Contributor Post Created with Sketch. Smaller Government, Not Lower Taxes, is the First Order of Business

 

The piece that I published this morning has already attracted a lot of attention, for which I am grateful, but seems to have generated some confusion, which is best avoided.  Let me therefore see if I can clarify at least some of the issues.

The first point is that I am not writing on a blank slate.  The policies that got us into this situation are not those that I have ever supported.  Indeed, for years I have taken the position that the well would run dry on the entitlement frontier, that regulation would stifle production, and that public institutions would start to crumble with each new expansion in government power.

But unfortunately, we are not dealing with the blank slate. The question that we have to face is what to do now in order to control the situation.  On this issue, the first point is that the villain of the piece is the increased level of government control over the economy.  This is expressed not only in the direct use of public funds for various projects but also in the scope of regulation over the private sector.  The sum of these activities has to be reduced before the level of federal excesses weighs down too heavily on the economy.

Thus I agree with Professor Paul Rahe that the last thing that we want is for a higher share of the GDP to go to the federal government.  It is just for that reason that I would raise taxes (and flatten them as well) if that were a means to the end of a smaller federal government, which it can be only if there are spending cuts, which in turn can reduce the amount of borrowing, which is an implicit tax on the future.  

I also agree that we should not in principle think about closing loopholes as a quid pro quo for lowering tax rates. The point is that closing these loopholes is probably a good thing, even if there are no tax reductions, given the sectoral distortions that they create on the economy.  But that is small potatoes relative to the larger question of runaway expenditures.  The corporate jet issue, about which I wrote some weeks ago, is a tiny issue relative to the larger question that we face.  No satisfactory solution can be reached therefore, unless there is a systematic overhaul of the entitlement programs, which must be done regardless of what happens to taxes or debt finance.

To put the point in the most explicit terms, the overall size of government is too large.  It is a decidedly second order question whether we fund government by taxation, by borrowing (with future taxes needed) or with inflation.  Anything that brings down the overall level of spending is what is needed.  If higher taxes are that lever, it is a prudential judgment that they should be accepted, not a statement of high principle that we like high taxes for their own sake.  

So Scott Reusser is right when he says: “[A]bandoning the Norquist pledge is wise, but only in some future context of tax reform, not in our current context of spending cuts.   And Bryan Stephens is right when he writes: “We cannot keep raising taxes to fund this madness. We have to spend less.” The real question is how to get there, and with strong Democratic insistence that entitlement programs have to be kept out of the mix, it is a hard task indeed.

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  1. Peter Robinson Founder

    “I am not writing on a blank slate.” Exactly, Richard, exactly. Just take a look at what has already been written on the slate:

    In 1982, Reagan agreed to raise taxes in return for spending cuts three times as large. Reagan delivered–TEFRA, the Tax Equity and Fiscal Responsibility Act, raised taxes by some $90 billion over the next three years. Those three dollars in spending cuts for every new dollar in revenus? According to Ed Meese, who has reviewed various studies, the best estimates of the tax cuts that Speaker O’Neil and Senate Majority Leader Bob Dole delivered “range from 69 cents down to zero.”

    As William Voegeli writes in his recent book, Never Enough: “Liberal victories advance liberalism; conservative ‘victories’ postpone liberalism.”

    What you propose–and you know that I respect you so thoroughly that I thought not twice but about five times before choosing to disagree with you–what you propose sounds all but certain to represent merely another effort to postpone liberal victories. Not that you intend that way. But the slate of our recent history shows that is all but certainly how it would turn out.

    • #1
    • July 20, 2011, at 2:05 AM PDT
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  2. Peter Robinson Founder

    Where you and I would agree, I think, Richard, is on the need for constitutional–note the small “c”–reform. Attempting to flatten and broaden the tax base while conceding Obama his new levels of spending–that, I still insist, would only involve Republicans in ratifying the vast, outrageous Obama power grab in which he and the Democrats have in just two years increased federal spending from 20 to 25 percent of GDP. This must not be ratified. This must be rolled back.

