Calling Jack Kemp

February 16, 2005

I just read this piece by Mort Kondracke — the world’s nicest liberal (in fact he may be the world’s only true moderate) who is proposing that Democrats get out in front of Republicans on some issues, particularly “tax reform.” Mort suggests that Dems study two proposals. Here’s how he describes it:

Bush has appointed a bipartisan tax reform commission that’s not due to report until July 31. That gives Democrats an opportunity to put progressive ideas on the table early.

And for input, they should study two proposals, one a year old and the other forthcoming, from centrist sources.

The first is the “radical tax reform” agenda advanced last year by Maya MacGuineas, president of the Committee for a Responsible Federal Budget and fiscal policy director at the New America Foundation.

The core of her agenda is replacement of the regressive payroll tax with a “progressive consumption tax” that would encourage savings.

The other idea, known as “family-friendly tax reform,” will be unveiled this month by the Progressive Policy Institute, the think tank of the centrist Democratic Leadership Council.

It proposes to consolidate and enrich tax benefits currently offered for retirement, college, home buying and children. It would pay for them by closing 100 corporate tax loopholes costing $400 billion per decade.

I find this difficult to digest. What am I missing here with the proposal for a progressive consumption tax? How can it possibly be good for the economy to encourage people not to spend money? Can you imagine how many businesses would close? I don’t care what benefits you get from increased savings, I can’t imagine them being offset by the draconian impact on spending.

Apart from that troublesome tidbit, something else in the column caught my attention that I hadn’t noticed before. Mort wrote:

On Jan. 7, Bush charged his nine-member commission, headed by retired Sens. Connie Mack, R-Fla., and John Breaux, D-La., to recommend ways to simplify the tax code and “share the burdens and benefits of the federal tax structure in an appropriately progressive manner.”

I didn’t know that part of the president’s charge was to encourage the tax code to move in a “progressive” direction, assuming that’s what he means. Here’s an example of Republicans being in charge and governing as if they weren’t. We have simply got to challenge this pervasive assumption in our society that to succeed financially is somehow immoral and that work, production, and success must be punished. I alluded to this idea in my last column and I want to restate it a bit differently: as a society we are going to have to get away from this obsession with how the other guy is doing. It is so negative (and wrong) to promote coveting. We should want everyone to do well and not try to figure out ways to make the government the great financial equalizer. It’s a do-gooder idea that has never worked in the history of the world and won’t work now.

I wish Jack Kemp would come back into action and republish his book, “An American Renaissance,” one of the most inspiring books I’ve ever read — (I’m not talking spiritual here, but pro-growth, pro-America). Kemp was one of the primary architects of the Reagan Revolution. But through the years we’ve lost sight of how supply-side economics works. The easiest way not to get confused about how it works is to remember its name: supply-side. It emphasizes economic production, not consumption.

It says, grossly simplified, that reductions in marginal income tax rates will encourage production — the idea is to expand the economic pie so there’s more to go around for everybody. Supply side does not mean we will reduce taxes so people will have more money in their pockets to spend and thereby stimulate the economy. That’s fine, but that is treating the symptoms rather than the causes. We need to encourage production — it really does lead to a trickle down effect. This isn’t idle theory. It happened with the Kennedy and Reagan tax cuts, and others earlier in American history.

But with the Bush tax cuts, the president never really promoted his plan on the supply side. He always talked about people having more money in their pockets to spend in the short run with these tax refunds. That was a bit off the mark and partially as a result of that, I think we’re in jeopardy of losing the issue. If we don’t even know why a theory works, how can we properly sell it? Indeed, if President Bush is contemplating making the tax code more progressive, we are going to be losing ground and go backward economically. How can we do that to ourselves when we’re in power.

Part of the problem is the Democrats’ — starting with Bill Clinton — masterful con job convincing people that the Reagan deficits were a result of his tax cuts. I wish I had a dollar for every time I’ve heard a liberal repeat that canard in the last fifteen years. How many times do we have to say that revenues nearly doubled in the eighties before it will sink in? The answer is it never will, because you can never outlast the Democrats in the propaganda department. Yes, Reagan had deficits, but not because of his tax cuts. But this line of bull is what led George Bush the Elder to raise taxes in breach of his “No new taxes” pledge, in exchange for a broken promise by Dems to cut spending. Here we’re in jeopardy of losing the argument again because we are accepting the propaganda. (Before I go further I want to acknowledge that if you discount for inflation, etc. revenues didn’t double in actual dollars but grew by something like 14%.)

But just think about that. We’re still talking a very serious rate of growth — not reductions, not neutrality — in revenues DESPITE GIGANTIC TAX RATE REDUCTIONS. So, properly crafted, marginal tax rate reductions generate revenue. Supply side — remember it, supply side. (I might also add here that as we’re talking about tax induced behavior changes, too small a reduction in the marginal tax rates won’t stimulate much growth. I actually think the Bush tax cuts would have been even more effective had they been greater, but that’s another story.)

At any rate, we’re not talking about supply-side anymore. We’re perilously close to going the other way, all because it is politically correct to encourage envy of others in our society. It is so ironic that people talk about the wealthy being greedy just because they make more money. But in fact, we are encouraging a more insidious type of greed in this country when we continually demonize the successful people and promote envy.

We need Jack Kemp or a protégé to take back the moral high ground for the supply side. This isn’t about letting rich people keep more of their money — although there is nothing wrong with that and everything right and fair with it. It is about unshackling the great American economy. You should study the statistics sometime from the eighties. You wouldn’t believe how many good things happened in the economy as a direct result of the tax cuts. All income groups improved from poorest to richest. A rising tide did indeed lift all boats, but now we’d apparently rather adopt the attitude that by golly we simply can’t allow everyone to do better if some people do better than others. How sick an attitude is that? Oh, and before I close I might point out that charitable contributions went through the roof in the eighties as well, proving that when people are free and the government is less confiscatory, people’s natural charitable nature will shine through. RANT TEMPORARILY ENDED.