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Tax and spend vs. borrow and spend: McCain and the GOP's false choices

By W. James Antle III
web posted May 24, 2004

Alright, I have a confession to make: I was once, for a mercifully short period of time, a McCainiac. It's something I now write off to youth and inexperience, like drinking Tequila shots with Tabasco sauce in them or buying Michael Jackson records.

McCain was to give the commencement address at my college and I was one of the two Republican students the administration managed to scrounge up to serve as the senator's escort on campus. Even if you are something of a political junkie, as I am, and thus inclined to get excited about politicians, as I was more likely to do when I was younger, famous politicians rarely live up to their charismatic reputations in person. There are many exceptions, but pols are often arrogant, off-putting or as disappointing as meeting your favorite professional basketball player only to discover he is a three-foot midget. But McCain was amiable, down-to-earth and had the magic of those truly gifted at his trade. I was so thoroughly bowled over by the Straight Talk Express that I walked away convinced I had met the next president of the United States and several months later wrote the senator a letter urging him to run.

In my defense, not only was I young but this was before the McCain-Feingold bug had bit him and he became, shall we say, ideologically erratic. When McCain finally did run in the 2000 Republican primaries, I voted for Alan Keyes instead.

McCain takes aim at Bush's tax cuts saying: 'Nothing tops my confusion with the rationale for cutting taxes during wartime.'
McCain takes aim at Bush's tax cuts saying: 'Nothing tops my confusion with the rationale for cutting taxes during wartime.'

I recount all this here in light of the latest intra-GOP spat ignited by the media's persistent romantic attachment to the senior senator from Arizona. McCain spoke at a fiscal policy forum put on by the Progressive Policy Institute, an occasionally sensible New Democrat outfit, cosponsored by a number of other think tanks ranging from the Center for Budget and Policy Priorities on the left to the Heritage Foundation on the right. In his remarks, he rightly bemoaned the loss of the Republican Party's old green-eyeshade fiscal rectitude. On shakier ground, he also questioned the rationale for cutting taxes during wartime.

A reporter predictably seized on McCain's comments about tax-cutting during wartime showing a lack of sacrifice and thrust them at House Speaker Dennis Hastert (R-Ill.). The speaker tweaked McCain's Republican credentials and responded that there is a need to keep the country both militarily and economically strong. More stupidly, he told the senator –who spent over five years as a prisoner of war in the Hanoi Hilton while Hastert was rejected for military service because of a bad shoulder – to go visit the boys recuperating at Walter Reed and Bethesda if he wanted to see sacrifice.

This little back-and-forth neatly encapsulates a major problem with American politics today. No, not that all disputes are reduced to arguments over politicians' military service, a less significant problem of a more recent vintage. The problem I'm talking about is that real fiscal conservatism premised on small government is virtually nonexistent on Capitol Hill.

Consider the background of this exchange: As nondefense discretionary spending has risen at a prodigious pace over the past few years despite unified Republican control of the executive and legislative branches, some members of Congress have woken up to the need to contain ballooning deficits. Republicans are pushing a budgetary rule that would force increases in discretionary spending to be paid for with cuts elsewhere. Democrats, with the backing of several moderate-to-liberal Senate Republicans along with McCain, favor a rule that would similarly constrain tax cuts.

Both positions have a respectable pedigree. One of the few good things to come out of the 1990 read-my-lips, tax-raising budget agreement that helped cost George Bush pere his job two years later was the pay-as-you-go (PAYGO) budget rules. These forced certain tax cuts and increases in discretionary spending to be paid for dollar-for-dollar by tax increases or spending cuts. The PAYGO rules did slow the growth of discretionary spending, and their abandonment by both parties in the late Clinton years led to the collapse of the last modicum of Washington spending discipline.

Many of the Democrats and Republicans pushing for the new budget rules favored by McCain, however, have a history of being more opposed to tax cuts than to new spending. Even the most wild-eyed supply-sider will concede that some tax cuts do lose revenue. For example, most tax credits are net revenue-losers and some tax breaks for businesses not only diminish returns to the Treasury but are arguably redistributive corporate welfare payments being made surreptitiously through the tax code. But the impact of changes in marginal tax rates on revenue is less easy to predict. Raising marginal income tax rates can be counterproductive to economic growth and the amount made available for taxation, and thus counterproductive to the goal of reducing the deficit by raising revenues.

Yet it is precisely these tax rates that McCain, who voted against the 2001 marginal income-tax rate cuts, seems to envision raising as he included "tax cuts for the wealthiest citizens" on the list of dubious government expenditures he criticized in his PPI speech. Just from the perspective of balancing the budget, increases highest marginal income tax rates have been the least reliable source of revenue gains while cuts in these rates have most frequently brought forth higher overall yields. The share of federal income taxes paid by households earning $100,000 or more increased from 70 percent in 2001 to 73.3 percent in 2003, even as the upper income tax rates fell.

Tax policy changes that are likely to slow economic growth are to be avoided in either wartime or peacetime. When an income tax surcharge was instituted to raise funds for the federal government to simultaneously fight a war on poverty and in Vietnam, it helped choke off the robust growth of the 1960s and inaugurate a decade of stagflation. A more fiscally prudent sacrifice might be to finance the war with cuts elsewhere in the budget, as has also been done in the past. (Perhaps we could also be more selective about when, where and why we go to war, but that is a subject for another column.)

Nonetheless, the pitfalls of higher taxes don't mean that it is anymore fiscally responsible to run chronic deficits and continually increase spending as long as there are tax cuts. It is one thing to run deficits when a crisis makes it necessary to do so, especially when the economic impact of the borrowing would be less than that of raising taxes. But when the federal government adds a new prescription drug benefit to Medicare and does not otherwise control domestic expenditures, it is clear that these are in fact elective deficits. It's hardly fiscally conservative to inexorably grow government while cutting taxes, but that is the reigning borrow-and-spend orthodoxy of today's Republicans.

Within the GOP, it seems as if there is a choice between those who believe fiscal responsibility means raising taxes to sustain balanced-budget socialism versus those who think that low taxes and high spending are a permanently sustainable situation. Gone is the old philosophy of McCain's Senate predecessor, Barry Goldwater, whereby fiscal conservatism meant spending and taxing less. Conservative Republicans used to believe in having a small, constitutionally limited government that spent the people's money – whether exacted through taxes or borrowing – very sparingly.

Today Republicans seem to have accepted big government as the cost of staying in power. Spending cuts are even less feasible than tax hikes. This is true not just at the federal level, but even in states like Nevada and Virginia. As the "daddy party" has forgotten its stern role, government growth has gone unchecked and gotten out of control. Different factions may grasp the symptoms, but all miss the underlying problem.

McCain may sound the right rhetorical notes about Goldwater, Ronald Reagan and limited government in his speeches and occasionally point out some truly indefensible spending. But if only he would fully grasp and boldly communicate the truth about how the bipartisan welfare-warfare state is overflowing the boundaries of our constitutional republic. If he did, I'd return for a ride on that Straight Talk Express in a heartbeat.

W. James Antle III is an assistant editor of The American Conservative and a senior editor for Enter Stage Right. The views expressed above represent his alone.

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