Tax Pledge May Scuttle a Deal on Deficit
By CATHERINE RAMPELL
Three-quarters of Americans — including more than half of Republicans — say they believe that any deficit reduction plan should include tax increases, according to a recent New York Times/CBS poll. But Congressional Republicans are not so sure.
Republicans on the deficit-reduction supercommittee have offered a deal with 24 cents of every dollar in savings coming from tax increases, and the other 76 cents from spending cuts. That’s less from taxes than recommended by the leaders of last year’s blue ribbon panel on deficit reduction, which proposed 30 cents and 70 cents.
The latest proposal, even if agreed to by the committee, might have trouble surviving the full Republican caucus. Nearly every Republican in Congress has signed a pledge never to raise taxes, regardless of how much red ink is on the country’s balance sheet.
But previous Congressional budget deals relied significantly more on taxes than anything on the table now.
In the five fiscal grand bargains of the 1980s and early 1990s, tax increases accounted for an average of 61 cents of every dollar saved. In fact, in President Reagan’s 1982 and 1984 budget-trimming deals, more than 80 percent of deficit reductions came from tax increases. What’s more, the deals passed with majority support from both parties. Mr. Reagan may be remembered as an antitax hero, but he actually raised taxes 11 times over the course of his presidency, all in the name of fiscal responsibility.
Republicans used to rank deficit reduction ahead of curbing taxes, but now the reverse is true. What changed?
The conventional wisdom is that Republicans became fiercely antitax because President George H. W. Bush lost his 1992 re-election bid after breaking his “no new taxes” pledge.
But the evolution most likely began much earlier — in the 1970s, when a few conservative thinkers proposed a few exciting ideas that helped reconcile tax cuts with budget balancing.
In 1974, Arthur B. Laffer, a supply-side economist at the University of Chicago, doodled his now-famous Laffer curve, which showed that tax cuts could, counterintuitively, narrow deficits: lower tax rates encouraged people to earn more money, thereby creating more income that could be taxed, thereby raising total tax revenue. A related but somewhat contradictory supply-side theory was the starve the beast argument, which posited that tax rate cuts would lead to lower total tax revenue, forcing spending cuts and then balancing the budget from both sides of the ledger.
And then there was the Two Santa Claus Theory, advocated by Jude Wanniski, a Wall Street Journal editorial writer. In an influential 1976 essay, he argued that tax cuts were not only good for the economy, but politically endearing.
Republicans, he argued, should stop playing Scrooge to the Democrats’ generous Santa Claus. Instead, he said the party could offer its own Christmas gift to voters: tax cuts.
Those messages filtered through, and energized younger Republicans over the next decade. But Congress still had a number of the old guard, more moderate and budget-hawkish Republicans, like Bob Dole and Howard Baker, who encouraged compromise on fiscal issues.
“There was a different makeup of the United States Congress then than there is now,” said G. William Hoagland, vice president for federal affairs at Cigna Insurance who has worked for the Congressional Budget Office and for Senator Bill Frist, the former Republican Senate majority leader. “There was much more willingness to reach across the aisle in a bipartisan manner for the good of the country as opposed to the next election.”
Slowly, the Republican old guard was replaced. And with each subsequent budget bargain, more and more Republicans jumped from the antideficit bandwagon to the antitax one, egged on by conservative groups.
Most prominent was Americans for Tax Reform, an organization founded by Grover Norquist. In 1986, the new group began asking politicians to sign a pledge against tax increases. That first year, 100 representatives and 20 senators signed on. By 1994, Mr. Norquist says, the number of signatories had risen to 200 representatives and about 50 senators; today 238 representatives and 41 senators have signed the pledge.
Not coincidentally, President Reagan’s fiscal consolidation deal, from a 1987 budget summit meeting, passed without a majority of Republican votes.
Even the budget hawks were coming around. In the next presidential election, George H. W. Bush, who had once derided supply-side theory as “voodoo economics,” told voters to “read my lips: no new taxes.” It was a winning message.
Just two years later, though, he was ruffled by the mounting federal debt and urged Congress to pass a deficit reduction bill that included tax increases.
