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Tax increases coming?

Bruce Bartlett has an interesting perspective at National Review Online on when and how the next round of tax increases will be foisted on the American public. First, he reviews the legacy of that famous tax-cutting President, Ronald Reagan.

The year 1988 appears to be the only year of the Reagan presidency, other than the first, in which taxes were not raised legislatively. Of course, previous tax increases remained in effect. According to a table in the 1990 budget, the net effect of all these tax increases was to raise taxes by $164 billion in 1992, or 2.6 percent of GDP. This is equivalent to almost $300 billion in today’s economy.

Then, he looks at how past tax increases have been foisted on the US.

But when all the political and economic elites of this country gang up on a president to raise taxes, history shows that they always get what they want. Indeed, they were even able to get Bush’s father to raise taxes in 1990, even though his political advisers knew that it would likely lead to his defeat in 1992, which it did.

How do the elites break down presidential resistance to tax increases? They do so by promising the moon. Tax increases, they say, will lead to huge reductions in interest rates, which will power economic growth and reduce unemployment. The rich only pay them anyway, which makes the president look like a populist. And tax increases are the price that must be paid to get spending cuts.

This last point is especially laughable.

Actually, all the points are laughable, but the last one is the worst. Giving someone who is overspending a big raise is the best way to cut back on their spending, right? How dumb do they think we voters are?

Pretty dumb, obviously. Too bad the voters as a class don’t do anything to prove them wrong, like voting the duplicitous bastards out.

The article ends by noting that:

It will be interesting to see how Bush reacts when his staff tells him that taxes need to be raised.

Very interesting indeed. President Bush has shown no spine whatsoever on domestic issues, with the sole exception of his tax cut. I will predict that he stood up for his tax cut because his father lost his reelection bid due to a tax increase. After next year’s election, when he is in his final term (assuming he wins), I don’t see any reason to believe that President Bush will resist the pressure for a tax increase.

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18 comments to Tax increases coming?

  • Alfred E. Neuman

    I thought he rammed the tax cuts through for 10 years minimum, or some kind of phasing over 10 years. Am I wrong?

    Related to the “second term” thing, I wonder about his actions in other arenas if he does win re-election. Just like he won’t have to worry about re-election and might raise taxes, I wonder if he might use his second term to do other things–and not just things unpopular with the people, but with the other politicos. Things like:

    1) Firing George Tenet; 2) Cleaning house bigtime at State; 3) Cleaning house at the FBI and Immigration; 4) Being more dismissive of the UN.

    Knowing what he’s done so far, it may be interesting to see. Except for on the domestic front, because I agree with you, R.C.; small-government Dubya is not.

  • Let’s assume for a moment that the US economy comes together and the current uptick in Baathist resistance is their version of Tet, military suicide depending on the US media to come through for them. Let’s further assume that Iraqi Tet fails and by fall 2004 we have a good boom going, tax revenues are pouring in, unemployment is dropping, and imminent Iraqi elections along with troop reductions as security improves in Iraq.

    The electoral result is predictable, a landslide for GWB and a heavy tilt towards the Republicans in both houses of Congress. But what will he do with his new majorities? There is a good deal of work left to do on his original campaign pledges. Sadly, they’re likely to create strong pressure for tax increases. On the bright side, this may not be quite as bad as usual.

    The great challenge that GWB promised to resolve in 2000 that has not been addressed due to too few Republicans in the Senate is Social Security private accounts. Private accounts, unfortunately, require extensive transition costs as income into the public portion of the system drops as fewer funds are diverted to pay for other people’s retirements thus requiring a rise in general taxation to keep current promises.

    Social Security has the potential to become a statist bomb, blowing up the private economy. Defusing it safely is an important issue and will likely cause great pressure for a tax increase, at least until the current crop of retirees pass away and the private account generations start to predominate.

    Would the libertarian good of getting rid of the central New Deal program of Social Security and replacing it with a superior more libertarian friendly private account paradigm be worth a tax hike? The devil’s in the details but I can see how it could break down either way.

  • You guys are way too hard on Bush.

    Bush spent enormous political capital on his second tax cut. It was very unpopular in the polls. The Bush Administration did it because it sincerely believed that tax cuts are smart economic policy. Ultimately, the economy is what matters, and Bush is not going to do anything that imperils economic growth. Even a leftist like Gerhard Schroeder understands that ultimately free markets make for strong economies.

