February 22, 2009 2:45PM

Are Higher Taxes the Solution to Bloated Government?

I normally enjoy reading Jonathan Rauch and Bruce Bartlett. Rauch has written extensively about the failure of govenrment, and Republicans might not be in such terrible shape if they had paid more attention to Bruce’s book exposing Bush’s fiscal profligacy. Yet even though both of them seem to understand that excessive government is bad, they want to throw in the towel. Rather than redouble efforts to reduce — or at least restrain — bloated government, they argue that conservatives (and presumably libertarians) now should focus on how best to raise taxes to finance the welfare state. Here are excerpts from Rauch’s article, which seems almost entirely based on an interview with Bartlett:

For decades, everyone pretended to have a profound ideological disagreement about the size of government, but the reality was a comfortable standoff between 21 percent liberalism and 18 percent conservatism. In the end, both sides got what they most wanted: 21 percent spending for liberals, 18 percent revenues for conservatives — at the politically tolerable cost of a deficit averaging 2 to 3 percent of GDP. This result was handy for politicians and acceptable to the public. …Conservatives…face a doctrinal crisis. …Many conservatives insist that structural reforms of entitlement programs — benefit cuts, means‐​testing, privatization, and so on — could keep spending at or even below 21 percent of GDP going forward. Dream on, Bartlett says. …The only really workable option, Bartlett argues, is a value‐​added tax or its equivalent: a broad‐​based tax on consumption. “It’s the only way of preserving incentives and keeping the economy alive.” Because it taxes spending rather than saving or investment and is inhospitable to market‐​distorting loopholes, this kind of tax raises a lot of money at relatively low economic cost. Reaganites hate the value‐​added tax precisely because it is such an efficient cash cow. But Reagan, Bartlett contends, would have known better. Reagan was a conservative who admired FDR, and what he conserved was FDR’s welfare state. He understood that the most practical way to make government less economically burdensome was to grow the economy. …as Bartlett wrote recently in Politico, “Conservatives would better spend their diminished political capital figuring out how to finance the welfare state at the least cost to the economy and individual liberty.”

In effect, Rauch and Bartlett assert that the American right should copy the European right: Make peace with big government and raise taxes in order to keep the budget balanced. In the real world, though, that is a recipe for ever‐​growing government. What inevitably happens is that the left increases the burden of government, which leads the supposed right to acquiesce to higher taxes. But, as Milton Friedman famously warned, governments will always spend whatever they collect in taxes plus whatever amount of borrowing they think is politically and economically feasible. So every time the right capitulates to a tax increase, the left has more leeway to increase spending — which is one reason why the burden of government in Europe is significantly higher than it is in the United States. If the American right listens to Rauch and Bartlett, they will be like Charlie Brown in this youtube clip. Last but not least, I must quibble with this line from the article about Bartlett’s book:

Conservatives mistrust him because in the 2000s he broke publicly with President Bush, in a book called Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy.

That’s not true. Republicans distrust Bruce because of this book. Conservatives distrust Bruce because he wants to be the tax collector for the welfare state. I’ve been buddies with Bruce for years, so I will not give up trying to help him see the truth. Fighting excessive spending with higher taxes is akin to pouring gasoline on a fire.