    The needed constitutional reform? In my judgement, the Wall Street Journal called it this very morning:

    The new Members [that is, the Tea Party freshmen in the House] who are intent on fiscal responsibility should visit with Congressional historians to discover a root cause of this modern spending catastrophe—the 1974 Congressional Budget and Impoundment Control Act….”Control” over spending tipped into the hands of Congress, as is clear from the upward path of federal spending post-1974….

    The goal of an achievable reform act would be to put spending on a downward slope. That would include getting rid of baseline budgeting, restoring the Presidential impoundment power.., and requiring the two-thirds majority for tax increases.

    • #2
    • July 20, 2011, at 2:12 AM PDT
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  3. Waynester Inactive

    “Smaller Government, Not Lower Taxes is the First Order of Business”

    It’s not about lowering taxes, it’s about not raising them–on anyone. To do so would further imperil an oh so slowly recovering economy (and also imperil Obama’s prospect for a second term) In one sense Tea Party Republicans are trying to save Obama from himself and the irony is that if they succeed the result may be having to deal with the Redistributionist in Chief for another four years.

    • #3
    • July 20, 2011, at 2:16 AM PDT
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  4. Mendel Member
    Mendel Joined in the first year of Ricochet Ricochet Charter Member
    Waynester
    While taxes feed the beast, lowering the rates (and broadening the base) can often feed the beast even more as we found in the 60s,80s and 2000s not that it mattered in any practical sense, they spent that and a whole lot more besides. ·

    I think this is spot on. In this debate as in so many, conservatives always instictively harp on the taxation issue. However, as you correctly point out, history teaches us that whether or not we raise taxes is completely irrelevant to the main problem at hand–shrinking the size of government.

    Reagan, and many others, demonstrated that cutting government programs is infinitely more difficult than lowering tax rates (or preventing their increase). Look at Coburn’s proposals: can anyone imagine convincing military retirees to take a healthcare cut? Every minute we spend debating tax increases is one lost to the real challenge: convincing other Americans (and ourselves) that our country cannot continue to function until many oxen are gored.

    I think it is time for conservatives to “call a truce” on tax debates until we have figured out how to tackle the real problem at hand.

    • #4
    • July 20, 2011, at 2:18 AM PDT
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  5. Sisyphus (Rolling Stone) Coolidge
    Sisyphus (Rolling Stone) Joined in the first year of Ricochet Ricochet Charter Member

    The fact that neither side can be relied on to follow through on promises or threats, those sides being heavily populated with feckless crap weasels, means that some outside movement must maintain a political full nelson on the lot of them through the whole process. Another round of zero-sum “$36B” cuts ain’t gonna cut it.

    • #5
    • July 20, 2011, at 2:21 AM PDT
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  6. Bryan G. Stephens Thatcher
    Bryan G. Stephens Joined in the first year of Ricochet Ricochet Charter Member

    I favor tax reform, but that is side issue now. We must shrink government and we must do it now.

    The GOP will lose its base if it caves, again.

    • #6
    • July 20, 2011, at 2:29 AM PDT
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  7. Viator Inactive
    Viator Joined in the first year of Ricochet Ricochet Charter Member

    Why The Democratic Party Is Doomed

    “The Democratic Party, as we have known it for the past 70 years, is now in its last days.

    “The long-term trends are almost all bad news for the left wing of the party.

    This week’s fight over raising the federal debt limit exposes a key weakness in the warfare-welfare state that has bestowed power onto the Democratic Party: Without an ever-growing share of the economy, it dies. Every vital element of the Democrats’ coalition — unions, government workers, government contractors, “entitlement” consumers — requires constant increases in payments, grants and consulting contracts. Without those payments, they don’t sign checks to re-elect Democrats.

