Tag: Reagan

The Reagan Tax Cuts, Budget Forecasting, and Government Revenue

While perusing the Internet, I saw an article by Iwan Morgan, who is the author of The Age of Deficits: Presidents and unbalanced Budgets from Jimmy Carter to George W. Bush. The author asserted in this article that, “The deficit explosion on his watch was a nasty surprise for Ronald Reagan not a deliberate strategy to reduce government.  In his rosy interpretation of Laffer curve theory, the personal tax cuts he promoted in 1981 would deliver higher not lower revenues through their boost to economic growth.”

The first sentence is an interesting interpretation, since many leftists believe that Reagan deliberately created deficits to make it more difficult for Democrats in Congress to increase spending. I’m agnostic on that issue, but Morgan definitely errs (or is grossly incomplete) in the second sentence. The Reagan Administration did not employ dynamic scoring when predicting the revenue impact of its tax rate reductions. It is true that the White House failed to predict the drop in revenues, particularly in 1982, but that happened because of both the second stage of the 1980-82 double-dip recession and the unexpected drop in inflation (the Congressional Budget Office also failed to predict both of these events, so Reagan’s forecasters were hardly alone in their mistake). Moreover, Morgain’s dismissal of the Laffer Curve is unwarranted. While several GOP politicians exaggerated the relationship between tax rates, taxable income, and tax revenue, this does not mean it does not exist.

The table below, which is based on data from the IRS’s Statistics of Income, shows what happened to tax collections from upper-income taxpayers between 1980 and 1988. Supply siders can be criticized for many things, especially their apparent disregard for the importance of limiting the size of government, but the IRS figures clearly show that lower tax rates were followed by more rich people, more taxable income, and more tax revenue. For those keeping score at home, that’s a perfect batting average for supply-side economics.

1980-88 Laffer

Bob McDonnell: The Modern Republican

This is from the Reagan administration’s deregulatory 1981 energy plan: “All Americans are involved in making energy policy. When individual choices are made with a maximum of personal understanding and a minimum of government restraints, the result is the most appropriate energy policy.”

Many modern Republicans claim devotion to Ronald Reagan’s ideas, but they often seem to forget about the “minimum of government” thing. The following points are from Republican Virginia gubernatorial candidate Bob McDonnell’s “More Energy, More Jobs” plan:

  • “McDonnell was the chief sponsor of legislation creating the Virginia Hydrogen Energy Plan.”
  • “McDonnell also supported grant programs for solar photovoltaic manufacturing, tax exemptions for solar energy and recycling property, and tax credits for solar energy equipment.”
  • “In order to protect Virginia’s citizens from the skyrocketing wholesale prices of electricity seen in other states, McDonnell brought together all the necessary stake holders to re-regulate electricity in Virginia.”
  • “Currently, Virginia is the second largest importer of electricity behind California.  This is unacceptable.”
  • “Bob McDonnell will establish Virginia as a Green Jobs Zone to incentivize companies to create quality green jobs. Qualified businesses would be eligible to receive an income tax credit equal to $500 per position created per year for the first five years.”
  • “The Virginia Alternative Fuels Revolving Fund was established to assist local governments that convert to alternative fuel systems … Bob McDonnell will expand the purpose of this fund to include infrastructure such as refueling stations, provide seed money and aggressively pursue additional grants.”
  • “Bob McDonnell will make Southwest and Southside Virginia the nation’s hub for traditional and alternative energy research and development…To assist with the attraction, building and operation of major energy facilities in Southside and Southwest Virginia, we will also support the establishment of the Center for Energy.”
  • “To help Virginia universities gain access to federal stimulus money, as Governor, Bob McDonnell will establish the Virginia Universities Clean Energy Development and Economic Stimulus Foundation.”
  • “As Governor, Bob McDonnell will leverage stimulus funding to incentivize individuals and businesses to conduct energy audits and encourage public private partnerships between small businesses and government.”

It’s true that McDonnell’s plan has some free market elements, and also that Ronald Reagan supported some wasteful energy boondoggles. However, the degree to which the modern Republican wants to micromanage and manipulate the energy industry is remarkable. McDonnell is almost setting out a Soviet five-year plan for a substantial part of the Virginia economy. For goodness sakes, he wants to treat Virginia like a separate country and try to fix the supposed problem that it is “importing” too much energy from other states!

It’s not just energy. Look at the top-down central planning ideas that McDonnell has for “creating jobs”:

  • “Expanding use of the Governor’s Opportunity Fund by roughly doubling the funding available and broadening Fund rules to allow companies that generate additional state and local tax revenue to qualify.”
  • “Appointing Lieutenant Governor Bolling to serve as “Virginia’s Chief Job Creation Officer” in the McDonnell/Bolling Administration.”
  • “Designating one Deputy Secretary of Commerce to Focus Solely on Rural Economic Development.”
  • “Providing a $1,000 tax credit per job to businesses that create 50 new jobs, or 25 new jobs in economically distressed areas.”
  • “Double the funding for the Virginia Tourism Corporation. Currently Virginia trails 14 states including West Virginia and Tennessee in tourism funding.”
  • “Increase funding for the Governor’s Motion Picture Fund by $2 million.”
  • “Providing a $1,000 tax credit per job to businesses that create 50 new jobs, or 25 new jobs in economically distressed areas.”

