Politics & Policy

We Raise Taxes, They Cut Spending?

It's an offer we must refuse.

Cato senior fellow Jagadeesh Gokhale has suggested that conservatives “make a deal” with liberals. We will raise taxes to pay for the growing entitlement commitments of Medicare, Medicaid, Social Security, and federal, state, and local pensions, and liberals will vote to reduce those benefits. We raise taxes, they cut spending.


Ronald Reagan, the man who wasn’t fooled by the intentions and capacities of the Soviet Union, agreed to such a deal in 1982. The deal was brokered by Bob Dole, who would imitate the less successful character in The Godfather, Part I, Tessio (played by Abe Vigoda), who wanted to arrange a meeting with Michael Corleone’s (Al Pacino’s) rival Emilio Barzini (Richard Conte). President Reagan went to Dole’s meeting in 1982. Taxes were raised. But spending was not cut. In fact, spending increased.


Fast forward to 1990 when George Herbert Walker Bush also made the deal Gokhale recommends we repeat. Taxes were raised $125.4 billion over four years. Spending increased $208.8 billion during that period.


Why do deals with tax increases matched with promised spending-reforms/cuts end up giving us higher taxes and higher spending? Because once the Democrats realize they can talk us into a tax hike, they spend the money. And then they spend more in anticipation of fooling us again.


The Joint Economic Committee (JEC) published a study by Richard Vedder and Lowell Gallaway that pointed out that for every dollar of tax increases between 1947 and 1990, the government spent an additional $1.59. This reminds me of a sobering Chinese proverb that says, “If we don’t change our direction, we will end up where we’re headed.”


A Republican House, Senate, and executive have shown that we cannot “cut” our way out of this budget growth. Politically, cuts generate more opposition than support. The polls showed strong support for Bush’s original Social Security reform plan, which would move to a defined-contribution plan without benefit cuts.


We can and must reform the government to lower levels of spending. Social Security and government pensions provide the most obvious examples. Only by moving these “pay as you go” defined-benefit plans to fully funded, portable, individually-owned defined-contribution plans (like IRAs or 40l(k)s) can we end the escalating unfunded liabilities that correctly worry Gokhale and others.


But the modern Democratic party cannot, and will not, work with us to reform Social Security — not even in return for higher taxes. Not now. Not ever. No way.




Because the modern Democratic party is the party of trial lawyers, labor unions, and big-city machines. And that party is a dead man walking as soon as Social Security is reformed to make every American an investor who puts 10 percent of income into a portable pension. When the young in America look forward to watching their investments grow — rather than shrink in the face of trial-lawyer parasites, labor-union work rules, and government-worker-driven taxes — the modern Democratic party is dead. There will still be two parties: The Left as we know it may reform as the tree-hugger party or the peace party, but it will not continue as the trial-lawyer/labor-union/big-city worker party.


However, since the Left is, unfortunately, not stupid enough to commit suicide — unlike the young man in the cell next to Hannibal Lector who was talked into swallowing his own tongue — it will never accept the “deal” Gokhale hopes to achieve. If we take the advice of Tessio and set up this meeting with the Left’s version of Barzini — with impressive promises of “security” — we all will sleep with the fishes after this coalition raises taxes, hikes spending, and destroys any chance we have for meaningful entitlement reform.


Switching pop-culture metaphors, I suggest that we politely decline Lucy’s kind, but recognizable, offer to kick her tax-hike-and-spend entitlement-reform football.


Been there. Done that.


– Grover Norquist is president of Americans for Tax Reform.


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