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GOP borrowing paves the way for Democrat tax hikes
By W. James Antle III
It is a poor way for any Republican-controlled Congress to conclude and a bad portent for the next one, but the lame-duck session voted last week to raise the national debt ceiling by $800 billion to $8.2 trillion. And once again, President Bush signed this new credit line for the Capitol Hill spendthrifts into law.
Some context is required here. Failure to raise the national debt ceiling by this amount would have caused the federal government to default for the first time in history. This ceiling has been raised many times, almost eighty just since 1964. Obviously, registering a symbolic protest against profligacy by failing to act would have been irresponsible. But the larger irresponsibility is the massive spending and borrowing that made yet another increase in the public debt limit necessary in the first place.
As members of Congress debated this change, many conventionally liberal Democrats got to pose as traditional fiscal conservatives. "I think there must be some spiritual immorality," said Rep. Charles Rangel (D-NY), "for children who are yet unborn to come into this world with a debt on their shoulders that their parents have no idea as to how it was accumulated." This prompted the libertarian columnist Anthony Gregory to post the following over at the LewRockwell.com blog: "Isn't it great to have Republicans in power? We get to hear the likes of Rangel sound like voices of reason."
Yes, Rangel and many other Democrats like him are simply being opportunistic. They had no problem with voting to raise the debt ceiling during Democratic administrations. The debt and deficits created by their favorite spending programs do not trouble them in the least. They only break out the green eyeshades when debt and deficits coincide with tax cuts signed into law by Republican presidents. But the sentiment expressed by Gregory is understandable and likely to become more widely shared over time.
Republicans seem by and large to have given up any serious commitment to restrain the growth of federal spending, much less abolish ineffective or unconstitutional federal programs. If the past four years is to be any guide, neither the White House nor the GOP congressional majority will resist public demands for further benefits from Washington. The best economic conservatives and libertarians can hope for is that we will avoid higher taxes.
The economic impact of deficits can be overstated. Even when they hit the hundreds of billions of dollars, which is where the budget deficit stands now, they still represent a relatively small percentage of the economy. All other things being equal, deficits crowd out private savings and investment, drive up interest rates and influence the value of the dollar. But it's often the case that all other things are not equal and whatever actual effects the deficit has on any of these things is drowned out by numerous other factors. Moreover, just because this kind of borrowing ought to be avoided in principle doesn't mean that other alternative financing methods (such as counterproductive tax policy changes) might not be worse in practice.
But that doesn't mean that deficits can go on forever or without regard to other fiscal and economic conditions, especially when that means borrowing to finance today's consumption. And Republicans cannot continue to peddle an economic conservatism worth the name that corrupts supply-side theory into a policy of tax cuts for current voters at the expense of higher taxes for their children and grandchildren.
In the post-Reagan era, when marginal tax rates are no longer high enough for the welfare state to strangle all growth in the private-sector economy that pays for it, chronic deficits eventually create political conditions for higher taxes. If neither party will cut spending and only one is opposed to raising taxes, when the public tires of the rising debt -- either for sound economic reasons or due to their personal value judgments on indebtedness -- it is the opposition to tax increases that is likely to give. Recent political history amply proves this point.
Both parties favor big government, but the Democrats can reposition themselves as fiscal conservatives by being the party willing to pay for it. It would be a faux fiscal conservatism (a socialist government, for example, does not become less so simply because it balances it budgets). But if the GOP remains the party of borrow-and-spend, the Robert Rubin Democrats can preach a fiscal policy that soothes the bond markets and can be sold in language more compatible with middle-class values.
Eventually the stealth tax increases and efforts to raise marginal rates on the "richest 1 percent" will prove insufficient and taxes will rise to levels that noticeably harm the economy. But by that time the damage may already have been done and the U.S. may be well on the road to European-style welfarism.
President Bush has cut taxes four times in as many years, a pro-growth achievement for which he deserves credit from real fiscal conservatives. But if he and his fellow Republicans don't control their borrowing and spending, taxes may reverse their descent and begin to creep back up toward their pre-Reagan levels.
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