    Like it or not, Obama is not the new FDR, but the new Gorbachev: a man forced to preside over the demise of a political system he desperately wants to save.”

    http://blogs.forbes.com/richardminiter/2011/07/18/why-the-democratic-party-is-doomed/

    • #7
    • July 20, 2011, at 2:29 AM PDT
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  8. Joseph Eagar Member
    Joseph Eagar Joined in the first year of Ricochet Ricochet Charter Member
    Peter Robinson: Where you and I would agree, I think, Richard, is on the need for constitutional–note the small “c”–reform. Attempting to flatten and broaden the tax base while conceding Obama his new levels of spending–that, I still insist, would only involve Republicans in ratifying the vast, outrageous Obama power grab in which he and the Democrats have in just two years increased federal spending from 20 to 25 percent of GDP. This must not be ratified. This must be rolled back.

    I completely agree. And let’s not kid ourselves: the only way we’ll ever get a smaller federal government is if we take it to it’s logical conclusion, and allow blue states to exercise their socialist impulses to their heart’s content. Reducing the size of the federal government will not reduce the size of government everywhere. But at the very least, shifting power back to the states will result in policy competition, which will wean out insane liberal policies over time.

    • #8
    • July 20, 2011, at 2:41 AM PDT
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  9. Give Me Liberty Inactive

    “It is a decidedly second order question whether we fund government by taxation, by borrowing (with future taxes needed) or with inflation.” All three of these are forms of taxation; inflation is a pernicious tax that taxes anyone who owns a dollar by devaluing the dollar as it sits in your pocket. And it is a “regressive” tax, to put it in leftist parlance, because the “rich” do not have their wealth in dollars; inflation may even improve their wealth in a dollar amount.

    How does it help anyone to take more of their money from them at a time when they have little to spare and hand it to the government who will send it down its giant maw of a rat hole.

    The only solution is to reduce the size of governemt, restrain its ability to spend, and reduce taxes denying it the life blood of corrupt-ocrats returning this money to its rightful owners earners/producers. If we don’t do this, and soon, the U.S. will become the Hindenburg of all Greeces recalled in the annals of history as a tragedy brought down by petty little beings.

    • #9
    • July 20, 2011, at 2:44 AM PDT
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  10. Joseph Eagar Member
    Joseph Eagar Joined in the first year of Ricochet Ricochet Charter Member

    And spending caps! We need credible spending caps that work. A balanced budget amendment would be ideal, though I’ve not seen any credible proposals (the past five years should add up to balance (to avoid pro-cyclicality), not just the past year; we don’t want the budget to increase massively in good times–when tax revenue spikes from economic growth–than suddenly shrink sharply in recessions–when tax revenue collapses).

    • #10
    • July 20, 2011, at 2:47 AM PDT
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  11. Give Me Liberty Inactive

    Viator, thanks for the link to Richard Miniter’s column I agree with all of it but I am not sure the Democrat’s gilde path is as steep as he suggests. Then we have the wizard Mike Murphy and his minions who believe the situation is just the reverse and we fanatics on the right are about to lose our political sway.

    • #11
    • July 20, 2011, at 3:13 AM PDT
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  12. DocJay Inactive

    I used to think the debt commission findings would work. I no longer think so. I do not trust any of those in power on the left to keep their word and I do not trust half of the right. Maybe the sooner we collapse economically we can rebuild better than if collapse occurs 50 years from now with less free thinkers and the masses nearly all entitled and indoctrinated. In addition, collapse now still leaves our country with valuable resources and a constitution that actually might mean something again.

    Mike Murphy believes the mechanisms of government as he knows it can solve this. I contend the very mechanisms in place now are the reasons for our demise.

    Somehow a deal gets done, full of empty promises and Obama is re-elected. That is the goal of the left and whoever feels that this benefits our country is not a real conservative.

    • #12
    • July 20, 2011, at 3:28 AM PDT
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  13. Paul A. Rahe Contributor

    Richard, alas, I agree with Peter Robinson. I, too, favor in principle eliminating most of the subsidies (apart from the one for charitable deductions). But we have to face the political facts. Spending cuts promised will never be made; taxes raised will indeed be raised.