Initially, conservative Republicans killed the bill, led by Newt Gingrich, a rising star and antitax leader. After a three-week government shutdown, the 1990 Budget Enforcement Act finally passed. But it, too, passed without a majority of Republicans voting for it.
Voters kicked Mr. Bush out of office in the next election, but political scientists debate whether his 1990 tax increase was to blame. President Reagan, after all, somehow remained phenomenally popular despite raising taxes nearly a dozen times.
The first President Bush also had to contend with a weak economy and public anger for a broken promise, regardless of the promise’s content, said Sarah A. Binder, a political scientist at George Washington University.
Either way, Republicans saw Mr. Bush’s loss as a rallying cry.
“In the 1980s, the opposition to the Soviet Union and communism was the core of the Republican brand, helping unify Republicans from all sorts of other different beliefs,” said Eric M. Patashnik, a public policy professor at the University of Virginia. “After the collapse of communism in the Soviet Union, the opposition to tax increases became the glue that held together the Republican Party.”
Accordingly, every single Republican voted against President Clinton’s tax-heavy deficit reduction plan in 1993. The Republican platform in the next federal election was explicitly antitax, and successfully ended the Democrats’ 40-year Congressional majority. Some experts believe that historical political changeover also hardened Republicans against tax increases.
“Through the 1950s to the 1980s, the Democrats were seen as the ‘natural’ majority party in Congress, and the question of the next election was less on people’s minds,” said Frances E. Lee, a professor of politics and government at the University of Maryland. “It was easier to contemplate political risks when the stakes were lower.” After the majority appeared more volatile, she said, “suddenly it became much harder to do a deal that imposes painful tax hikes.”
In 1997, Congress passed a two-part deficit reduction package containing nothing but spending cuts. In fact, it could be said it cut more than spending, since the new laws cut taxes, too.
Over the last 30 years, Americans have made the opposite transition. In a 1982 NBC News/Associated Press poll, 77 percent said deficits should be reduced by spending cuts alone, about the same share that now want some tax increases.
Experts don’t know how to explain this, but say it could reflect today’s lower tax rates: in 1982 the top rate was 50 percent and now it is 35 percent.
“Sometimes it’s not the attitudes that change,” said Morris P. Fiorina, a Stanford political science professor and a senior fellow at the Hoover Institution. “It’s the facts.”
Republicans on the deficit-reduction supercommittee have offered a deal with 24 cents of every dollar in savings coming from tax increases, and the other 76 cents from spending cuts. That’s less from taxes than recommended by the leaders of last year’s blue ribbon panel on deficit reduction, which proposed 30 cents and 70 cents.
The latest proposal, even if agreed to by the committee, might have trouble surviving the full Republican caucus. Nearly every Republican in Congress has signed a pledge never to raise taxes, regardless of how much red ink is on the country’s balance sheet.
But previous Congressional budget deals relied significantly more on taxes than anything on the table now.
In the five fiscal grand bargains of the 1980s and early 1990s, tax increases accounted for an average of 61 cents of every dollar saved. In fact, in President Reagan’s 1982 and 1984 budget-trimming deals, more than 80 percent of deficit reductions came from tax increases. What’s more, the deals passed with majority support from both parties. Mr. Reagan may be remembered as an antitax hero, but he actually raised taxes 11 times over the course of his presidency, all in the name of fiscal responsibility.
Republicans used to rank deficit reduction ahead of curbing taxes, but now the reverse is true. What changed?
The conventional wisdom is that Republicans became fiercely antitax because President George H. W. Bush lost his 1992 re-election bid after breaking his “no new taxes” pledge.
But the evolution most likely began much earlier — in the 1970s, when a few conservative thinkers proposed a few exciting ideas that helped reconcile tax cuts with budget balancing.
In 1974, Arthur B. Laffer, a supply-side economist at the University of Chicago, doodled his now-famous Laffer curve, which showed that tax cuts could, counterintuitively, narrow deficits: lower tax rates encouraged people to earn more money, thereby creating more income that could be taxed, thereby raising total tax revenue. A related but somewhat contradictory supply-side theory was the starve the beast argument, which posited that tax rate cuts would lead to lower total tax revenue, forcing spending cuts and then balancing the budget from both sides of the ledger.
And then there was the Two Santa Claus Theory, advocated by Jude Wanniski, a Wall Street Journal editorial writer. In an influential 1976 essay, he argued that tax cuts were not only good for the economy, but politically endearing.
Republicans, he argued, should stop playing Scrooge to the Democrats’ generous Santa Claus. Instead, he said the party could offer its own Christmas gift to voters: tax cuts.
Those messages filtered through, and energized younger Republicans over the next decade. But Congress still had a number of the old guard, more moderate and budget-hawkish Republicans, like Bob Dole and Howard Baker, who encouraged compromise on fiscal issues.
“There was a different makeup of the United States Congress then than there is now,” said G. William Hoagland, vice president for federal affairs at Cigna Insurance who has worked for the Congressional Budget Office and for Senator Bill Frist, the former Republican Senate majority leader. “There was much more willingness to reach across the aisle in a bipartisan manner for the good of the country as opposed to the next election.”
Slowly, the Republican old guard was replaced. And with each subsequent budget bargain, more and more Republicans jumped from the antideficit bandwagon to the antitax one, egged on by conservative groups.
Most prominent was Americans for Tax Reform, an organization founded by Grover Norquist. In 1986, the new group began asking politicians to sign a pledge against tax increases. That first year, 100 representatives and 20 senators signed on. By 1994, Mr. Norquist says, the number of signatories had risen to 200 representatives and about 50 senators; today 238 representatives and 41 senators have signed the pledge.
Not coincidentally, President Reagan’s fiscal consolidation deal, from a 1987 budget summit meeting, passed without a majority of Republican votes.
Even the budget hawks were coming around. In the next presidential election, George H. W. Bush, who had once derided supply-side theory as “voodoo economics,” told voters to “read my lips: no new taxes.” It was a winning message.
Just two years later, though, he was ruffled by the mounting federal debt and urged Congress to pass a deficit reduction bill that included tax increases.
Initially, conservative Republicans killed the bill, led by Newt Gingrich, a rising star and antitax leader. After a three-week government shutdown, the 1990 Budget Enforcement Act finally passed. But it, too, passed without a majority of Republicans voting for it.
Voters kicked Mr. Bush out of office in the next election, but political scientists debate whether his 1990 tax increase was to blame. President Reagan, after all, somehow remained phenomenally popular despite raising taxes nearly a dozen times.
The first President Bush also had to contend with a weak economy and public anger for a broken promise, regardless of the promise’s content, said Sarah A. Binder, a political scientist at George Washington University.
Either way, Republicans saw Mr. Bush’s loss as a rallying cry.
“In the 1980s, the opposition to the Soviet Union and communism was the core of the Republican brand, helping unify Republicans from all sorts of other different beliefs,” said Eric M. Patashnik, a public policy professor at the University of Virginia. “After the collapse of communism in the Soviet Union, the opposition to tax increases became the glue that held together the Republican Party.”
Accordingly, every single Republican voted against President Clinton’s tax-heavy deficit reduction plan in 1993. The Republican platform in the next federal election was explicitly antitax, and successfully ended the Democrats’ 40-year Congressional majority. Some experts believe that historical political changeover also hardened Republicans against tax increases.
“Through the 1950s to the 1980s, the Democrats were seen as the ‘natural’ majority party in Congress, and the question of the next election was less on people’s minds,” said Frances E. Lee, a professor of politics and government at the University of Maryland. “It was easier to contemplate political risks when the stakes were lower.” After the majority appeared more volatile, she said, “suddenly it became much harder to do a deal that imposes painful tax hikes.”
In 1997, Congress passed a two-part deficit reduction package containing nothing but spending cuts. In fact, it could be said it cut more than spending, since the new laws cut taxes, too.
Over the last 30 years, Americans have made the opposite transition. In a 1982 NBC News/Associated Press poll, 77 percent said deficits should be reduced by spending cuts alone, about the same share that now want some tax increases.
Experts don’t know how to explain this, but say it could reflect today’s lower tax rates: in 1982 the top rate was 50 percent and now it is 35 percent.
“Sometimes it’s not the attitudes that change,” said Morris P. Fiorina, a Stanford political science professor and a senior fellow at the Hoover Institution. “It’s the facts.”
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