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• Bush Tax Cut Takes Conservatives to the Cleaners
Bush Tax Cut Takes Conservatives to the Cleaners
By Jerry Taylor & Peter VanDoren
The passage of President Bush’s 10-year, $350 billion tax cut has put a bounce in the step of conservatives while casting a pall of gloom upon their liberal brethren. Yet it’s unclear to us exactly why devotees of limited government are cheering while advocates of activist government are booing. The Left should be popping the champagne bottles and the Right should be wondering how they ended up being taken to the cleaners.
The Right’s total abandonment of balanced budgeting is stunning. Sure, taxes are unpleasant to pay. But someone, someday has to pay for the government we’re buying every year. Deficit spending just puts off the day of reckoning, but with interest. Trading off smaller taxes today for larger taxes tomorrow is a curious position for anti-tax conservatives to take.
The standard conservative reply is that the only way to restrain the growth of government in the long run is to starve it of revenues. But where’s the beef? Government this year will be about $450 billion in the red but spending will increase nonetheless by at least 7.4 percent. Republicans control the House, Senate, and presidency and we’re in a non-election year. If political planets aren’t properly aligned now for an attack on government spending, then when will they ever be?
Moreover, the Friedman Hypothesis is testable. If one checks the data and controls for the business cycle, no relationship can be found between the growth of federal spending and the size of the federal deficit since World War II.
Conservatives may well be right to argue that the Bush tax cut will enhance long-term economic efficiency by reducing the double taxation of dividends and reducing the marginal income tax rate applied to high wage earners. But such reforms do not require deficit spending. Whether the modest gains in economic efficiency will offset the long-term damage done by exploding deficits and new distortions introduced to the tax code is anyone’s guess.
So this is the tax debate in a nutshell. Both liberals and conservatives happily and without great argument sign off on the purchase of a $2.3 trillion dollar government with more spending surely to come. But liberals argue that we should put 11 percent of this year’s tab on the national credit card while conservatives argue that we should put 17 percent of it on the national credit card. All for a “historic” tax cut that will reduce government’s take on the private sector by all of 0.2 percent over 10 years.
Once we clear away the political smoke, it is clear that conservatives in Washington have completely abandoned their campaign against big government. Rather than tackle spending head-on, Republican politicians trot out tax cuts as a symbolic surrogate and Republicans respond with ideological gusto, forgetting the fact that tax cuts have nothing to do with the size of government. They have to do with how we pay for government.
Conservatives who are ambivalent about how we pay for government should be reminded that deficit spending invites more spending than would likely be the case if Republicans actually had to swallow hard and raise taxes to pay for the spending bills they’re busily whooping through the Congress. After all, you’ll usually buy more of something when you think you’re getting it at 20 percent off with payments due … probably not in your tax-paying or vote-getting lifetime (that’s the next generation’s problem).
The fact is that domestic spending increases under President Bush are among the largest in post-war history. And, all the while, conservatives happily cheer the administration on, apparently oblivious to the fact that political success is being achieved at the expense of the one thing – limited government – that supposedly divides the two parties. Annual tax-cutting campaigns, the White House hopes, will distract fiscal conservatives from the reality of what’s going on here.
Liberals should revel in this little-noticed turn of events. If deficits no longer matter and fights over the size of government are off the table, how bad can things be? Conservatives who care about limited government, on the other hand, should despair over developments within the Republican Party and the conservative movement as a whole. As long as fiscal conservatism is defined as taking a “no new tax” pledge as opposed to a “no new spending” pledge, the limited government crowd will find themselves increasingly irrelevant to American politics.
Jerry Taylor is director of natural resource studies at the Cato Institute, http://www.cato.org, and Peter VanDoren is editor of Regulation, the Cato Review of Business and Government.
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