Posted on July 29, 2010In 2001, right after President Bush took office, his people pushed hard for Speaker Hastert to pass through a huge tax cut. The economy was slowing down as the tech bubble burst, and the Bush team wanted a big enough tax cut to jump start economic growth.
Hastert was entering his third year as Speaker, and he had been through several different tax fights with Mr. Bush’s predecessor, Bill Clinton.
What Hastert learned in his fights with Clinton is that it is far better to talk about the actual policy than it is to talk about big numbers. In other words, it was better to talk about getting rid of the marriage penalty, getting rid of the death tax, lowering the cost of investment, giving families with kids help with a child tax credit, and branding business tax cuts as ways to create jobs.
The new Bush Administration wanted to push through a big tax cut early, but Hastert insisted that the House methodically communicate as it legislated by breaking up the big tax cut into its smaller parts. And on each one of its parts, a substantial number of Democrats joined with Republicans to enact the Bush tax cut agenda, not because they wanted to, but because they had to.
Those tax cuts are now just about to expire, and the result could very well be the largest tax increase in history.
Unlike Congressional Republicans, who used tax cuts to help stabilize and then grow the economy for 6 years, Democrats have taken a different approach. They are looking to increase taxes on small businesses, corporations and investors as a way to pay for more government spending.
There is certainly nothing surprising that Democrats would push for tax increases. Bill Clinton pushed for tax increase in his first term as President, as did Jimmy Carter, Harry Truman, and FDR. Almost every single Democratically-controlled Congress has pushed for tax increases on the so-called wealthy since the beginning of the 20th century. Increasing taxes is what they do.
House Majority Leader Steny Hoyer has hinted that tax increases in a lame duck session of Congress won’t just hit the super-rich. The super-rich have super-clever tax lawyers who will be able to find ways to shelter much of their income from high taxation, any way. Hoyer has opened the door to the possibility that taxes will have to be raised on everybody. While he has used the deficit as his chief excuse to raise taxes (as has the President’s chief economic advisors, Tim Geithner and Larry Summers), the truth is that these tax increases will go to pay for the bigger government already enacted by Mr. Obama and his team.
But the question that the Democrats should ask themselves goes to the very heart of the election: Will higher taxes translate into more jobs? Will the Democrats' desire to create more “fairness” actually hurt economic growth?
There is plenty of evidence that such policies actually do hurt job creation. Harry Truman initially insisted on higher taxes in his so-called “Fair Deal,” but when that failed, he relented and then pushed for business tax cuts which, guess what, spurred economic growth. When Bill Clinton pushed for his tax increases in 1993, he lost the Congress, and he too had to change course, and when he agreed to a capital gains tax cut in 1996, the economy took off. Both Jack Kennedy and Lyndon Johnson pushed for business tax cuts to economic growth, as did President Reagan.
There is plenty of evidence that passing tax increases is just plain bad politics. George H.W. Bush lost his bid for re-election when he broke his famous pledge of “No New Taxes,” and Jimmy Carter lost in his when his tax and spend policies proved to be toxic for economic growth.
President Obama and Congressional Democrats seem to content to allow tax increases to occur through vagaries of a ten-year tax law. They are doing so in the name of deficit reduction, but everybody knows that they are allowing the largest tax increase in history to occur so that they can spend the money on bigger government. This is not only bad economic policy. It is also bad politics.