On the one hand, we are told that the Senate tax increase isn't really a tax increase at all. We will raise $228 billion over five years merely by collecting the odd dollar in unpaid taxes, by closing loopholes -- like catastrophic hospital costs -- and by repealing items that somehow fell through the cracks -- like almost half of the administration's 1981 business tax cuts in 1987 (according to the American Council for Capital Formation). Apparently the burden of business taxes is no longer passed forward to consumers or backward to workers and savers.
On the other hand, we are informed that anyone who opposes the tax increase must be doing so for dark and selfish political motives. The beauty of this kind of well-poisoning is that it prejudices almost anything an opponent might care to say. If you point out the sheer political folly of such a dramatic U-turn in economic policy, suspicions are confirmed. If you concentrate on the sheer economic folly of raising taxes when unemployment is 9.8 percent, it awakes admiration at how devious it is to seem to ignore the obvious political fallout. Since there's no way to respond to this kind of attack, I won't bother.
I don't question the sincerity of my old friends who now believe in raising taxes. Nor do I fault the White House staff for playing political hardball and perhaps overstepping the bounds of good taste in order to drum up support for the president's position. After all, that's their job, as they see it. What I do fault them for is having maneuvered the president into a position that will hurt the country economically, and therefore hurt the president politically.
The economic issue is straightforward. The country simply cannot stand up to such a dramatic tax increase in its depressed condition. The administration argues that raising taxes will reduce the deficit, that reducing the deficit will lower interest rates and that lower interest rates will revive the economy; therefore, a tax increase is necessary to revive the economy.
The same logic says that the prospect of the 1981 tax cuts caused the recession that began in 1980. We have only to look back to 1968 to see that raising taxes does not lower interest rates. There's only one way to balance the budget: by putting America back to work and restraining spending. A tax increase serves neither purpose.
The political issue is becoming equally clear. Walter Mondale says you can't trust Republicans because one year they pass the largest tax cut in history and the next year the largest tax increase in history. Proponents of the bill weakly respond that it is only the second-largest tax increase in history. "Let's face it," Democratic Ways and Means Committee Chairman Dan Rostenkowski has written, "Republicans wrote a tax bill that has been in the bottom drawers of Democratic tax reformers for years." And without insisting on all the spending cuts in the budget resolution, Republicans will resume their familiar role as tax collectors for Democratic spending programs.
President Reagan has assured me he had to "swallow hard," but reluctantly supported the tax increase as the price we had to pay to get three times as much in outlay cuts, and I deeply respect him and his position. So far, however, Congress has not delivered on most of the promised $280 billion in outlay cuts over three years. Right now, the three-year score is tax increases: $99 billion, spending cuts $16 billion out of $41 billion in direct cuts. Just this week, several more bills were reported out of committee over budget.
White House aides are understandably frustrated with House Republicans who balk at the tax increase, but the situation is their own fault. At the time of the budget compromise, House Republicans secured an agreement from the White House called the Bethune Understanding: the budget resolution committed Congress only to a single-year, $20 billion tax increase, provided that specified spending cuts materialized. They didn't, but the permanent (five-year cost, $228 billion) Senate tax increase did. The Republican Conference -- the caucus of House Republicans -- thereupon unanimously adopted a resolution demanding spending cuts before any tax bill is considered. Their misgivings were reinforced when they read in The New York Times that the White House was willing to accept higher spending in return for Democratic support of the tax increase, and in Business Week that OMB is contemplating several tax-increase proposals, including the repeal of indexing.
To call this a "revolt" is to stand the truth on its ear. Those of us who never understood how a tax increase will stimulate the economy still don't. Those who voted for the budget resolution are merely demanding that its spending provisions and the Bethune Understanding be honored. How is it a "revolt" to keep the same position you've always had?
Having invested the president's prestige in a position without economic or political merit, the White House falls back on the only issue it has left: loyalty. You can't oppose the president on such a major issue, we are told. You'll split the party, we are told. That's ridiculous -- a major issue like the future of the American economy is the only kind on which you can justify such opposition. Otherwise, you're being frivolous or merely window-dressing. I believe the debate within the Republican Party is a sign of political vitality. It's the only party at the moment with the intellectual equipment and resiliency to debate important ideas without falling apart. And the most important domestic issue is whether the country will go backward to austerity or forward to growth. Republicans were elected in 1980 because they rejecteddausterity and pledged to get America moving again.
I worked for Ronald Reagan as long ago as 1966. I was with him before the 1980 primaries, and I'll be with him in 1984. To those who would question anyone's loyalty over so serious an issue, I reply: who is the better friend--the one who will agree to anything, however ill-advised, or the one who will risk frankly telling you when you're making a serious mistake? I've carried water for the president on issues like foreign aid, and will gladly do so again. But this time I can't. And do you know what? The president understands.