The Primacy of Tax Cuts

William Kristol is the Chairman of the Board of Directors for Project for the Republican Future
and a member of the Board of Directors for the John M. Ashbrook Center for Public Affairs. His
memos are made available to us here at the Ashbrook Center on a regular basis, and the memo
presented here is his latest, sent to the Republican leadership. We think our readers will find this
memo informative reading with the debate on tax reform that has been occurring in Washington over
the past few weeks.

"We should view the tax cuts as a dividend for reducing the deficit. I don’t know of any
company that gives out dividends before they earn the money to pay them." Rep. Glen
Browder (D-AL), quoted in The Washington Times, March 25, 1995

"We
look silly to the American people giving away money we don’t have." Rep. Ray LaHood
(R-IL), quoted in The Wall Street Journal, March 22, 1995

Should the
American people, and the companies they own and work for, get a tax cut this year? Rep. Glen
Browder’s answer (above) is more than a little incoherent, of course. He seems to suggest that
because government is a business, a positive balance sheet is its supreme goal, and its employee-shareholders (that’s us) must therefore continue making wage and dividend concessions until
revenues from customers (that’s us, too) exceed operating costs. Don’t bother thinking about this
"idea" too hard; it doesn’t make much sense. But it does identify Mr. Browder as a
Democrat. Democrats are supposed to believe that taxpayers exist to serve government, not the other
way around, and that the privilege of earning and keeping money is a grant from the state which
can and should withdraw that privilege whenever its own books are out of whack. "Drop the
idea of tax cuts," instructs The Washington Post editorial page, Delphic oracle of the
Government Party (March 28). No surprise there.

But what’s with Rep. Ray LaHood (also
quoted above) and some of his GOP colleagues on Capitol Hill? They’re suddenly sounding very
Browder-like, worrying over how they’ll look "giving away" money "we"
(the government) "don’t have" in tax relief to families and their employers? Hey, fellas:
you people are supposed to be Republicans. Taxpayers also known as citizens come first, not
the government, remember? It’s a crucial, maybe the crucial, distinction between the two parties.

You would have thought the issue of tax cuts would by now be a settled question in the
Republican mind, 15 years after the Reagan victory in 1980, four-plus years after the 1990
"budget deal" disaster, and barely more than four months after our party’s dramatic
Congressional ascendance. But it turns out tax cuts can still make some Republican feet go cold.
Twice in the past week, the House Republican leadership commendably steadfast in its
commitment to the tax cut promises of its "Contract With America" has faced much-ballyhooed eruptions of nervousness from GOP members in both houses of Congress.

First
came a proposal circulated by Representatives Greg Ganske of Iowa and Pat Roberts of Kansas, and
co-signed by 100 other members, to limit the Contract’s per-child tax credit for families to
households with adjusted gross incomes under $95,000. Then, later in the week, a much more
virulent and dangerous strain of the same disease call it "anti-anti-tax fever" felled
another group of House members. This time, a gaggle of GOP freshmen and
"moderates" joined two dozen so-called "conservative" Democrats in a
threat to block the leadership’s tax bill unless its tax relief provisions are "lock-boxed"
delayed and made annually contingent on the achievement of specific deficit-reduction goals (as
certified by President Clinton’s Office of Management and Budget). And all the while, Senate
Republican lemon-suckers, fresh from one of those "bipartisan budget retreats" we
thought 1990 had permanently discredited, are mumbling bout dispensing with tax cuts
contingent or otherwise altogether.

Why have so many Republican stomachs,
long accustomed to a steady diet of tax-cut advocacy, grown suddenly weak at the prospect
of actually enacting our ideas into law?

Why the
Jitters?

High-flown rhetoric about matters of principle aside, a simple political
calculation underlies it all. It goes like this: The Washington problem that most agitates
American voters is the annual deficit and long-term debt produced by a chronic imbalance
between federal revenues and federal expenditures. And though, yes, American voters may
sometimes say they "want" tax cuts and voted that way, big-time, in
November what they really want, first and foremost, is for their elected representatives
to work "under the hood" of government to get its budget motor in perfect tune.
Until that work is done, our citizens would actually prefer that Congress
"responsibly" keep their taxes high. And any Republican effort to provide tax
relief "prematurely" will annoy the very families and businesses such tax relief
is meant "cravenly" and "crudely" to please. It’s that simple, as a
jug-eared Texan we know might say.

Except that it isn’t. For starters, consider the
fun-house-mirror circularity of this take on the current national mood, which holds that
voters don’t want what they say they want and will be profoundly offended if they get it.
No doubt the vanity of Democrats and their editorial cheerleaders, bruised in November,
is soothed by this Orwellian mantra. But truth is, we can’t think of a single instance in
recent history when voters have punished a party for fulfilling the popular promises it has
won on. Can you?

Nor do we put much stock in that standard complaint of bien
pensant commentators: that there is something essentially dishonorable about using
government policy to win the ongoing loyalty of a political constituency in this case,
middle-class taxpayers and businessmen. Ever notice how this charge is leveled exclusively
against Republicans? Democrats just spent 40 years cloaking an endless sequence of federal
transfer payments to its New Deal coalition in the sweet language of
"compassion," unaccompanied by worried hand-wringing at The New York
Times. Bully for them. Now it’s our turn.

Is there any serious evidence to suggest
that the public truly is obsessed with deficit reduction to the absolute exclusion of near-term
tax cuts? No, not really. True, it is now regularly reported as undeniable "fact"
in Washington that pollster Frank Luntz is "warning" Republicans to wait on
tax relief and cut spending first. But the only cited source for these reports, a January Luntz
memorandum to the Republican Conference, says no such thing at all. And it was Luntz-conducted focus groups, you’ll recall, that ratified the Contract’s inclusion of tax relief in
the first place.