    • #13
    • July 20, 2011, at 3:30 AM PDT
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  14. Douglas Inactive

    One is impossible without the other. You’ll never have a smaller government without lower taxes. Taxes feed the beast. The issues go hand in hand.

    • #14
    • July 20, 2011, at 3:30 AM PDT
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  15. The (apathetic) King Prawn Member

    If raising taxes is inevitable, then lets raise them on everyone. Let those who consume so much from the hand of government count at least some of the cost of that government. I do not want a larger television because I know what the cost is and that I would bear it myself. Those who want ever bigger government have no idea what its cost is because they share none of its burden.

    • #15
    • July 20, 2011, at 3:31 AM PDT
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  16. Viator Inactive
    Viator Joined in the first year of Ricochet Ricochet Charter Member

    Egan-Jones Cuts U.S. Rating to AA+ on Spending-Cut Concern

    Egan-Jones Ratings Co. cut its rating on the U.S. by one step to AA+ from AAA, citing the high level of debt outstanding relative to other countries and concern that politicians may fail to reduce spending.

    “The major factor driving credit quality is the relatively high level of debt and the difficulty in significantly cutting spending,” the firm said July 16 in a report. Egan-Jones placed the U.S. on negative watch on March 1.

    http://www.bloomberg.com/news/2011-07-18/egan-jones-cuts-u-s-rating-to-aa-on-spending-cut-concern-1-.html

    http://en.wikipedia.org/wiki/Egan-Jones_Rating_Company

    • #16
    • July 20, 2011, at 3:32 AM PDT
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  17. David Williamson Inactive

    Mr Obama thinks that the first order of business is to raise taxes on those rich capitalist running dogs earning more than $250000 – it’s only fair.

    Oh, and to grow government, so they have to raise taxes even more, so they can spread the wealth to those who unfairly earn less.

    But I am only an amateur tea-drinker – what do I know?

    • #17
    • July 20, 2011, at 4:02 AM PDT
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  18. Dave Carter Podcaster

    The Heritage Foundation’s Dr Daniel Mitchell points out:

    Tax rates were slashed dramatically during the 1920s, dropping from over 70 percent to less than 25 percent. What happened? … Revenues rose from $719 million in 1921 to $1164 million in 1928, an increase of more than 61 percent.

    President Kennedy proposed across-the-board tax rate reductions that reduced the top tax rate from more than 90 percent down to 70 percent. What happened? Tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 62 percent (33 percent after adjusting for inflation).

    And after President Reagan lowered the top marginal rate from 70 percent to 28 percent? “Total tax revenues climbed by 99.4 percent during the 1980s …”

    And from Byron York in yesterday’s Examiner:

    “According to historical tables published by the Office of Management and Budget, government revenue shot higher after the Bush tax cuts were enacted. Total federal government receipts rose from $1.782 trillion in 2003 to $2.567 trillion in 2007 — an increase of $785 billion, or 44 percent.”

    Now, what was that about the need to “increase taxes?”

    • #18
    • July 20, 2011, at 4:08 AM PDT
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  19. Paul A. Rahe Contributor

    In the abstract, Richard, your argument makes sense. Suppose now that we translate your proposal into the political arena. How in practice, given what we know about Congress, do we get from where we are to where you want to go? And how do we stay there?

    When I pose this question, I have in mind democracy’s soft despotic drift.

    • #19
    • July 20, 2011, at 4:14 AM PDT
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  20. David Williamson Inactive
    Dave Carter:

    Now, what was that about the need to “increase taxes?”

    The need is “fairness”, aka socialism, not the Laffer curve, which would tell us to reduce the tax rates to increase revenue.

    • #20
    • July 20, 2011, at 4:21 AM PDT
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  21. Doctor Bass Monkey Inactive
    Richard Epstein: The real question is how to get there, and with strong Democratic insistence that entitlement programs have to be kept out of the mix, it is a hard task indeed. ·

    Richard, this is the point of contention. The Democrats are fundamentally unserious about addressing the problem when entitlement programs are what is driving the problem. We can’t get this under control without touching entitlements.

    • #21
    • July 20, 2011, at 4:23 AM PDT
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  22. Mendel Member
    Mendel Joined in the first year of Ricochet Ricochet Charter Member
    Dave Carter: The Heritage Foundation’s Dr Daniel Mitchell points out:

    … Revenues rose from $719 million in 1921 to $1164 million in 1928, an increase of more than 61 percent.

    …Tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 62 percent (33 percent after adjusting for inflation).

    And after President Reagan lowered the top marginal rate from 70 percent to 28 percent? “Total tax revenues climbed by 99.4 percent during the 1980s …”

    Dave,

    does this mean you want the federal government to have yet more money? I’m not a big fan of the starve-the-beast strategy, but until we have replaced the current group of drunken sailors with a majority that is serious about cutting discretionary spending and reforming entitlements, I don’t want another extra dollar to flow into federal coffers. Even if that dollar came about by reduced tax rates.

    • #22
    • July 20, 2011, at 4:32 AM PDT
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  23. Waynester Inactive
    Douglas: One is impossible without the other. You’ll never have a smaller government without lower taxes. Taxes feed the beast. The issues go hand in hand. · Jul 19 at 3:30pm

    While taxes feed the beast, lowering the rates (and broadening the base) can often feed the beast even more as we found in the 60s,80s and 2000s not that it mattered in any practical sense, they spent that and a whole lot more besides. What makes anyone think that without a constitutional amendment those in power won’t “compromise” us into a bipartisan collapse regardless how much or how little we tax ourselves? Compromise is how we got here in the first place!

    • #23
    • July 20, 2011, at 6:18 AM PDT
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  24. Joseph Eagar Member
    Joseph Eagar Joined in the first year of Ricochet Ricochet Charter Member
    Dave Carter: The Heritage Foundation’s Dr Daniel Mitchell points out:

    Now, what was that about the need to “increase taxes?” · Jul 19 at 4:08pm

    Edited on Jul 19 at 04:09 pm

    Argh! This totally ruins the credibility of our argument. Taxes are not at 70%. The Laffer Effect only happens at high tax rates–tax cuts do not inevitably lead to more revenue (except for capital gains cuts, which seems to get more revenue by producing bubbles).

    Most people agree the Bush tax cuts made the deficit worse (if I remember right, about 15-20% of the deficit came from them). Economic growth technically produced more revenue, but most of it came from the housing bubble (which was due to flawed monetary policy, though “too low, too long” is completely wrong; the real reasons were complex, but basically the Fed kept inflation down by punishing the manufacturing sector, as opposed to spreading the burden of adjustment over more of the economy).

    Again, I think we should concentrate on revenue targets. Let’s just pick 18% or 19% of GDP and not worry about whether cutting deductions to get there is raising taxes or not.

    • #24
    • July 21, 2011, at 4:21 AM PDT
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  25. Waynester Inactive

    “Most people agree the Bush tax cuts made the deficit worse (if I remember right, about 15-20% of the deficit came from them).”

    According to Heritage and the CBO the 2001/03 tax cuts accounted for just 14% of the swing from surplus to deficit. See this item which includes a chart.

    • #25
    • July 22, 2011, at 11:32 AM PDT
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  26. Joseph Eagar Member
    Joseph Eagar Joined in the first year of Ricochet Ricochet Charter Member
    Waynester: “Most people agree the Bush tax cuts made the deficit worse (if I remember right, about 15-20% of the deficit came from them).”

    According to Heritage and the CBO the 2001/03 tax cuts accounted for just 14% of the swing from surplus to deficit. See this item which includes a chart. · Jul 22 at 11:32am

    Edited on Jul 22 at 11:34 am

    That’s what I meant, thanks for finding that, I couldn’t remember where I’d seen that number.

    • #26
    • July 25, 2011, at 12:27 PM PDT
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