    Anyway, getting back to Bush, he has done more than cut taxes. He has campaigned very aggressively for tort reform, which is becoming a *huge* burden on American businesses. In the Senate, a tort reform bill came up *one vote* short of the 60 needed to stop a Democrat filibuster.

    Bush has nominated a slew of judges whom many libertarians might not like because of their social inclinations. But they are much more friendly to free markets than liberal judges. Unfortunately, the Senate has become a graveyard for judicial appointments as well.

    Bush has finally completed the banning of partial-birth abortion.

    Bush is not perfect. Yes, he has presided over a fattening of the education budget, the DoLabor budget, farm subsidies, and steel tariffs. However, he is still the most pro-free-market president in modern American history. Even Reagan had largely negated the impact of his first tax cut because of his slew of tax increases later, and government spending was significantly higher at the end of Reagan’s tenure than at the beginning.

    Bush is pretty much the best we are going to get. Once the Republicans get a hammerlock on Congress in 2004 (I am guessing a 55-45 Senate and 240-195 House), they will be able to defuse Social Security with the least possible collateral damage, probably cut corporate taxes (if not replace the entire US tax code), appoint pro-business and pro-life judges, and reform the tort system. Will they cut the size of government? Probably not. However, they are still vastly preferable to the Democrats, even for libertarians.

  • Also, some conservatives are peeved because of the budget deficit. I, however, am perfectly happy with the budget deficit as is, because it will “force” the Republicans to pull out all the stops in the name of fighting the deficit, which means we will get some spending cuts along with tax increases. The “starve the Beast” theory could end up fulfilling small-government ends as well as electing Republicans to office on a “compassionate” platform, even if it is a tad duplicitous.

  • As much as I’ve heard this ‘starve the beast’ theory lately, I must say I’m extremely dubious that any such scheme would actually work. More like the additional spending commitments will force pandering legislators to drum up new revenue sources to pay for those programs, since it would be really unpopular, and hurt their poll numbers to actually CUT some spending. And the current ‘republicans’ seem no more inclined to stop the giant bleeding of cash out of Washington than anyone else has been.

    You can go on convincing yourself that this is some sort of ‘clever plan to make government collapse on itself’, but I think it’s more likely to be what it looks like: A government full of pander-bears.

  • Sandy P.

    W learned from his father.

    As to huge reductions in interest rates? We’re back at 6%. Not bad, considering my parents bot their house in 1968 and their rate was around 5 3/4. I just got a “mortgage” for 4.74%.

    Housing purchases were huge in September. Not new housing, but previously owned.

    Besides, tax collecting will be up in 2004 and 05, the economy’s starting to move again. More people working, spending, trading, revenues up.

  • democracys

    Heh. You people.

    No, you are not going to be able to “starve the beast” because you are talking about the lifeblood of the American people, here.

    When the American people find out what you people are really up to, it’s not gonna go so well for y’all. ‘Cause the American people are not going to give up Social Security (or, same thing, Enronize, er, privatize it.) Same for Medicare — people are not going to put Granny on the ice even if she IS no longer cost-effective in a market sense.

    All you’re going to end up with, if you keep raiding the treasury with the huge tax cuts (overwhelmingly for the very rich), is Argentina. Then what?

    (BTW, I never could understand why the rich are so against Social Security, anyway. After all, it’s funded in a pretty regressive manner (I mean that in a technical, not pejorative sense.) And it doesn’t really encourage indolence, unless you consider retiring at 65 as indolent.)

  • Bush is not going to do anything that imperils economic growth.

    &

    Yes, he has presided over a fattening of the education budget, the DoLabor budget, farm subsidies, and steel tariffs.

    Mr. Forshaw, those things you mention in the second quote do imperil economic growth, particularly the tariffs and the farm bill.

    Bush, in my opinion, has been too flakey on the big issues (the above) and too quiet on the smaller issues (such as increased privitization of government functions, regulation tweaking, etc.)

  • Johan

    Let’s look at the facts:

    Federal income tax levels have been cut by Bush, to its lowest nominal levels in decades.

    Despite all the brohaha about Bush increasing government spending, federal spending is now less than 30% of GDP. That’s less than it was 1995, less than in 1985, less than in 1975. All this despite fighting a World War against terrroism and Sept 11, which both caused huge pressure on the treasury.

