Taxes, Conservatives, And Fiscal Responsibility

It may seem odd to many people today, but the main budgetary issue for old-time conservatives was not taxes, but fiscal responsibility. If, during the 1920s, one had asked whether it was better to have lower taxes or to have a balanced budget, the vast majority of conservatives would have said it was better to have a balanced budget.

After FDR, many conservatives had come to terms with the New Deal and with higher government spending. The main difference between them and the Democrats was that they wanted to make sure that they had enough revenue to pay for government spending, while many Democrats, under the influence of Keynes, saw deficit spending as something helpful to the economy. Thus, many conservatives were effectively for tax increases. When JFK lowered the tax rates, he did so as a liberal following after what were then liberal ideas. It just so happened that by lowering taxes JFK spurred economic growth, and thereby increased government revenue.

Two things happened in the 1960s to change this political landscape. The first was the Goldwater revolution. Goldwater was not reconciled to either higher government spending or to higher taxes. Rather, he wanted to make government less intrusive and less powerful, and roll back many of the New Deal excesses. Of course, Goldwater was slaughtered in the 1964 election, because the public was not ready for the message he was preaching.

The second thing that happened was the exponential growth of government spending as LBJ sought to institute his Great Society programs while at the same time waging a major war. It is important to note that in the beginning both the Great Society and the War enjoyed wide public and political support. And, even after the War had fallen from favor, President Nixon went on to increase the size of government and the number of government programs, as an extension of LBJ’s Great Society. In addition, Gerald Ford’s choice for VP was Nelson Rockefeller. By the mid-1970s, politicians like Rockefeller were no longer considered conservative, and Rockefeller Republicans–as they were called–made up what was at one time the liberal wing of the GOP. However, in many ways, Rockefeller harked back to the conservatives of the 1940s and 1950s. He had not changed–conservatism had.

Towards the end of the 1970s, there was a growing recognition that government spending was out of control, and that this was producing a drag on the economy. To deal with this problem, two schools of thought rose up within conservatism, both emphasizing tax cuts. The first school of thought held that by starving the beast by cutting off revenue, government spending would have to be cut. The second school of thought held that government taxing power had a direct effect on the economy, so tax rates should be adjusted in order to spur economic growth. This second school of thought is called supply side economics, and was championed by Jack Kemp. Kemp found a convert to supply side economics in Ronald Reagan in the late 1970s. Until that time, Reagan had been more of an old school Goldwater type. An important point to make is that supply side economics is not necessarily in favor of tax cuts under all circumstances. Rather, it was for adjusting the tax rate according to the need. The main insight of supply side economics, however, was that often a tax cut could increase tax revenues because it would also spur economic growth. However, too much of a tax cut would result in rapidly diminishing returns, while too little of a tax cut would have no effect on the economy. The government had to find the sweet spot.

The Reagan tax cuts produced the greatest spurt of American economic growth of the 20th century and we were still living in the afterglow of that growth up until the late 1990s. In addition, tax revenues went through the roof during that time period. Supply side economics worked. However, cutting taxes did not at all cut the growth of government budget expenditures, which is why the budget deficit went up during the Reagan administration, and not down. Indeed, research now shows that the best way to cut budget expenditures is to raise taxes: When people feel the bite of government spending coming out of their paycheck, they are more inclined to push for lower government spending.

This brings us to the present day. Conservatives are going to have to make a series of decisions as to how they can use their diminished capital to deal with the current budget deficit. However, at the moment, the default grassroots position is for lower taxes. Period.

That is all good and well, and may in fact be the right course to take. However, it is not productive to accuse everyone who wants to raise taxes of being a sell-out. A balanced budget has been the consistent conservative position for as long as there have been conservatives. It, and not tax policy, defines economic conservatism. The conservative position on taxes, on the other hand, has always been more pragmatic and flexible. It has only been quite recently that many conservatives have made lower taxes into a Holy Grail that should never be questioned or touched.

Further, it would help–if people really do want to keep lower taxes as their Holy Grail–if they would actually explain why this should be so, educating themselves and the public on this issue. As it stands, many people who want lower taxes do so on the simple premise that they want to keep their own money. Well, we all do. However, the government has a bill that needs to be paid, and it must be paid by taxpayers. How are we going to pay that bill and get our fiscal house in order without raising taxes? There are compelling arguments to be made as to how this can be done, but very few conservatives are making them. A mere appeal to self interest, as Romney proved in the election, is not an argument, and will not achieve any political gain.

In short, instead of fighting each other, engaging in name calling, or just relying on conservative platitudes and trope, we need to have a conversation among ourselves and with the American public. State your case. Make people believers. And be willing to listen and respond articulately to those who sometimes may say things that you do not particularly like.

This is the only real path forward.

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2 Responses to Taxes, Conservatives, And Fiscal Responsibility

  1. An interesting look at history, John. I had never thoguht about that way; but now seeing it laid out the way you have, it makes sense. Good job!

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