George W. Bush, The Comeback Kid

Yesterday, I went to the New York Historical Society in downtown New York, where Amity Shlaes organized the “The 4% Growth Project” via the George W. Bush Center.

It was quite the star-studded show. I met President Bush again, plus Karl Rove; Steve Forbes and Rich Karlgaard from Forbes magazine; Rupert Murdoch (!), John Stossel and David Asman from Fox News; Larry Kudlow and Maria Bartiromo from CNBC; Paul Gigot and Stephen Moore from the Wall Street Journal; and even former U.S. Secretary of State Henry Kissinger.

In addition to President Bush, there were governors from several states and the deputy mayor of New York. But the man who really stole the show was New Jersey Gov. Chris Christie. He electrified the audience with his story of turning around his state known for “overtaxing, overspending, and over regulating.” But he was able to balance the budget and start cutting taxes in two short years, despite heavy Democrat control of both houses of government and opposition from the unions.

His most memorable line was from his mother: “Remember, son, it’s better to be respected than to be loved.”

He got a standing ovation from the crowd of several hundred New Yorkers. No wonder he is considered a top presidential candidate in the future, or perhaps even a vice presidential running mate to Mitt Romney.

House leader Paul Ryan also spoke about his plan to turn the government around in Washington. It is time, he said, to reverse the trend: our country has gone from a “maker” society to a “taker” society, and a welfare system that used to be a “safety net” but now is a “hammock.”

I came up with the following title: America — from “freedom riders” to “free riders.” (President Bush laughed when I showed him this line.)

Congressman Ryan did make a Freudian slip when he said in his talk, “President Bush favors a ‘government-centered’ society, er, I mean, President Obama favors a ‘government-centered’ society.”

He apologized for the faux pas, but it does raise an interesting irony. The title of the program was “The 4% Growth Project,” and some cynics in the audience wondered if it was a project to grow government and not the economy.

Both Ronald Reagan and Bill Clinton deserve to be known as “pro-growth” presidents. Four out of the eight years under Reagan saw real gross domestic product (GDP) grow faster than 4%, while it happened five out of the eight years under Clinton. Under Bush, the economy never did grow 4% during 2001-09, in spite of the pro-growth tax cuts.

That’s because President Bush was a softy on cutting government domestic problems, and a hawk when it came to foreign policy. He told the audience, “I don’t miss the presidency but I do miss being commander in chief.” He liked being at war.

Still, Amity Shlaes and the Bush Center have gathered together some real experts who know how to rekindle 4% economic growth rates in the United States. This conference specifically focused on tax policy as a way to spur growth. The Bush tax cuts were undoubtedly the most pro-growth policy adopted by the federal government in the early 2000s, but it wasn’t enough.

President Bush did criticize the Buffett tax proposal on wealthy Americans. “Taxing the rich is a tax on job creators,” President Bush said.

A new millionaire tax also will do nothing to reduce the deficit. It will just allow government to spend more. A tax increase on anyone, whether on millionaires or people in the middle class, does not guarantee a reduction in the deficits. The millionaire tax only means more money is going to the government, which will tend to encourage Congress to spend more, not less.

This situation is clearly the case for anyone who has been to a “mark up” session in Congress. They (the mark-up committee members) first ask how much revenue is expected, and only after that do the lawmakers determine how much they can spend. If the revenue is expected to be higher (due to the millionaire’s tax), the committee tries to increase its budget, as I explain in today’s “You Blew It!” side bar feature.

The only way to cut back on deficits and government spending is to starve the beast through tax cuts. And as Milton Friedman once said, “If a tax cut increases revenues, you haven’t cut taxes enough.”

Ben Franklin said it best, “A virtuous and industrious people may be cheaply governed.” Imposing more taxes isn’t going to make government cheaper.

“You Blew it!” — Honest Taxpayers Pay More Because of Tax Cheats?

“If the IRS had collected all of the taxes owed that year [2006], the U.S. could have had a surplus of as much as $136.8 billion.” — Bloomberg

A new Internal Revenue Service (IRS) Tax Gap Report for 2006 (the latest data available) indicates that the U.S. government could have a surplus instead of a deficit if all Americans paid what they owe in taxes.

But, of course, they don’t. Millions cheat on their federal income taxes.

CNN Money complained, “Honest taxpayers pay more because of the tax cheats.”

Well, it’s not true. Honest taxpayers would probably get no tax break if tax cheats paid up. Here’s why:

First, if tax cheats all paid what they owe, the economy would stop growing and everyone else would earn less, and pay less in taxes. The aggressive compliance methods used by the IRS to go after the tax cheats means auditing and harassing every business in America, which is counter-productive.

“If the IRS were to make every effort to collect every cent due to it, America would be much closer to being a police state,” economist Dan Bawley wrote on page 135 of his book, “The Subterranean Economy.”

Second, even if more revenue were raised through draconian methods by the IRS, who is to say that Congress wouldn’t just spend that extra money and continue to run huge deficits? Just because the federal government acquires more revenue does not necessarily mean reduced deficits and less spending. Lawmakers may spend more!

In fact, Congress typically works that way. In a “mark up” session in Congress, the House committee first asks how much revenue is expected. Only after receiving revenue projections do lawmakers determine how much they can spend. If the revenue is expected to be higher (due to catching tax cheats), the committee tries to increase its spending.

A more healthy way to look at the untaxed underground economy is to measure the tax burden, rather than focus on public dishonesty and the need to crack down on delinquent taxpayers. If there’s a huge underground economy, it’s a sign that taxes are too high and should be cut. If there’s a small underground economy, it’s a sign that taxes are reasonable

Yours for peace, prosperity, and liberty, AEIOU,

Mark Skousen, Ph.D
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