    Yet, interest levels remain low, inflation low, all while GDP growth is surging.

    Compare that to the CLOWNS who are running for the Democrats. Not only will they repeal the Bush tax cut (essensially a huge tax increase), the proposed healthcare reform by Dean and others will cost US taxpayers TRILLIONS.

    I think Bush has been one of the best US presidents on domestic agenda in several generations. (All while being superb on foreign policy).

    I consider myself an Ayn Rand/Hayek/Von Mises Libertarian, but on election day 2004 I am a REPUBLICAN.

  • It is astonishing to see how Bush gets a free ride from so many people. At best he is the lesser evil given the dismal choices on offer at the time.

    Sure, the tax cut was a move in the right direction, but he is also expanding the remit of state in other directions faster than Clinton ever did, he has done little or nothing about gross and widespread abuses like RICO, eminent domain or trial-less forfeiture… in short he is a civil liberties disaster and to call the man who put tariffs on steel and lumber a ‘free trade president’ is laughable.

  • Ken

    “Despite all the brohaha about Bush increasing government spending, federal spending is now less than 30% of GDP. That’s less than it was 1995, less than in 1985, less than in 1975. All this despite fighting a World War against terrroism and Sept 11, which both caused huge pressure on the treasury.”

    But it doesn’t make sense to measure it as a percent of GDP and then saying that Federal spending is now “less”.

    GDP has been increasing all that time. So has Federal spending.

    Not only that, but he’s not had much to say on an even more important issue, regulation.

    Tax cuts are nice (they’d be nicer if they were matched with spending cuts, so we could have some chance of taxes not being jacked up to pay the debt incurred). But the regulatory environment is what makes the real difference. The tech boom was made possible by an unusually light regulatory burden. When the Indians own that market, we’d better have something to replace it – and that means that the rest of our economy needs to be just as lightly regulated so that something else can grow the way IT did and take its place in our economy, keep us all busy, and make us wealthier.

    “The great challenge that GWB promised to resolve in 2000 that has not been addressed due to too few Republicans in the Senate is Social Security private accounts. Private accounts, unfortunately, require extensive transition costs as income into the public portion of the system drops as fewer funds are diverted to pay for other people’s retirements thus requiring a rise in general taxation to keep current promises. ”

    First of all, he is backing an expansion of Medicare, not any sort of reduction or cut anywhere in the retirement system.

    Second, a “private accounts” system would be worse than Social Security! The government gets to choose which investments are permissible from your private account; that gives them enormous leverage over every single enterprise that is, or might become, part of the list of approved investments.

    The only real solution is to take the funds that Bush would put into private accounts and simply stop collecting it in the first place. Reduce the FICA rate, and let individuals have the unquestioned right to dispose of that money as they see fit.

  • toolkien

    After next year’s election, when he is in his final term (assuming he wins), I don’t see any reason to believe that President Bush will resist the pressure for a tax increase.

    Bush is following the Big Government Conservative line no doubt in my mind (the pragmatic side of me can see that perhaps the ghost needs to be given up and that to fight Big Government Liberals at their own game you’ve got to use their tactics on the same field, but I get the sense they are enjoying a bit too much). In a sense he is very much like his father as I remember thinking at the time that Bush I was too liberal for conservatives to back (or at least turn out in droves at the polls, and Big Ears Perot didn’t help either), but too conservative overall for liberals to endorse (they weren’t going to be suckered in by a ‘thousand points of light B.S.), he made himself a man without a country. Bush II has increased the Federal Department of Education, but if he thinks the left leaning Education Industry is going to back him one iota more he’s dreaming. He also supports adding trillions of his own for the Drug Entitlement, but if thinks the Elderly Victim Industry is going to dramatically turn Repub he is also dreaming. Meanwhile the generation that is going to have the bear the burden of the intergenerational ponzi scheme sees the burden get heavier by the day.

  • Ken – The private accounts haven’t even been passed, the regulations haven’t been announced, and already you’re *sure* that the restrictions will be worse than the originals. Right now, SS is a timebomb that is unsustainable and will end up creating havoc in the society. EU style pensions are similarly threatening for those countries. I don’t view the Bush plan as a final solution to the problem anymore than training wheels are a final solution to the problem of riding a bicycle. But what they are is a step forward beyond the attitude that the state will provide. A future president will win election on the promise to stop the charade of government restrictions but first we’ve got to get to the halfway house of private accounts.

