priority of the Republicans ought not to be cutting government but rather preparing itself for taking back the presidency in 1996, after which, he implied, government can finally be cut.

And so, in the first budget submitted for approval by the revolutionary 104th Congress, overall government spending was increased by $350 billion per year. There were no tax cuts, no regulatory cuts, no changes in intrusive social policy, and many increases in overall government power. And today, this is called too much "overreach" in the direction of libertarian politics, to be avoided with strenuous effort. This, we are told, is what is required to face the "responsibilities of governing."

Today, one might think that the GOP faces something of a problem. The party has been running on a platform of cutting government in every election since World War II. During that time, the overall tax burden on the American family has risen from 17 percent to 40 percent.

After all this time, the party has finally achieved full control of the House, Senate, and the presidency. Can the party really get away with doing nothing about the tax burden? What excuse can they manufacture now? They can cite the war on terrorism, the war on the bad government of the month, and the need to protect the homeland against violent people who object to US foreign wars—all of which require vast increases in government spending.

The second concern is more practical: once you obtain power, attention must turn toward keeping that power, and surely the best way to do so is to keep the system that gave you power running at a clip. Why pass up the chance to reward one's friends with a piece of the $2 trillion that the government passes out every year?

Here's why: it's the right thing to do. But in politics, morality and such things as that are way down the list of concerns. So long as the political class, regardless of the party label, has the power and the money, they will hold onto it for dear life until it is wrenched from their hands by a citizenry that is no longer willing to believe the lies or put up with deceit. We aren't there yet.

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Jeffrey Tucker is vice president of the Mises Institute. Tucker@mises.org