WE HAVE THE MODEL BUT WHAT ABOUT THE COURAGE?
January 18, 2009
It is widely judge by many that under President George Bush, the tax policy was correct. The problem was however, there was just for too much spending. And that excessive spending unfortunately will be a part of the Bush legacy.
Mississippi's Governor Haley Barbour has it right. Governor Barbour surprised many when He vetoed a bi-partisan tax increase of one percent on cigarettes. When asked why he would use his political capital to veto this increase he said, "To ratify such an increase would conflict with every philosophical belief in my body". Barbour went on to say, "Government does not have a revenue problem, it has a spending problem." Governor Sanford of South Carolina made his point about excessive spending by bringing two squealing pigs to his veto of over a 100 pieces of excess spending in South Carolina. Pork and Barrel were the names of the pigs. Governor Sanford asked "How can thinking people accept waste and excess by allowing ever more government?"
Ronald Reagan had it right regarding the size of government. The Reagan legacy spells out a similar scenario to Governors Barbour and Sanford. His tax cuts were phenomenally successful despite the accounts by the "drive by media". Remarkably. A Treasury Department study showed that 86 percent of people in the lowest 20 percent of income earners in 1979 graduated into higher categories during the '80's. This fact is a phenomenal historic fact which revisionists cannot rewrite.
The tax cuts skewered then prevailing Keynesian economic theory, producing sustained peacetime economic growth without inflation. The reductions in marginal-income and capital-gains tax rates even increased revenues. During the Reagan years, revenues increased. It does not matter how much we repeat this truism, the relative deficit explosion during the Reagan years was NOT caused by the tax cuts but by increases in government spending. Yet demagogues established the narrative that the tax cuts were at the expense of essential government services and the cuts increased the deficit and the national debt, thus dubbing the '80's as the decade of greed. That contention is totally wrong.
President George W. Bush, while campaigning on and implementing his tax-cuts policy, failed to sell the nuts and bolts of supply-side theory. He theorized that tax cuts stimulate economic growth. And when Bush attempted to articulate the theory beyond a superficial level, he unfortunately confused the issue. Instead of arguing, as did such supply-sliders as Reagan and Jack Kemp, reduction in marginal income tax rates would spur economic growth because they would provide incentives to produce and invest (supply side). Bush said the growth would be (and was) a result of people having more to spend and spending it (demand--side). He compounds the confusion when he attempted to sell his tax rebate plan with the same rationale. Therein was Bush's flaw. This logic plays right into incoming President Obama's hand as he rolls out his argument that his further planned tax rebates and his massive spending increases (in the forms of his "stimulus" plan and future bailouts) will stimulate economic growth by increasing demand. Unfortunately, President elect Obama's logic is fallacious. The evidence is clear that neither one-time demand-side tax rebates nor Keynesian-type government generates triggered economic growth. Point in fact, the 2008 stimulus bill, which included more than $100 billion in tax rebates was on the assumption that people would spend the money immediately. It did not work and did not boost the economy. People spend less than 16 percent of the rebate money, and no appreciable "jolt" to the economy occurred. That is mainly because these one-time rebates are temporary, and people generally do not increase their spending unless they anticipate some PERMANCNCY to the increase in their disposable incomes, such as through salary increased or reduction in their marginal tax rates.
Similarly, policy analyst Brian Riedl documents that big-government spending packages, such as that being planned by Obama, just do not work. None of the massive spending hikes tried in the 1930's 1960's or 1970's stimulated growth. And as Riedl pointed out, the 1980's and 1090's, when the federal government shrank by one-fifth as a percentage of gross domestic product (GDP) the U.S. economy enjoyed its greatest expansion to date. Keynesian-type government fails to stimulate the economy because substitutes one type of spending (government) for anther private -sector). In fact, such spending plans usually produce the negative effect of deducing incentives to produce because they subsidize leisure and unemployment and they are often funded out of growth-zapping tax increases. The government expenditures also tend to reduce production because they are in place of more efficient private-sector spending.
It is unfortunate that under President Bush, spokespersons of the administration have been selling supply-side theory with demand-side arguments. It is imperative that we enunciate the principle that will have any impact in blocking Obama's disastrous and reckless stimulus packages and further bailouts. The only ways to fund government is to tax, or barrow, or inflate. Government does not invest, it consumes. Thoughtful decision makers and policy wonks must relearn, articulate and sell supply-side theory in the spirits of Ronald Reagan and jack Kemp. Otherwise, we not only will concedes the tax-and -spend issue to the socialist revionists but also we will be complicit in eh disastrous fiscal policies that will surely ensue. The problems of capitalism are not corrected by socialism. We have the correct model of economic renewal, but do we have the courage? And that is show we see it FROM OUR PERSPECTIVE.