Issue #20, Spring 2011

The Triumph of Taxophobia

First Principles: Arguing the Economy

To read the other essays in the First Principles: Arguing the Economy symposium, click here.

The conservative movement’s embrace of taxophobia is probably the most important development in American political life over the last three decades. It is the one quality that most distinguishes American conservative elites from conservative elites in other countries. They’re more likely to question climate science, more sanguine about people dying for lack of health insurance, and less xenophobic (which is rather nice). But above all—far above all—they hate taxes.

Taxophobia has spawned an epistemology of its own and has completely reshaped the landscape of American politics. It more than anything else has driven the widely decried rise in partisan conflict. More profoundly, conservative taxophobia has redefined the terms of the political debate. Two generations ago, economic liberalism meant Keynesian deficit spending and a rapidly expanding welfare state with little concern for deficits. Fiscal conservatism meant opposition to deficits and inflation. Today, the old fiscal conservatism has been embraced by the mainstream of the Democratic Party. The old fiscal liberalism has been confined to the margins, espoused by left-wing dissidents to the Democratic mainstream. And the Republican Party inhabits an otherworldly new realm that even the staunchest right-wingers of a generation before could scarcely have imagined. As the two parties trade power back and forth, the ideological basis for economic policy pingpongs between the old right and a loopy kind of far-right. Periods of Republican governance have grown increasingly disastrous, while periods of Democratic governance are largely consumed with staving off fiscal collapse.

How did this happen? All conservatives, and many liberals, explain this transformation as the story of the rise of a new idea. But I don’t think that’s right. As I will explain, ideas only serve to rationalize political and economic self-interest. However, the story does begin with a new idea.

The Birth of a Notion

In the mid-1970s, the new doctrine of supply-side economics suddenly emerged on the right. The doctrine took what had been a marginal notion within the economics profession—the idea that higher tax rates can dampen the incentive to work and innovate—and elevated it to something close to a religion. The supply-side creed held that tax rates, especially on the rich, had enormous effects on economic growth. It was even possible, the supply-siders famously promised, that tax cuts could unleash so much economic growth that the net effect would increase tax revenue.

Jude Wanniski, a Wall Street Journal editorial writer who did more than anybody else to formulate and spread the new doctrine, spoke of the new creed in quasi-religious terms, as did many of his adherents. “It was Jude who introduced me to Jack Kemp, a young congressman and recent convert,” recalled Irving Kristol, who helped spread the gospel of supply-side economics. “It was Jack Kemp who, almost single-handed, converted Ronald Reagan.”

We can identify three phases of supply-side craziness in Republican Party history. In phase one, the Republican establishment greeted supply-side economics with incredulity. The messianism and insouciant disregard for sound fiscal principles sounded more like a nutty left-wing scheme than anything a Dwight Eisenhower or even a Barry Goldwater might recognize. George H.W. Bush called it “voodoo economics.” A great blaze of tax cutting at the outset of the Reagan presidency quickly produced massive deficits, and the Reagan Administration—still dominated by an older generation of Republicans—quickly retrenched. It quietly raised taxes in 1982 and 1983, and then in 1986—aghast at the massive corporate tax loopholes that had grown out of its initial tax cuts—agreed to a tax reform that, even in the course of lowering nominal rates, shifted a larger share of the tax burden onto the rich by sweeping the tax code of subsidies for the wealthy.

Through the next decade, in phase two, the Republican Party stayed committed to anti-tax absolutism in rhetoric, but it remained largely tethered to fiscal reality in practice. In 1990, George H.W. Bush agreed to a major deficit-reduction package, including substantial spending cuts, in return for a small hike in the top marginal income tax rate, from 28 to 31 percent.

