August 22, 1993
"Tax Now; Cut Next Year"
San Jose Mercury News
By Timothy Taylor
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NATIONAL POLITICIANS cannot afford to be perceived as enthusiastic about new
taxes, any more than they can afford to be seen as soft on crime, in favor of
expanding the number of government bureaucrats, or against motherhood, apple pie,
But using the simplest measure of the federal tax burden -- total taxes as
a percentage of the entire economy -- Bill Clinton's own budget figures show that
the federal tax burden will rise during his term of office.
During 1992, George Bush's last year in office, federal taxes were 18.6 percent
of gross domestic product. Clinton's budget forecasts that by 1996, federal taxes
will hit 19.6 percent of GDP.
Since the end of World War II, the federal tax take has only twice pushed as
high as 19.6 percent of GDP. The first time was in 1969-1970, as the government
struggled to find ways to pay for the social programs and Vietnam war spending
of the late 1960s.
The second time the tax burden exceeded 19.6 percent of GDP was from 1980-1982,
just before Ronald Reagan's tax cuts took effect. When a Democratic president
last presided over that level of tax burden, it helped to trigger a nationwide
tax revolt, which in turn fostered three terms of Republican presidencies.
Clinton can offer two possible defenses to the charge of being overly fond
of taxes. One argument is that only the rich will pay, but there are at least
eight reasons to doubt that this justification for higher taxes will reassure
the middle class.
During the presidential campaign, Clinton frequently promised a tax cut for
the middle class. Breaking that promise may have been economically wise by the
time he took office, but it hardly makes him seem trustworthy when he now promises
not to raise middle class taxes.
Although Clinton's income tax increases do fall on the highest income brackets,
the middle class will be directly affected by some other tax changes: two examples
are the gasoline tax increase and the higher taxes on Social Security benefits.
The Clinton administration keeps floating ideas for additional taxes, especially
to pay for its national health insurance proposals.
As a Democrat, Clinton seems more likely to propose future tax increases. Sure,
Ronald Reagan raised taxes, and more than once. But Reagan cut taxes first, and
no one ever thought he was truly in favor of any tax increase. (check) Making
the income tax increases retroactive to the beginning of this year does raise
about $10 billion, but it also seems to display a worrisome zest for tax increases.
Retroactive spending cuts don't seem equally likely.
No matter who pays the extra taxes, people are bothered that Clinton seems
to view an immediate rise in taxes, to be followed in a few years by significant
spending cuts, as his deficit solution. Why not immediate spending cuts, to be
followed in a few years by a rise in taxes?
Income tax rates were also much higher on high-income taxpayers in the late
1970s; lest we forget, the top tax brackets in the last 1970s and early 1980s
exceeded 50 percent. But pointing to a high tax burden on the rich didn't slow
the tax revolt that helped sweep Reagan into office.
Populist and soak-the-rich rhetoric has had only a narrow appeal in American
politics. That may be laudable or lamentable, depending on your politics, but
it's historically true.
Perhaps Clinton will display the political wizardry to conjure away these points.
But just in case, he would be wise to start polishing up an alternate defense
to accusations of being a tax-aholic: the defense of necessity.
This year's federal budget is about $1.5 trillion. Since the deficit will be
about $300 billion, roughly one of every five dollars the government spends will
be borrowed money.
No one within loud-hailing distance of mainstream politics proposes spending
cuts of $300 billion per year, or anything near that amount. So reducing the deficit
substantially will require a mix of spending cuts and tax increases.
Clinton has now enacted his tax increases. In fact, after repeated pledges
over the last few months that middle-class Americans won't have to pay much in
new taxes, Clinton will have a very difficult time raising their taxes any time
in the next few years.
As to the spending cuts, Clinton's budget also predicts that federal spending
will decline from 23.5 percent of GDP in Bush's last term to 22.6 percent of GDP
in 1996. The two most important factors in determining whether that projection
will hold are: 1) if the proposed health care reforms hold down costs; and 2)
if the economy returns to moderately healthy growth.
If Clinton is to avoid being perceived as an aficionado of taxes, he must hold
the line on additional tax increases, follow through with spending cuts, and be
able to take credit for at least a mild economic resurgence. If he fails, and
the Democrats regain a reputation as the party which lusts after your tax dollars,
it will be difficult for any Democrat to win the presidency again until well into
the 21st century.
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