Again, McDonnell mixes some pro-market proposals in with these Big Government interventions. And his opponent, Creigh Deeds, is promoting his own interventionist schemes, many very similar to McDonnell’s.

In 1980, the difference between Jimmy Carter and Ronald Reagan on economic policy was clear. But today, we seem to have arrived at a point where it’s virtually impossible to tell the difference in economic platforms between a self-proclaimed conservative Republican and a liberal Democrat.

Presidential Cults

Glenn Greenwald, author of Cato’s much-discussed paper on the success of drug decriminalization in Portugal, writes about cults of presidential personality. He notes that Jay Nordlinger of National Review and other conservatives – not to mention a few libertarians – have criticized the Obama administration’s plan to broadcast a presidential speech into American schools and push teachers to post Obama quotes in their classrooms and encourage students to talk about how President Obama inspires them.

Greenwald never actually defends the Obama plan. But he does argue that conservatives have short memories when they say that this is something unique. In particular, he reminds us of the notorious Monica Goodling’s questions to job candidates at the George W. Bush Department of Justice, such as “[W]hat is it about George W. Bush that makes you want to serve him?” And also of White House political aide Sara Taylor, who told the Senate Judiciary Committee, “I took an oath to the president, and I take that oath very seriously.” Committee chairman Patrick Leahy had to ask her, “Did you mean, perhaps, you took an oath to the Constitution?”

Greenwald has a good point. Both the red and blue teams have been far too quick to succumb to a cult of presidential personality. (And really, swooning over Reagan or Obama is sort of understandable. But George W. Bush? You have to wonder if they worked really hard at creating a Bush cult because there wasn’t really much there.)

But I do see one difference: The Obama administration is trying to push its president-worship onto 50 million captive schoolchildren (not to mention using the NEA to enlist the nation’s artists in promoting Obama and his agenda). Goodling was asking people looking for government jobs why they wanted to “serve George W. Bush.” Now, sure, they should want to serve the public interest – and she was asking these questions to people seeking career legal positions as well as to political appointees. Still, it seems a smaller bit of cultishness than going into every public school.

Gene Healy wrote about cultishness by both Bush and Obama supporters here.

Friday Links

  • Nearly 30 European countries have agreed to end their government mail monopolies in the next five years. The U.S. Postal Service has estimated losses of $7 billion this year. It’s time to privatize.

GOP 99% Socialist

As I note in my New York Post op-ed today, Republicans are fond of implying that President Obama is a big-spending socialist. But the House GOP recently offered a spending cut plan that was able to find savings worth less than one percent of Obama’s budget.

As Tad DeHaven and Brian Riedl have also pointed out, the GOP spending reform effort is rather pathetic. It proposed specific annual budget cuts of about $14 billion per year.

Consider that the center-left budget wonks at the Brookings Institution put their heads together a few years ago and came up with a “smaller government plan” that proposed about $342 billion in annual spending cuts (by 2014). The Brookings authors note:  

These cuts are achieved by reducing government subsidies to commercial activities ($138 billion); by returning responsibility for education, housing, training, environmental, and law enforcement programs to the states ($123 billion) … by cutting entitlements such as Medicaid, Social Security, and Medicare ($74 billion); and by eliminating some wasteful spending in these entitlement programs ($7 billion).

Thus, the Brooking’s scholars found cuts more than twenty times larger than the House GOP leadership cuts, and Brookings proposed its plan back when the deficit was about one-fifth of the size it is today. (Note that both the Brookings and GOP plans would also put a cap on overall nondefense discretionary spending, in addition to these specific cuts).

My point in the New York Post piece is that the GOP needs to challenge Obama’s big spending agenda at a more fundamental level. They need to do some careful research, pick out some big spending targets, and go on the offense.  Why not propose to eliminate the Departments of Education and Housing and Urban Development? Why not sell off federal assets, such as the Tennessee Valley Authority, in order to help pay down the federal debt? Why not open up the U.S. Postal Service to competition?

Obama won’t agree to these reforms at this point, but they would hopefully open a serious national debate about reforming our massive and sprawling federal government. Ronald Reagan in 1980 and the congressional Republicans in 1994 didn’t win by splitting hairs with the Democrats over 1% of spending. They offered a more fundamental critique.

At least, GOP leaders need to offer up spending reforms as bold as those of the Brookings Institution.

Rush Limbaugh Is Not the Problem

Brink Lindsey’s post, triggered by Jerry Taylor’s controversial critique of conservative talk radio at National Review online,  is part of a much-needed debate about the changes needed to create more fertile soil for limited-government – a task that is especially difficult given the GOP’s decade-long embrace of statist economic policy.

