Wednesday, 1 September 2004

The Domestic Agenda

As I expected on the first night it’s been all 9/11-Iraq all-the-time at the RNC with nary a mention in the main speeches about the economy and domestic policy. This is obviously a good strategy for the Republicans as there is not much good to talk about at home. Frankly there’s not much good to talk about abroad either but it’s easier to lie about the war on “terror” or “terrorism” or whatever it’s called now.

The Republicans do indeed have a domestic agenda that the President mentioned with a new phrase, “Ownership Society.” . . . From the article The Tax Code by John Cassidy:
The President’s ownership initiative hasn’t featured prominently in the media coverage of the campaign, which, strictly from a news perspective, is understandable: he hasn’t announced many specific proposals to back up his talk. But in downplaying the Bush Administration’s economic agenda the media is missing one of the biggest domestic stories of the 2004 campaign. When the President pledges to create an “era of ownership,” he is not talking merely about encouraging people to buy their own homes and start small businesses. To conservative Republicans who understand his coded language, he is also talking about extending and expanding the tax cuts he introduced in his first term; he is talking about allowing wealthy Americans to shelter much of their income from the I.R.S.; about using the tax code to curtail the government’s role in health care and retirement saving; and, ultimately, about a vision that has entranced but eluded conservatives for decades: the abolition of the graduated income tax and its replacement with a levy that is simpler, flatter, and more favorable to rich people.

Work on achieving this ambitious program began with the tax cuts that Congress passed in 2001, 2002, and 2003, but the conservative economists who advise Bush and the right-wing institutes that support him have more in mind than consolidating their gains. Despite a gaping budget deficit, they are pressing the President to continue down a route that will reverse almost a century of American history. Since the personal income tax was introduced, in 1913, it has been based on two principles: the burden of taxation is distributed according to the ability to pay; and capital and labor carry their fair share. The Bush Administration appears set on undermining both of these principles

Rather than coming right out for a flat tax, the Harvard economists tend to use the less politically charged term “consumption tax.” Flat taxes and consumption taxes are closely related: both exempt saving and tax spending. Theoretically, it is possible to set up a progressive consumption tax, but most conservative economists favor a single rate set as low as possible; i.e. a flat tax. Such a system would penalize middle-class people, who spend nearly all the money they earn; a fact Hall and Rabushka, the originators of the flat tax, were straightforward about. In 1983, they wrote that a flat tax “would be a tremendous boon to the economic elite,” adding that “it is an obvious mathematical law that lower taxes on the successful will have to be made up by higher taxes on average people.”

All this is familiar from the Reagan Supply Side era. Note that you never hear the phrase “Supply Side” since it is now loaded with negative connotations. But the similarities are striking and I wrote about the Reagan supply policies in 1989 for the final paper for my Economics Minor at Colgate, The Reagan Plan in Retrospect: Supply-Side Assumptions vs. Economic Realities (3.3MB PDF).
It is reasonable to ask why the United States deviated so wildly from its economic path. Was it a true faith in the theoretical underpinnings of supply-side economics? Or…was supply-side theory used as rhetoric designed to dupe the American people into accepting a decreased government structure by causing massive budget deficits? One way or the other the results are now in.

The supply-side expectations of a tax cut which were described at the beginning of this paper turned out to be far from true. Personal savings decreased and labor supply did not add enough to the tax base to control a monumental government deficit.

. . . No one disputes that making our country safer from terrorist threats is important. But it’s not the only issue. What it is doing is providing a convenient screen while the radical branch of the Republican Party sets out to have the middle class pay for all government services.

No comments: