The Triumph of Taxophobia
First Principles: Arguing the Economy
The conservative movement’s embrace of taxophobia is probably the most important development in American political life over the last three decades. It is the one quality that most distinguishes American conservative elites from conservative elites in other countries. They’re more likely to question climate science, more sanguine about people dying for lack of health insurance, and less xenophobic (which is rather nice). But above all—far above all—they hate taxes.
Taxophobia has spawned an epistemology of its own and has completely reshaped the landscape of American politics. It more than anything else has driven the widely decried rise in partisan conflict. More profoundly, conservative taxophobia has redefined the terms of the political debate. Two generations ago, economic liberalism meant Keynesian deficit spending and a rapidly expanding welfare state with little concern for deficits. Fiscal conservatism meant opposition to deficits and inflation. Today, the old fiscal conservatism has been embraced by the mainstream of the Democratic Party. The old fiscal liberalism has been confined to the margins, espoused by left-wing dissidents to the Democratic mainstream. And the Republican Party inhabits an otherworldly new realm that even the staunchest right-wingers of a generation before could scarcely have imagined. As the two parties trade power back and forth, the ideological basis for economic policy pingpongs between the old right and a loopy kind of far-right. Periods of Republican governance have grown increasingly disastrous, while periods of Democratic governance are largely consumed with staving off fiscal collapse.
How did this happen? All conservatives, and many liberals, explain this transformation as the story of the rise of a new idea. But I don’t think that’s right. As I will explain, ideas only serve to rationalize political and economic self-interest. However, the story does begin with a new idea.
The Birth of a Notion
In the mid-1970s, the new doctrine of supply-side economics suddenly emerged on the right. The doctrine took what had been a marginal notion within the economics profession—the idea that higher tax rates can dampen the incentive to work and innovate—and elevated it to something close to a religion. The supply-side creed held that tax rates, especially on the rich, had enormous effects on economic growth. It was even possible, the supply-siders famously promised, that tax cuts could unleash so much economic growth that the net effect would increase tax revenue.
Jude Wanniski, a Wall Street Journal editorial writer who did more than anybody else to formulate and spread the new doctrine, spoke of the new creed in quasi-religious terms, as did many of his adherents. “It was Jude who introduced me to Jack Kemp, a young congressman and recent convert,” recalled Irving Kristol, who helped spread the gospel of supply-side economics. “It was Jack Kemp who, almost single-handed, converted Ronald Reagan.”
We can identify three phases of supply-side craziness in Republican Party history. In phase one, the Republican establishment greeted supply-side economics with incredulity. The messianism and insouciant disregard for sound fiscal principles sounded more like a nutty left-wing scheme than anything a Dwight Eisenhower or even a Barry Goldwater might recognize. George H.W. Bush called it “voodoo economics.” A great blaze of tax cutting at the outset of the Reagan presidency quickly produced massive deficits, and the Reagan Administration—still dominated by an older generation of Republicans—quickly retrenched. It quietly raised taxes in 1982 and 1983, and then in 1986—aghast at the massive corporate tax loopholes that had grown out of its initial tax cuts—agreed to a tax reform that, even in the course of lowering nominal rates, shifted a larger share of the tax burden onto the rich by sweeping the tax code of subsidies for the wealthy.
Through the next decade, in phase two, the Republican Party stayed committed to anti-tax absolutism in rhetoric, but it remained largely tethered to fiscal reality in practice. In 1990, George H.W. Bush agreed to a major deficit-reduction package, including substantial spending cuts, in return for a small hike in the top marginal income tax rate, from 28 to 31 percent.
This turned out to be the last gasp of old-fashioned Republican fiscal conservatism. Conservatives in the House, led by Newt Gingrich, revolted, and Republicans wound up opposing their own president’s budget deal by a 163-10 margin (it passed thanks to overwhelming Democratic support). They called the deal “the fiscal equivalent of Yalta.” Bush was a traitor; his budget director, Richard Darman, became “the party’s untouchable,” as one reporter later put it. Conservatives decided never to allow such heresy again, and indeed they never have.
Which brings us to phase three. Over the last 20 years, the penetration of taxophobia within the Republican Party has been total. Reducing taxes, especially taxes on the rich, has been enshrined as the party’s unquestioned central policy goal. Virtually all Republicans at the national level have signed a pledge concocted by anti-tax fanatic Grover Norquist pledging never, under any circumstances, to support higher taxes. No such pledge exists for spending.
In 1996, Bob Dole, who had once spoken contemptuously of the supply-siders, picked Kemp himself as his running mate and made a tax cut the centerpiece of his campaign. The George W. Bush Administration poured every ounce of its political capital into reducing taxes, which it did in 2001 and 2003. In 2008, every Republican presidential candidate asserted (wrongly) that the Bush tax cuts increased tax revenue. Upon taking control of the House this year, Republicans immediately dismantled a rule, first imposed as part of the 1990 deficit deal, requiring that any entitlement increase or tax cut be matched by tax hikes or entitlement cuts. The rule had been effective at restraining spending—but it got in the way of tax cuts.
Discredited, but Immortal
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