But in the spirit of friendly disagreement, the problem is not Rush Limbaugh and Sean Hannity. Talk radio, after all, existed when Republicans were riding high and promoting small government in the 1990s.

The real problem is that today’s GOP politicians are unwilling to even pretend that they believe in limited government. In such an environment, it is hardly a surprise that anti-tax and anti-spending voters decide that talk show hosts are de facto national leaders.

This does not mean that Rush Limbaugh is always right or that Sean Hannity never engages in demagoguery. But I suspect if any of us had to be live on the air three hours every day and support our families by attracting an audience, our efforts to be entertaining might result in an occasional mistake - either factually or rhetorically. Heck, when I had to be on the air for just one hour each day in the mid-1990s for the fledgling conservative television network created by the late Paul Weyrich, I’m sure I had more than my share of errors.

This being said, I agree with Brink’s main points about conservatism being adrift. How come there were no tea parties when Bush was expanding the burden of government? Why didn’t conservative think tanks rebel when Bush increased the power of the federal government? Where were the supposedly conservative members of the House and Senate when Bush was pushing through pork-filled transportation bills, corrupt farm bills, a no-bureaucrat-left-behind education bill, and a massive entitlement expansion?

I sometimes wonder if the re-emergence of another Reagan would make a difference, but Brink (and Posner, et al) offer compelling reasons to believe that the problems are much deeper.

The Closing of the Conservative Mind

If you’re unclear what’s wrong with conservatism these days, I urge you to check out the tragicomic dustup accidentally provoked last week by my colleague Jerry Taylor at National Review Online’s “The Corner” blog.

I don’t want to give a blow-by-blow recount of the fracas, but happily a convenient compendium of the relevant links is provided here. Go read the whole thing; you’ll be entertained, that’s for sure. For present purposes, suffice it to say that Jerry made two basic points: (1) talk radio hosts Rush Limbaugh and Sean Hannity are not popular outside the conservative movement; and (2) the two have a habit of making “dodgy” arguments even when their positions are sound. He might have added that the sky is blue and A comes before Z. For his effrontery Jerry was verbally beaten to a pulp by his fellow Cornerites.

The whole thing seems like an updated version of the Emperor’s New Clothes, except this time the crowd turns on the truth-telling kid and gives him the Rodney King treatment. And that response to Jerry’s innocent and obvious points captures the essence of what has gone wrong with the conservative movement. That the flagship publication of the movement will brook no criticism of demagogic blowhards like Limbaugh and Hannity says it all:  A movement founded on the premise that “ideas have consequences” has suffered a calamitous decline in intellectual standards.

Richard Posner agrees. In a recent blog post, he offered this withering assessment of the state of the conservative mind:

My theme is the intellectual decline of conservatism, and it is notable that the policies of the new conservatism are powered largely by emotion and religion and have for the most part weak intellectual groundings. That the policies are weak in conception, have largely failed in execution, and are political flops is therefore unsurprising. The major blows to conservatism, culminating in the election and programs of Obama, have been fourfold: the failure of military force to achieve U.S. foreign policy objectives; the inanity of trying to substitute will for intellect, as in the denial of global warming, the use of religious criteria in the selection of public officials, the neglect of managment and expertise in government; a continued preoccupation with abortion; and fiscal incontinence in the form of massive budget deficits, the Medicare drug plan, excessive foreign borrowing, and asset-price inflation.

By the fall of 2008, the face of the Republican Party had become Sarah Palin and Joe the Plumber. Conservative intellectuals had no party.

I don’t endorse every detail of Posner’s bill of indictment, but the broad thrust is correct. Movement conservatism has regressed to something like the days before National Review was founded – back when Lionel Trilling could say that conservatism consisted of nothing but “irritable mental gestures which seek to resemble ideas.” And as Jerry’s trip to the woodshed demonstrates, those gestures can be very irritable indeed! Conservatism today has degenerated into a species of especially unattractive populism, pandering to the pro-torture-and-wiretapping, anti-gay-and-Mexican prejudices of a dwindling, increasingly sectarian, increasingly regional “base.”

Some who sympathize with libertarian and free-market causes are cheered by the anti-government rhetoric and Tea Party theatrics now increasingly in evidence on the right. Perhaps, they think, the old Goldwater-Reagan conservatism is making a comeback. Sorry, but I seriously doubt it. On the contrary, I worry that good free-market ideas are going to get tainted by association with an increasingly brutish identity politics for angry white guys and the women who love them.

In order to make gains for the cause of limited government, we need to convince smart people that we are right. We need to win the battle of ideas in the intellectual realm by making better arguments than our opponents, and we need to educate the public so that it is less susceptible over time to “rational irrationality.” None of this can be accomplished by consorting with and apologizing for merchants of intellectual junk food, or by making common cause with some of the ugliest cultural attitudes in contemporary America. Greater economic freedom will not come with pitchforks and torches; it will come, as it has in the past, by reshaping the elite consensus.