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A Time to Tax
April 15, a day that each year lives in infamy for taxpayers, is approaching, and it is especially noteworthy this year. Democrats in the House and Senate passed a budget resolution calling for the largest tax increase in United States history by phasing out the tax cuts passed in 2001 and 2003. This tax increase raises taxes on every single tax payer, with additional rate increases on businesses, capital investment, dividends, families with children, and even marriage, via the return of the so-called "marriage penalty". Own a business that creates jobs? Pay more taxes. Invest in capital? Pay more taxes if the investment pays off. Invest for a more comfortable retirement? Pay more taxes. Get married? Pay more taxes. Have children? You get the idea...
This monumental increase in government-sponsored confiscation of personal and business income and investment gains comes at a time when the economy is teetering on the brink of recession; 4th quarter 2007 growth was a paltry 0.5%, and many think that 1st quarter 2008 growth could be negative: two consecutive quarters of negative growth equals a recession. I know of no economic theory or economist who believes in raising taxes during a recession or to prevent a recession.
Ironically, in criticizing the economic policy of the Bush presidency, New York Senator Charles Shumer compared Bush to Herbert Hoover, the failed president on whose watch the recession that would become the Great Depression began. While he had no control over the Federal Reserve, which maintained tight credit during the bank run (to be contrasted with the current Fed's expansion of credit during the present credit crunch), President Hoover's approach to the economic mailaise was to raise taxes and sign the Smoot-Hawley Tariff Act — essentially another tax increase in the form of a stiff tariff on imported goods. The resulting trade war (other countries retaliated by raising tariffs on American goods) struck the mortal blow in the economy, helping turn a recession into the Great Depression (with assistance, of course, from wage and price controls imposed by the subsequent Roosevelt Administration's New Deal). The irony in Sen. Shumer's comparison is that it is he who advocates raising taxes and who sponsored a bill that would slap a huge tariff on imported goods from China. Senators Clinton and Obama have also taken the Hooverian stance on trade, threatening moratoria on trade deals and even threatening to renegotiate President Bill Clinton's NAFTA deal. "Hoovernomics" is alive and well, but not in the policies of President Bush.
With both Democratic presidential candidates running on the platform of tax increases, I thought it might be interesting to survey the success of previous campaigns based on increasing taxes or opposing tax cuts. In 1960, Democrat John F. Kennedy ran on the side of tax cuts that were opposed by Richard Nixon. Kennedy won, as we all know. In 1964, Democrat Lyndon Johnson ran on successfully enacting the Kennedy tax cuts and overwhelmed Barry Goldwater, who was more inclined to emphasize budget balancing over tax reduction. But in his first full term, Johnson raised taxes to pay for the Vietnam War, helping lead to a Richard Nixon victory in 1968, with a successful re-election against tax increase-advocate George McGovern in 1972.
As there was little difference between the tax policy of Ford and Carter in 1976, fast-forward to 1980, where a central plank was Ronald Reagan's plan to cut income tax rates (the top rate at that time was still 70%). In 1984, the central plank of Walter Mondale's campaign was a tax increase. Reagan won landslide victories in both races. In 1992, Republican George Bush had a problem: he had broken his "no new taxes" pledge, while Democrat Bill Clinton was advocating a middle class tax cut. Clinton cruised to victory, and while he raised taxes early in his term (helping the Republicans take control of Congress for the first time in 40 years), he ended up cutting taxes on families with children, negotiating free trade deals (thus cutting taxes on imports), and cutting the capital gains tax. Then of course George W. Bush, perhaps learning from his father's taxing mistake, won in 2000 and 2004 with tax cuts as the center of his economic message.
So in the past 40 years, when Americans have had a clear choice between a tax cutter for President and a tax raiser, they have chosen the tax cutter each time. Obviously the elections were much more complicated and not decided on the single issue of taxation, but Democrats might do well to learn the lessons of history, lest they be doomed to repeat it. They might also listen to their own criticism and take it to heart: the policies of Herbert Hoover are certainly not what we need.
This monumental increase in government-sponsored confiscation of personal and business income and investment gains comes at a time when the economy is teetering on the brink of recession; 4th quarter 2007 growth was a paltry 0.5%, and many think that 1st quarter 2008 growth could be negative: two consecutive quarters of negative growth equals a recession. I know of no economic theory or economist who believes in raising taxes during a recession or to prevent a recession.
Ironically, in criticizing the economic policy of the Bush presidency, New York Senator Charles Shumer compared Bush to Herbert Hoover, the failed president on whose watch the recession that would become the Great Depression began. While he had no control over the Federal Reserve, which maintained tight credit during the bank run (to be contrasted with the current Fed's expansion of credit during the present credit crunch), President Hoover's approach to the economic mailaise was to raise taxes and sign the Smoot-Hawley Tariff Act — essentially another tax increase in the form of a stiff tariff on imported goods. The resulting trade war (other countries retaliated by raising tariffs on American goods) struck the mortal blow in the economy, helping turn a recession into the Great Depression (with assistance, of course, from wage and price controls imposed by the subsequent Roosevelt Administration's New Deal). The irony in Sen. Shumer's comparison is that it is he who advocates raising taxes and who sponsored a bill that would slap a huge tariff on imported goods from China. Senators Clinton and Obama have also taken the Hooverian stance on trade, threatening moratoria on trade deals and even threatening to renegotiate President Bill Clinton's NAFTA deal. "Hoovernomics" is alive and well, but not in the policies of President Bush.
With both Democratic presidential candidates running on the platform of tax increases, I thought it might be interesting to survey the success of previous campaigns based on increasing taxes or opposing tax cuts. In 1960, Democrat John F. Kennedy ran on the side of tax cuts that were opposed by Richard Nixon. Kennedy won, as we all know. In 1964, Democrat Lyndon Johnson ran on successfully enacting the Kennedy tax cuts and overwhelmed Barry Goldwater, who was more inclined to emphasize budget balancing over tax reduction. But in his first full term, Johnson raised taxes to pay for the Vietnam War, helping lead to a Richard Nixon victory in 1968, with a successful re-election against tax increase-advocate George McGovern in 1972.
As there was little difference between the tax policy of Ford and Carter in 1976, fast-forward to 1980, where a central plank was Ronald Reagan's plan to cut income tax rates (the top rate at that time was still 70%). In 1984, the central plank of Walter Mondale's campaign was a tax increase. Reagan won landslide victories in both races. In 1992, Republican George Bush had a problem: he had broken his "no new taxes" pledge, while Democrat Bill Clinton was advocating a middle class tax cut. Clinton cruised to victory, and while he raised taxes early in his term (helping the Republicans take control of Congress for the first time in 40 years), he ended up cutting taxes on families with children, negotiating free trade deals (thus cutting taxes on imports), and cutting the capital gains tax. Then of course George W. Bush, perhaps learning from his father's taxing mistake, won in 2000 and 2004 with tax cuts as the center of his economic message.
So in the past 40 years, when Americans have had a clear choice between a tax cutter for President and a tax raiser, they have chosen the tax cutter each time. Obviously the elections were much more complicated and not decided on the single issue of taxation, but Democrats might do well to learn the lessons of history, lest they be doomed to repeat it. They might also listen to their own criticism and take it to heart: the policies of Herbert Hoover are certainly not what we need.
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