This turned out to be the last gasp of old-fashioned Republican fiscal conservatism. Conservatives in the House, led by Newt Gingrich, revolted, and Republicans wound up opposing their own president’s budget deal by a 163-10 margin (it passed thanks to overwhelming Democratic support). They called the deal “the fiscal equivalent of Yalta.” Bush was a traitor; his budget director, Richard Darman, became “the party’s untouchable,” as one reporter later put it. Conservatives decided never to allow such heresy again, and indeed they never have.

Which brings us to phase three. Over the last 20 years, the penetration of taxophobia within the Republican Party has been total. Reducing taxes, especially taxes on the rich, has been enshrined as the party’s unquestioned central policy goal. Virtually all Republicans at the national level have signed a pledge concocted by anti-tax fanatic Grover Norquist pledging never, under any circumstances, to support higher taxes. No such pledge exists for spending.

In 1996, Bob Dole, who had once spoken contemptuously of the supply-siders, picked Kemp himself as his running mate and made a tax cut the centerpiece of his campaign. The George W. Bush Administration poured every ounce of its political capital into reducing taxes, which it did in 2001 and 2003. In 2008, every Republican presidential candidate asserted (wrongly) that the Bush tax cuts increased tax revenue. Upon taking control of the House this year, Republicans immediately dismantled a rule, first imposed as part of the 1990 deficit deal, requiring that any entitlement increase or tax cut be matched by tax hikes or entitlement cuts. The rule had been effective at restraining spending—but it got in the way of tax cuts.

Discredited, but Immortal

Issue #20, Spring 2011
 
Post a Comment

Tom Marchioro:

Bravo Jonathan! As good a summary as I've ever seen of the right's group embrace of the Tax-Cut-Tooth-Fairy ideology.

In the late 1970s, as a young man in my twenties, I almost switched parties and became a Republican. By the mid-80s I was no longer tempted, and by '94 they disgusted me. Now? Now it's like viewing some bizarre form of life from another planet. You end up wondering how something so strange can even exist.

Mar 16, 2011, 2:57 PM
JP Bouffard:

The number of categorical statements in this piece which are either outright incorrect or debatable is through the roof. Federal revenue DID increase when marginal tax rates were lowered under the Reagan administration. There IS validity to the Laffer curve. Having said that....I agree substantially with Chait's point that the Republican party has turned the concept of "fiscal conservatism" into a joke, a caraciture. If one believes in the general principle of the Laffer curve (which must be valid....if the government confiscates all wealth, citizens would starve and there would be zero economic activity, and if tax rates are zero, there would be zero revenue, so in between must like an optimum taxation rate), one must be intellectually honest and admit that small increases in taxation rates will not kill the economy. I am a republican and a fiscal conservative, but was very disappointed that President Obama did not fight the extension of GW Bush tax rates.

Mar 16, 2011, 4:51 PM
BAL:

For JP B:
References for Reagan tax cuts increasing revenue? Even his Director of OMB Stockman called BS. See "The Education of David Stockman", Atlantic Monthly, Dec 1981. The idea of optimum tax rate is not at issue. The question was whether lowering tax rates at that time would increase revenue. It is crystal clear that it decreased revenue. No other 1st world democracy has fallen victim to this religious obsession with cutting taxes. "I like to pay taxes," said Oliver Wendell Holmes. "With them I buy civilization."

Mar 16, 2011, 8:22 PM
VL:

hm... i'd say that taxophobia would be the opposite of ataxophobia, a psychiatric term for a fear of disorder. so taxophobia would be a fear of order. did you intend this double entendre?

Mar 17, 2011, 2:31 AM
jamie_2002:

JF:
Suppose your fear is realized and the government "confiscates" all the wealth?

What happens to the wealth after it is "confiscated"? Is it all spent by the department of waste fraud and abuse?

Mar 17, 2011, 12:30 PM
Lazarus:

Thank you. You might also have mentioned that the tax cutting and flat tax ideas were tried out 150 years ago, in 1861, in the Confederacy. There, as a century-and-a-half later, they proved a total economic and fiscal disaster.

