New York Times writer David Leonhardt believes that the Republican party is too hostile to tax increases, and in practice hostile to spending cuts too. Both are of course legitimate points of view, and the latter is one I share (although I don’t think Leonhardt’s Medicare Advantage example is a good one: It’s not as though Obama should get points for fiscal conservatism because he gutted the D.C. school choice program). But I think Leonhardt commits several misjudgments in his piece.
1. He complains about the transformation of “a party that once prided itself on fiscal responsibility,” citing the first President Bush’s tax increase in 1990. Was Leonhardt around in the 1990s? The Republican party did not take pride in that tax increase. Bush campaigned in 1988 on opposition to tax increases, much of his party revolted when he broke his promise, and while running for re-election Bush said it had been a mistake. (After he lost he flip-flopped for a third time.)
2. After explaining that the best parts of supply-side economics have triumphed, Leonhardt writes that “high taxes are no longer the problem, even if complaining about them still makes for good politics. This year, federal taxes are on pace to equal just 15 percent of gross domestic product. It is the lowest share since 1950.” Actually, it was a central insight of supply-side economics that the structure of the tax code matters more than this average figure does. There may be good reasons for thinking that income tax rates are not as much of a problem as they used to be, but this isn’t it.
3. “[P]ast tax increases have not choked off economic growth. The 1980s boom didn’t immediately follow the 1981 Reagan tax cut; it followed his 1982 tax increase to reduce the deficit. The 1990s boom followed the 1993 Clinton tax increase.” This is a skewed version of our recent history. Reagan’s tax cut wasn’t fully implemented until 1983, for example; the recovery of the 1990s was underway before Clinton took office, and we didn’t get four years of solid four percent growth until the start of 1997. Again, Leonhardt reaches a sensible bottom-line conclusion–that tax-policy changes are not the main determinant of economic growth–but the way he gets there is questionable.
4. Finally, Leonhardt writes, “One of the country’s two political parties has no answer to an enormous economic issue — the fact that the federal government cannot pay for its obligations.” This observation is ridiculous. Neither party has an answer to this problem. The Democrats have proposed some tax increases, but they do not come close to balancing the budget over the long run–and they have also proposed a substantial increase in federal health-care spending. (Yes, the CBO says that the Baucus version of the bill cuts the deficit–but only over the next ten years, and only on unrealistic assumptions.) The last Republican president proposed a substantial reduction in future Social Security benefits, and the Democrats not only attacked him for it but made it a party-wide strategy to refuse to come forward with any alternative. Was Leonhardt around in 2005?