As a sophomore Republican, I find myself in the most confusing situation of my short career in Congress. The proposed five-year, $228 billion tax increase (the total given on pages 414 and 415 of the Senate Finance Committee report) represents a challenge to everything that brought me into politics.
As I look back over the last few years, everything junior Republican members fought for was designed to cut spending and cut taxes, not to pacify big government and raise taxes.
I remember when President Carter proposed withholding on savings interest and dividends. I fought and kicked and said his proposal would hurt savings and senior citizens, and would simply raise more money for a government already too big and too wealthy. I recall solid businessmen like Donald Regan being against the Carter withholding plan.
And when liberal Democrats proposed doing away with the business lunch deduction, I applauded as Sen. Bob Dole led the opposition and defended legitimate expense deductions. When Ronald Reagan told us not so long ago that the government didn't need any more Internal Revenue agents, and needed to go on a hiring diet rather than a binge, I cheered him on.
That brings us to today's confusion.
If you had asked a voter in 1980 which of the presidential candidates would push for a $228 billion, five-year tax increase that included withholding on savings interest and dividends, stricter depreciation rules and more IRS agents, that voter would have answered: "Jimmy Carter" or "John Anderson" or "Barry Commoner." It would've been a strange voter indeed who answered: "Ronald Reagan." Yet it is Reagan who is advocating such a tax increase.
I was elected in 1978 and 1980 to help build a team that would cut spending, cut taxes and bring government spending under control. Republicans in Congress built the case for that during 1979-80. In 1981, with the help of a new Republican president and a GOP-led Senate, we made progress in creating an America where businesses and individuals had maximum incentive to work, save, invest and create new jobs. Mistakes were made along the way, but they were mistakes in the right direction--mistakes that clarified rather than obscured right conduct. 4 But now, in August 1982, people who think like me are being asked (by people I used to think thought like me) to give up strategic principle for tactical muddling-through. The White House and Treasury Department tell me, "Yes, we really do want to keep on the straight-and-narrow, but we need to take this 100-mile detour right now." The message from establishment Republicans is that going in the opposite direction from the path of 1978-81 will somehow get us to the destination faster. I listen to decent, honorable, well-intentioned men say the exact opposite of what they said before they went into government.
I still believe in the principles and policies advocated by Ronald Reagan, Don Regan and Bob Dole in 1980; I'm still committed to putting government on a diet. Since as a conservative I think the president is fundamentally wrong, as a congressman I have no choice but to vote my convictions. Therefore, conservative congressmen have an obligation to oppose the president on the tax increase.
There are five simple tests a budget package must meet to be worthy of conservative support:
1. Does it achieve at least three times as much in spending reductions as the aggregate of any tax increase? This is a ratio the administration itself said it supported. Since this would require a $684 billion five-year spending reduction, the fisal 1983 budget resolution, as modified by the Senate tax bill, fails.
2. Will the economy be helped by the tax program it contains? Will it encourage the jobs and broader tax base that the president and his Treasury Secretary assure us is the key to a healthy America? (After all, the goal is to expand the total tax base, not the individual tax burden.) This is especially important since the administration's own spokesmen concede that most of the unplanned deficit has been caused by the combination of high unemployment and lower inflation. The Senate bill fails this test, too. It will increase unemployment, reduce capital investment, discourage savings and, in short, bring back the recession.
3. Does the package encourage Americans to save? The secretary of the Treasury made the point in 1981 that a higher savings rate can mop up the government deficit, lower interest rates and allow new job-creating investment. But the Senate bill impacts on the people and sectors most likely to save. Passing it means less savings, less investment and higher interest rates.
4. Will its passage strengthen the Great Coalition, which for a year-and-a-half has produced more change than anything since F.D.R. and the New Deal? The answer to that one is no. The Senate bill skipped the House and went to conference because liberal Democrats ran over conservative Republicans. Republicans voted 31/2-to-1 against going to conference.
The administration's current strategy resembles the Eisenhower approach of co-opting the liberal Democratic leadership. That style minimizes short-term conflict with the political opposition, rather than adhering to the former Reagan strategy (remarkably like that of F.D.R.) of working with your allies to get the maximum change.
5. Does it move us toward the president's stated goal of a balanced budget at 19 percent of GNP? In its Quarterly Review of Summer 1982, the Federal Reserve Bank of New York says the administration is on a track that will have the government spending 24 percent of the GNP in fiscal 1985; the analysis points out that the administration is underestimating spending by a cumulative $141.5 billion over the next three years. This is clearly not the direction we want to go in. These figures imply a 1985 government one-fifth bigger than President Reagan proposed in 1981.
Voting for this five-year, $228 billion tax increase would relieve pressure on the federal government, make it more difficult to negotiate more spending cuts with liberals, lock the hands of conservatives in future Congresses and get us a weak economy with a deficit caused by unemployment and continued high interest rates.
Since the proposed massive tax increase fails on every count to meet the criteria of the Reagan Revolution, what then would good policy be? The answer is simple. Conservatives should be willing to vote for a package that includes what came to be known as the Bethune Understanding, spelled out on page 15 of the June 21, 1982, conference report on the first budget resolution. That is, a one-year, $20.9 billion tax increase passed after all the spending cuts are in place.
We could live with a carefully crafted tax increase designed to effect primarily consumption and not damage savings and job creation. The best conservative strategy is the "carrot" of more revenue at the end of each cycle of spending cuts that move us back toward 19 percent of GNP. A small tax increase should be a footnote in a book of spending cuts.
Finally, every time I listen to the president's men and think about supporting their tax increase out of personal loyalty, I'm reminded of my mother-in-law's comment about the bill. "If you guys start withholding on my interest, then I'm going to spend all my savings," she said. "I'm not going to go down and tell my bank I'm too poor to be withheld on."
When I told her that it's President Reagan who favors withholding, she said, "But that's not why I voted for him. It was the other guy who was going to do that sort of thing."
She's right. She remembers why she voted for her candidate in 1980. The question is: will the rest of us in Congress remember 1980 and vote to defeat the tax increase? Will the administration remember 1980 and withdraw its bill?
Only after we dispose of the his unacceptable bill can the original Reagan team get back together and write a principled budget package that puts spending cuts first, and tax hikes last.