Mar 17, 2011, 10:08 PM
jms:

Republicans, he writes, believe that “in a free society, people make money when they produce goods and services that others value, and that, as a result, what they earn is rightfully theirs.”

It was not so long ago that Democrats believed this as well, while only Socialists and Communists believed in the effective abolition of private property. Apparently, the idea that some people have the right to use government force to help themselves to other people's property has gone so mainstream with liberals that it has to be explained to them that there are some people -- a strange bunch called conservatives -- who believe the opposite.

Mar 17, 2011, 10:35 PM
Robert H:

"There is one idea that explains Republican behavior: moral disgust at income redistribution."
===

But why? The writer never gets around to explaining it. Why does the very idea that someone might undeservedly get a few welfare dollars drive Americans so nuts? This is something that affects far more than just Republicans. It affects most of us to the point that we are blind to the real looting the takes place at the hands of the very wealthy.

Mar 18, 2011, 8:45 AM
Jude:

If you want a saltier version of the same point, I humbly submit this.

Mar 18, 2011, 10:40 AM
Tom M:

JP Bouffard, you should look more closely. Federal revenue did indeed go up after Reagan cut tax rates in 1981. Not because of the rate cuts but because (this is key so read closely) he raised taxes at least 6 times.
The Greenspan Social Security fix imposed a substantial tax on all incomes. The 1986 tax fix raised rates on formerly sheltered income and put companies like Integrated Resources and Cardinal Industries in bankruptcy.
Federal revenue went up for the simple reason that when Reagan cut rates, he caused massive deficits and to claw some of that back, he raised taxes.
It's a simple explanation as opposed to the Laffer curve which is a stupid explanation.

Mar 18, 2011, 11:16 AM
Bart:

What about tax cuts for the wealthy being a kind circulatory system for the GOP?

A quid pro quo is that a portion of the cuts will be recycled back to Republicans in the form of campaign contributions.

Mar 18, 2011, 11:51 AM
St Dalman:

JMS - read the sentence before. The "belief that free markets are a flawless arbiter of income distribution." is flawed as hell. There's absolutely no reason to believe that an investment banker does work that's worth a few million dollars a year while a construction worker gofer gets a low hourly wage. The banker's earnings are massively inflated by the system - wealth and power beget more wealth and power. The truth is, the free market and privatization CONCENTRATE wealth, not reward people in appropriate amounts for the work they do.,

Apparently, the idea that the powerful and wealthy have the right to use force to help themselves to other people's property (because private market coercion is SO much better than government coercion, right?) has gone so mainstream with conservatives, that it has to be explained to them that they're being robbed.

Just as the people (via elections) are a check on government power, the government is an excellent check on the power of the wealthy.

Mar 18, 2011, 5:19 PM
Joe:

Neoliberalism. Google it.

Apr 18, 2011, 9:34 PM
Dave:

Can anyone recommend a good book that examines real data regarding whether supply-side economics is "voodoo" or not? Have been looking and suprised to not be able to find yet. Thank you!

Apr 20, 2011, 8:36 AM
Paco:

The definition of supply side economics - the idea that higher tax rates can dampen the incentive to work and innovate - turns me into something I find surprising. I had never thought of myself as a supply-sider.

I do think that taxes can sometimes dampen the economy but I don't think anyone alive has ever seen such conditions in this country.

In third-world countries, lack of capital can be a severe restriction on starting a new business - just witness the great success that micro-loans have had. It is just possible in these third world countries (where only the poor pay taxes) that a tax cut could be a significant stimulus to innovation and economic growth.

The U.S. economy has not had this problem for a very long time if it ever has. However, conservative economic policies may succeed in bringing such conditions about.

May 11, 2011, 9:59 AM
Danny Steinberg:

It's amazing that someone with such great quotes from conservatives about the free market can be so stupid regarding the affect of taxes/regulation on the economy. Of course taxes damper the economy, economic logic backs that up.

May 28, 2011, 8:57 PM

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