High Taxes Are Fiscally Irresponsible

Now that Democratic presidential candidate Howard Dean has fought his way from darkhorse insurgent to virtual front-runner, he must make the case that he is not just a far-left fringe favorite but a viable general-election candidate. One of the talking points in favor of his new "centrist" persona is that his tenure as governor of Vermont proved him to be a budget-balancing fiscal conservative.

It's true of course that Dean was more moderate in his positions when he was an elected official actually accountable to the voters of his state than he became as a presidential candidate after he decided that the most antiwar and George W. Bush-hating elements of the Democratic Party would be his ticket to the nomination. But Dean's alleged fiscal conservatism is overstated. During the 1990s, a growing economy allowed most governors and state legislatures to balance their budgets. The question is what Dean would do with the federal budget during the current fiscal climate.

Dean talks a good game about a balanced budget, but his mechanism for achieving this goal is not reduced federal spending. In fact, he would increase the size and the cost of the federal government with a national health plan likely to rival Hillary Clinton's. Dean instead believes the best way to balance the budget and to demonstrate fiscal responsibility is to raise taxes. More amazingly, he thinks higher taxes will be good for the economy as if we can tax our way to prosperity.

If you don't believe me, perhaps you should take Dean's word for it. As quoted by William Saletan in Slate: "When Ronald Reagan came into office, he cut taxes, we had big deficits, and we lost 2 million jobs. When Bill Clinton came into office, he raised taxes without a single Republican vote; we balanced the budget; we gained 6 and a half million jobs. George Bush has already lost 2 and a half million. I want a balanced budget because that's how you get jobs in this country is to balance the books…. You had better elect a Democrat because the Republicans cannot handle money… We're the party of responsibility, and they're not."

Never have so many fallacies been so neatly packaged into a single quotation. Ronald Reagan's tax cuts were followed by an historic economic boom. Between 1983 and 1989, the U.S. economy grew by one-third (the equivalent of adding the entire West German economy to our GDP), tax revenues doubled, the rate of manufacturing productivity growth tripled and upwards of 20 million net new jobs were added. Instead of being a bleak period of job loss as Dean claims, the Reagan years were notable for significant job creation. From its peak in the 1982 recession to when Reagan left office in 1989, the unemployment rate fell from 10.8 percent to 5.3 percent.

Although Clinton's 1993 tax increase is today spun as a major success that ended the recession presided over by the first President Bush, this is not the case. According to the National Bureau of Economic Research, the economy had been in recovery since March 1991 by the time Clinton took office in January 1993. The economy grew just 2.6 percent per annum during his first term. In other words, economic growth actually slowed after the tax-rate hike. Accelerated growth and budget surpluses did not appear until Clinton's second term. By this time, he was working with a Republican-controlled Congress and even signing some tax cuts, as opposed to tax increases, into law -- including a very successful capital gains tax-rate cut.

Dean's analysis of our current economic situation is similarly inaccurate. He blames the president's tax cuts for the deficit and anemic growth. Yet he ignores the role increased federal spending and 9/11 have played in the deficit, as well as the fact that the economy began to slow before Bush had even been elected much less had taken office. It is likely that the economy would be in even worse shape without Bush's truthfully quite modest tax cuts.

Modest or not, Dean wants to take these tax cuts away with an eagerness that has earned him criticism even from his rivals for the Democratic nomination. He would repeal the Bush tax cuts in their entirety, on the specious grounds that he could buy national health care by returning to Clinton-era marginal tax rates. Democrats are right to be shocked -- not since Walter Mondale has a presidential candidate tried to win office by proposing an across-the-board tax increase. Clinton at least promised during the campaign to spare the middle class.

Yet perhaps it is unfair to single Dean out. His views are views are in line with the reigning orthodoxy of the Democratic Party: Income presumptively belongs to the government, not the individual who earned it. Deficits are bad when caused by tax cuts and balanced budgets are good so long as they are coincide with more taxing and spending. Democrats have come to believe that raising taxes is a positive economic good.

Economic prosperity is not achieved by taking an ever-larger share of producers' income in taxes. Removing disincentives to work, invest and take risks by lowering marginal rates is what helps the economy to grow. More importantly, low taxes respect our right to the fruit of our labor. Dean Democrats define fiscal responsibility as the confiscating as much of our wealth as is necessary to pay for breakneck government growth. In truth, nothing could be more irresponsible and less conducive to a flourishing economy.

W. James Antle III is a senior editor of Enter Stage Right magazine.