Likewise, a mid-March Los Angeles Times poll released early last
week asked registered voters if it was "realistic to cut taxes now" the
functional equivalent of asking whether they were genuinely patriotic or merely greedy
and got predictable results: 60 percent said no. Of course, had the Times asked a fairer
question, about whether some middle-class tax relief should be included in a Republican
budget that also cuts spending and reduces the deficit, they would almost certainly have
gotten a different answer. But even had the answer been the same, there would still be
ample reason to doubt its ultimate meaning.

Use this simple rule of thumb: poll
responses that directly deny obvious and honest voter self-interest should almost never be
interpreted literally as when a series of surveys in the fall of 1993
"indicated" overwhelming middle-class approval of a Clinton-style federal
guarantee for universal health insurance coverage. In an era of popular revolt against big
government, when a poll respondent tells us he believes the government shouldn’t let him
keep more of his own money, he strains credulity, and we can be pretty sure he’s simply
telling teacher what he thinks teacher wants to hear. And then it’s time to take another look
at the evidence.

Sure enough, there’s a wealth of evidence that tax cuts remain a
political winner. History, for one thing. Reagan ran and won on tax cuts in 1980 and 1984.
Bush ran and won on "no new taxes" and a capital gains tax cut in 1988.
Clinton ran and won on a middle-class tax cut in 1992. Bush and Clinton badly hurt
themselves by reneging on those promises. And House Republicans, back on track, again
ran and won on tax cuts in 1994 so convincingly that a Democratic White House, having
ridiculed the idea for months beforehand, was forced to propose tax reductions of its own
almost immediately.

Rather overwhelming, isn’t it? Want poll results, too? Try
this one: a nationwide Gallup survey conducted in December just 90 days ago
reported that Americans, asked whether their federal taxes were "too high" or
"about right," said "too high" by a 66 to 30 percent margin. Gallup
has asked the same question 28 times since March 1947. December’s was the smallest
"about right" response in more than 22 years. It was the biggest "too
high" response since March 1969. Guess what? People still hate
taxes.

How to Win

So, yes, Republicans can too win by enacting tax cuts. And we probably won’t want to try winning without having done it. It all comes down to this. In mid-1996, campaigning for larger House and Senate majorities and for the White House, Republicans must be able to tell voters that: a Democratic Congress and president raised your taxes in 1993; a Republican Congress cut your taxes in 1995. "Reducing the deficit more than Clinton" won’t be an effective Republican platform. It will always be an uncertain claim, in any case, given the macroeconomic exigencies of interest rates. And, let’s face it: deficit reduction has a patchy record as a political bragging point ask our current president, who’s just devoted the first half of his administration to that goal, with notably disastrous results.

We like the Contract’s tax bill, which is pro-family and pro-growth all at once. We don’t much like the more stringent means-testing amendment sought by the Ganske-Roberts group. The deficit-reducing properties that are its ostensible rationale are laughably minuscule, and we bet there are plenty of two-earner families living in high-cost suburbs people otherwise ripe for the Republican plucking who’ll resent the fact that it passes them by. They certainly aren’t "rich." And kids are kids, no matter who they live with. Which is why the Dependent Care Tax Credit isn’t means-tested, after all, and no one’s talking about fooling with that despite its roughly equal cost. Why not lift the income cap altogether, and pay for the additional child credit dollars by … oh, say, further reductions in agriculture subsidies?

Granted, having conceded the principle of means-testing from the git-go (with a provision capping the per-child credit at $200,000 in adjusted gross income), it may well be too late for House Republicans to win such an argument about their own bill. Fine; perhaps the problem can be fixed in the Senate, where the "Families First Bill" (S.568) introduced by Dan Coats and Rod Grams eliminates the income cap and applies the child tax credit against both income and payroll taxes. What’s most important, at this point, is for the House leadership, with an eye on subsequent Senate action, to hold its current honorable course, and whip recalcitrant "lock-box" Republicans back into philosophical line.

Tax cuts must not be held hostage to deficit reduction. Spending should be held hostage sequestered if necessary, Gramm-Rudman-style to the dual, intertwined goals of deficit reduction and tax cuts. In other words, if our appropriators can’t hit their spending
targets, then a few more government programs must die that tax cuts may live. There can be no other Republican way about it.

The "irresponsibility" argument against tax cuts is bogus to begin with. The House Republican tax relief package is fully paid for, and the forthcoming House budget resolution coupled with just-passed spending rescissions will actually reduce the deficit, right away, by almost $100 billion. True, deep spending cuts make many House and Senate careerists very nervous. And, also true, tax relief for working families and their current and prospective employers will make awkward spending choices more, not less, urgently necessary. But it won’t make them impossible.

At the end of the day, Republicans must remind themselves to whom they are supposed to be "responsible" in the first place. The average American family’s largest monthly expense, greater than food, shelter, and medical care combined, is now the taxes deducted from its paychecks. It’s an atrocity. Last year’s history-making mid-term Congressional election campaign was a striking national re
ferendum on that proposition. Our side won. Are we now to announce that we didn’t mean it, that the achievement of perfect balance in federal bookkeeping is our highest and only aim? Or will we fulfill our promises, and keep our faith with ordinary citizens, whose interests the Republican Party should always strive to serve first while Democrats busy themselves being "responsible" for the reputation, maintenance, and feeding of a thousand federal programs?

Next week, Republicans have a splendid opportunity to cast a party-line vote for tax cuts, while Democrats vote against them. You don’t get a chance like that too often.