The fiscal responsibility facade

By W. James Antle III
web posted September 4, 2000

Listening to the Democratic critiques of Republican economic policy, one would think that liberals are no longer beholden to the theories of John Maynard Keynes and instead they have all been transformed into the image of the late Paul Tsongas.

Gone is the talk of deficits jump-starting the economy. Deficit spending as expansionary economic policy is out; building up large surpluses and wiping out the national debt is in. The worst thing about Republican proposals to cut tax rates, other than that rich people may conceivably benefit from them, is that they will reduce and possibly eliminate the surplus thus jeopardizing our fiscal stability. Democrats are responsible stewards of the bond market, not big budget-busting spenders, you see.

The illusion of liberal fiscal responsibility is exposed when it becomes obvious that the only that is ever too expensive for government to engage in is tax cuts. The budget deficits of the 1980s provided the liberals their first opportunity to oppose tax cuts not to expressly promote big government but budgetary discipline. Blaming tax cuts exclusively for the deficit became a cornerstone of the liberal mantra, notwithstanding that federal revenues remained higher each year of the Reagan administration than in any previous administration and actually increased seven out of eight years. But masking support for big government in rhetoric of fiscal responsibility became a central element of the stealth statism of the Clinton years.

In 1993, Bill Clinton shifted federal spending dramatically from defense to social welfare. Even in his "deficit hawk" years of the first term, the cuts came almost exclusively from the defense budget while social programs saw an increase of nearly $300 billion. Yet the key aspect of his economic program consisted of a tax increase to reduce the deficit. In addition to a 4.3-cent-a-gallon increase in the gasoline tax and increasing the portion of Social Security income subject to income tax from 50 percent to 88 percent (for those he considered especially well-heeled), the biggest part of this tax increase raised the marginal income tax rate by one-third.

Thus, Clinton could both claim to be conservative in that he was trying to reduce the deficit while sounding liberal class-warfare themes at the same time. More importantly, the responsible thing to do when faced with deficits was not to cut government spending. Clinton established that the federal government could continue to "invest" ever more heavily in its social programs and still move against budget deficits by increasing revenues.

Notice that government never has to stop growing to be fiscally responsible. At the same time he was "focusing like a laser beam" on the economy and the deficit, Clinton was pushing a massive expansion of the federal government in the form of his health-care plan. All it has to do is make sure that it is always taxing the American people enough to be able to afford everything the political class wants to do.

In Clinton's world, his 1993 tax increase boosted revenues and thus turned the deficits into surpluses. This allegedly lowered interest rates and stimulated fantastic economic growth. In fact, Clinton's increase in the top income tax rate was supposed to generate an additional $35 billion per year in revenues, but receipts from taxpayers in that bracket ended up increasing by only $7 billion annually in his first term. (Even this increase was probably completely unrelated to the tax hike, with any supply-sider able to explain why.) Additionally, interest rates had been falling before Clinton's tax increase and then began to rise afterwards, falling again only after the Republicans won control of Congress.

The triple-digit deficits also continued until Republicans took Congress. By this time, lower inflation was reducing interest rates and relieving the burden of business' depreciation costs and capital-gains taxes. Congress was working to balance the budget, eliminating 300 federal programs and cutting Clinton's non-defense discretionary spending proposals. Finally, in 1997 Clinton signed a capital-gains tax cut into law and the economy began to grow more rapidly, finally increasing revenues enough to give us the present surplus.

Alan GreenspanEven though Clinton could conceivably share credit for all of that (he reappointed Alan Greenspan, he did sign the capital-gains tax, he reached a balanced-budget agreement with the Republicans, Robert Rubin was not Robert Reich), you will hear none of it. Cutting taxes and spending is incompatible with bigger government, while claims that government cannot afford to receive one penny less in taxes can be justified with rhetoric of fiscal discipline.

So Clinton inflates a modest Republican tax-cut proposal the Congressional Budget Office said would reduce revenues by $536 billion over ten years (with the typical fantasy-world "static analysis" budget assumptions) into a huge $2 trillion budget-buster. He vetoes it to protect the surplus, he says, not disavowing any correspondingly large government program. Never mind that this tax cut, when scored by less partisan sources, would consume less than 11 percent of the projected $4.56 trillion surplus in coming years.

Al GoreAl Gore for his part takes up a relentless assault on George W. Bush's "risky tax scheme" that involves relatively modest tax cuts, including lowering marginal rates across the board and cutting the lowest marginal rate to 10 percent. Gore insists we - meaning the government – cannot afford such tax cuts. In the same breath, he proposes 35 new federal programs that Bruce Bartlett of the National Center for Policy Analysis estimates will cost $2 trillion over the next ten years. Most other estimates run in excess of $1 trillion.

The criterion by which "affordability" and "responsibility" is assessed is not how much money remains in family's budgets to spend on their needs, but by how much money remains available for the federal budget to be spent on what liberals tell you that you need. To whatever extent tax cuts may be tolerated, they must be small (read "fully funded"), targeted (given out only to those engaging in politically favored behavior) and refundable (tied to subsidies for those who pay no taxes at all). True fiscal responsibility involves making sure that the government performs its legitimate functions as efficiently as possible and at a minimum of cost to the taxpayer. Saving taxpayers money, by eliminating programs and making the essential programs more cost-effective, should be the lodestar.

Insisting that all, or even a majority of a budget surplus that could eventually grow to be as large as $5 trillion remain in the hands of politicians and bureaucrats rather than families and businesses is the antithesis of responsibility. It is rather an invitation for waste, crass abuses of federal power and growth of government at the expense of the institutions that really matter in life.

Why should the American people pay more in taxes than is needed to pay for even this bloated federal government? What is the maximum percentage of income Americans can retain for their own needs and desires while still paying for the things which truly are collective obligations? How can we get the most performance out of government in areas that are legitimate objects of public concern for the least expenditure? Why can't Congress cut spending to the level that the taxpayers can afford, rather than the other way around?

These are the real questions asked by someone concerned with fiscal discipline. They are not the questions being asked now by those who oppose every tax cut but refuse to challenge current spending practices and priorities with equal vigor. The American people have a right to their income and the burden of proof should always be on those advocating more money and power for government. To accept anything less is the height of irresponsibility.

W. James Antle III is a senior writer for Enter Stage Right and can be reached at wjantle@enterstageright.com.

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