    As for the medicare expansion, I view it as pragmatic. The truth is that pills cost less than the existing alternatives and provide superior results. If we’re going to have a state program at all, it should be to provide the cheapest solution to the problem, especially when the cheaper solution also produces better results. It’s just perverse to incentivize the provision of poorer care that costs more.

    The real issue isn’t in providing the new benefit. It’s in not reducing the expenditure of care on the old methods that the drugs will replace.

  • And which taxes would he most likely raise ?

    Given the headline quarterly GDP growth number this morning, arguing these tax cuts for “the rich” can’t do anything for growth might not sound so smart in the short term.

    Claiming all problems can be solved with a tax increase, which is effectively the Democrats’ argument, doesn’t convince the average voter anymore than telling them tax cuts can solve everything.

    I think his father’s painful example is a disincentive we should not underestimate. If Iraq is any indication, this is the man who has learned from his father’s mistakes.

  • spannerman

    democracys, oh jesus… your liberal buddies in both parties tax the crap out of ordinary guys so that we in no position to make the decisions *we* might want for *our* bucks for how we spend on food and kids and movies and healthcare and housing and pensions, you take those choices and make them political not personal, and then you have the balls to talk about ‘the lifeblood of the american people’. you are a frigging vampire! the reason i am on a state pension is people like you left me with many fewer options myself where the fruits of my labors should go. you take my money for 51 working years and i wonder if you realise how much i hate you bleeding hearts everytime you give a little back to me? it was never yours to take from the get go.

  • toolkien

    As for the medicare expansion, I view it as pragmatic. The truth is that pills cost less than the existing alternatives and provide superior results. If we’re going to have a state program at all, it should be to provide the cheapest solution to the problem, especially when the cheaper solution also produces better results. It’s just perverse to incentivize the provision of poorer care that costs more.

    The real issue isn’t in providing the new benefit. It’s in not reducing the expenditure of care on the old methods that the drugs will replace.

    Ultimately famoust last words for expansion of the Welfare State. “All we need is this next addition” and it will ‘streamline’ and ‘make more efficient’ etc etc yet all there ever is is a net increase. Keeping people alive longer will always ultimately create a new set of issues. Give someone a pill to stabilize their heart, ten years later they’re going to have to get a hip-replaced (unless they come up with a pill that regenerates hips). For every ying there is a yang, and the likelihood will always be there that we will all end up on a bed gasping out last breath (presumably on the government dime) regardless of the number of pills we took beforehand. The idea is to get the provision of services out of the hands of the State so that individuals can provide for themselves the care they need, not simply replacing one form for another. The only savings would be if such pill entitlement will drastically increase the number of people passing away blissfully in their sleep. To me it is not likely. With the drug entitlement it will simply add more intermediate costs between one costly, life threatening situation and another, saving little.

  • Ken

    “Ken – The private accounts haven’t even been passed, the regulations haven’t been announced, and already you’re *sure* that the restrictions will be worse than the originals. Right now, SS is a timebomb that is unsustainable and will end up creating havoc in the society. EU style pensions are similarly threatening for those countries. I don’t view the Bush plan as a final solution to the problem anymore than training wheels are a final solution to the problem of riding a bicycle. But what they are is a step forward beyond the attitude that the state will provide. A future president will win election on the promise to stop the charade of government restrictions but first we’ve got to get to the halfway house of private accounts. ”

    Remember, just because it says “privatization” or “deregulation” on the label doesn’t mean that we should swallow it without taking a long hard look at it.

    Remember the electricity “deregulation” in California? Not only didn’t it work, but it gave the enemies of liberty an excuse to claim that the private sector is untrustworthy. We don’t need that kind of “progress”.

    I still say that giving government the power to add and subtract companies from the “allowed investment” list for everyone in the country is more dangerous than just taking the money and giving it to old people.

    “As for the medicare expansion, I view it as pragmatic. The truth is that pills cost less than the existing alternatives and provide superior results.”

    Even it’s supporters are admitting that it will cost $400 billion over 10 years. That’s cost, as in we’ll be spending more money, not saving it.

    And, of course, their estimate is almost certainly too low.

  • Don’t think democracy realizes the accounting situation of the Social Security system makes Enron’s books look balanced.