The media continually report President Bush’s job approval rating — which doesn’t look too good nowadays — but they never seem to follow-up and ask whether or not the opposition could do a better job. Given the low profile most Democrats have taken since the 2004 election, most voters have no clue as to what they stand for.
#ad#Fortunately, the chairman of the Democratic Leadership Council, Gov. Tom Vilsack of Iowa, has provided us with a manifesto that addresses our perceived fiscal problems. Summarizing his position in a Wall Street Journal article recently, Vilsack came out with some definitive statements about how we could solve our budget-deficit problem. As you might expect, we have a few differences of opinion.
Vilsack attacks President Bush with the same old tirade from the left: “In just five years, the president and his party have turned the largest budget surpluses in our history into the largest deficits.”
The question that should be asked in response to this accusation is: “Governor, what might you have done to avoid a major economic decline in the face of the technology-sector collapse and an overly tight monetary policy?” If I read the governor’s comments correctly, he would have preferred to preserve the budget surplus, raise taxes, and cut spending — all actions that could have lead to an even greater economic decline. Come to think of it, that’s just what Herbert Hoover did.
Vilsack also exposes us to another interesting economic hypothesis: “this debt undermines our fragile economic strength and puts us in ever-deeper hock to China and other countries who help finance all the red ink.”
Did the governor ever take an economics course? And does he read the newspapers?
First of all our economy is strong, not fragile. If GDP growth in excess of 3 percent, record employment and housing starts, $100 billion in unexpected tax revenues in fiscal 2005, and low interest rates are a sign of fragility, you could fool me. But let’s look at his idea that we’re in hock to China. What? The last time I reviewed our business relationship with China, that country was providing us with low-cost, high-quality products and, in return, was receiving lots of U.S. dollars — pieces of paper that can only be used to create jobs in the United States. Maybe the governor doesn’t remember that we went off the gold standard in 1971, meaning all of that red ink he talks about is denominated in dollars and can only be used as a stimulative resource for U.S. job creation, one way or another.
To address our perceived fiscal problems, Vilsack offers the following four-point program to reduce government spending:
1. “Declare war on pork.” I guess we all have ideas about what pork is, however one person’s pork is another person’s income. Maybe the pork fighters should be willing to give up some of their pork before asking others to do the same. The governor of course didn’t identify any of the pork (gasohol anyone?) that he would cut.
2. “End corporate welfare.” That’s another way of saying reduce corporate subsidies. Why pick on corporations? Why not remove subsidies altogether? The reason why legislators don’t is because subsidies are like pork — some pork being good and some being bad depending on whom you ask. Who determines which is which?
3. “Cut oil and gas subsidies.” Okay, so the governor gets specific. But will the governor opt to remove all subsidies, not just for oil and gas? I doubt it.
4. “Trim government waste.” That’s a nice idea but it seems impossible given the history of the Grace Commission and the lack of follow-through in this area by Congress.
Vilsack continues with some interesting suggestions for the revenue side of the budget: “we continue to believe the Bush tax cuts targeted to the wealthiest are economically nonsensical and fiscally and morally ruinous. If it were up to us, we’d cancel all the cuts other than those benefiting low-to-moderate-income citizens, restoring the top tax rates to those of the Clinton era and saving $315 billion over ten years.”
There are important lessons to be learned from this recommendation: First, by “we” he means the Democratic party. Second, according to the father of supply-side economics, Arthur Laffer, tax-rate cuts are not designed to benefit the wealthy, they are designed to increase incentives throughout the economy and get more individuals to work, save, and invest. Statistics demonstrate that the wealthy pay more in taxes when tax rates are reduced. Broad-based tax cuts also precede periods of strong economic growth and job creation. If putting people to work because they can improve their standards of living is fiscally and morally ruinous, I wonder what the opposite would be? Taxes so high that people either go underground or migrate to Eastern Europe where tax rates are in the neighborhood of 20 percent?
The Vilsack Manifesto as outlined here is another redistribution scheme that purports to take money from people who earn it and give it to people who don’t earn it. Each time a Democratic presidential candidate has advocated such tax increases (Mondale, Dukakis, Kerry) they were rebuffed by the American electorate. President Clinton’s shrewd avoidance of the tax issue until after he was elected boomeranged on him as evidenced by the blowout of the congressional Democrats in 1994, and it’s been boomeranging ever since. Yet, it looks like the Democrats still don’t get it. The majority of American voters see the advantages in less-restrictive tax policy and cast their votes accordingly.
The change in how Democrats view tax philosophy is amazing given President John F. Kennedy’s advocacy of an enormous cut in marginal tax rates that preceded a verifiable economic boom. In four decades we’ve seen this party go from (relatively) fiscally responsible to fiscally insane. Remember the Democrat’s luxury tax on boats that put 120,000 low-to-moderate income shipbuilders out of their jobs because the wealthy decided not to pay the tax?
The Republicans can point to the Vilsack Manifesto as the latest attempt by the Democrats to define their wealth redistribution schemes to the detriment of our economic well-being. Gov. Vilsack is recommending the same fiscal restraint that Herbert Hoover implemented prior to the onset of the 1930s depression — cut spending and raise taxes. If his characterization that the economy is fragile is correct, why would any reasonable economic-policy cure be fiscally restrained? Such a policy would be nonsensical and fiscally and morally ruinous.
– Thomas E. Nugent is executive vice president and chief investment officer of PlanMember Advisors, Inc. and principal of Victoria Capital Management, Inc.