The Politics of Taxing and Spending in Congress

“The Politics of Taxing and Spending in Congress: Ideas, Strategy, and Policy. ” Catherine Rudder

Politics of Taxing and Spending in Congress Republican Vision of Government Republican Tax Policy: Creates a Crisis Lack of revenues might lead to wholesale reconsideration of social programs. Starve the Beast: Reform Govt Programs by Denying Funding (319) Tax Policy Community Concerned about Long Term Effects of Rep Tax Policy: - Potentially Dangerous - Rep tax policy might adversely effect long term health of the US economy, ability of govt to meet long term commitments, and viability of governing institutions.

Politics of Taxing and Spending in Congress Major Shift Partisan Shift: Reagan to Bush II Partisan Attack on Reps? It is not the Objective Crisis or Not? Majority Opinion: Stage is Set for Action-Forcing Fiscal Crisis Con Reps: Crisis is what is needed to break Govt to old entitlement system. Let go of progressive taxation, and the econ. will generate new wealth. Democratic Response: Clinton Strategy: Fiscal Conservatism Dems wanted to retain prog. Tax and social programs, but appropriated from Reps.

Politics of Taxing and Spending in Congress The Fiscal Crisis: A Bleak Outlook or an Action-Forcing Strategy (320) 2004: Federal Budget: Unsustainable (Orszag) Over next ten years, budget will between $5 and $8 Trillion short. Clinton to Bush: 1. 3 Trillion Surplus to 4. 5 Trillion deficit. Tax experts predict “large, sustained deficits”

Politics of Taxing and Spending in Congress Problem: Expenditures Exceed Revenues (321) One study: (Urban Inst/Brookings) Rep Tax account for ¾ of deficit. White House: Post 911 recession is the source of the shortfall. Bush Tax Cuts: If Permanent, Could Threat Fiscal Avalanche

Politics of Taxing and Spending in Congress The Evolution of Fiscal Policy (322) WWII to JFK: Reduce Taxes, Increase Govt Spending as Econ Grew JFK: 1962 Investment Tax Credit First attempt to use tax policy as econ. tool. Tax Policy: Driven by Pres, Not Congress Late 1970 s: Birth of Supply Side Economics

Politics of Taxing and Spending in Congress The Reagan Revolution (323) Reagan: Championed Reducing Govt, Cutting Taxes, Strong Defense David Stockman: Reagan Tax Strategist Econ Recovery Act of 1981: 750 Billion Tax Cut (324) First, and last Reagan tax cut…

Politics of Taxing and Spending in Congress The Reagan Revolution (323) Failures of Supply Side Tax cuts did not stimulate the economy sufficiently to pay for themselves… Reagan Legacy: Reduced Taxes, But Govt was Bigger and in More Debt Reagan raised taxes, but maintained ant-tax image. (325)

Politics of Taxing and Spending in Congress The Reagan Revolution (323) Failures of Supply Side Tax cuts did not stimulate the economy sufficiently to pay for themselves… Reagan Legacy: Reduced Taxes, But Govt was Bigger and in More Debt Reagan raised taxes, but maintained ant-tax image. (325) Bush I: Failed to Maintain Reagan Image of as Anti-Tax (325)

Politics of Taxing and Spending in Congress Clinton and the Deficit Hawks (326) Dems used budgetary process to push through tax breaks for working people, increased marginal tax rates on wealthy.

Politics of Taxing and Spending in Congress The Second Republican Revolution: A Successful Gingrich Strategy (327) Reps cast Clinton policy as a “largest tax increase in nation’s history” to win Congress in 1994. Gingrich Radical Leadership: Empowered Speaker (327 -328) Details of Gingrich Leadership: Brought in new Cadre odd con Reps Centralized power in the House Renewed Reps Hopes Gingrich Aggressive Tactics Vindicated by Victory

Politics of Taxing and Spending in Congress The Second Republican Revolution: A Successful Gingrich Strategy (327) Gingrich Lead Attack on Core Democratic Policies Reps: Focus on Tax Cuts, Abandon Deficit Reduction

Politics of Taxing and Spending in Congress The Ideology, the Strategy and the Tactics: Ready to Go (329) The above background might help us explain our central question: Why Did Reps Induce a Budget Crisis (Under Bush)? Starve the Beast Strategy Implementation of the Strategy: A Unified Republican At Last (330) Rep achieved unified govt in 2000, but their margins were slim: Senate 50/50, House 221 -212 (down from 1998), and Bush contentious election.

Politics of Taxing and Spending in Congress House Reps: Committed to Bush Tax Cutting Plans Example: Bill Thomas, Chair, Ways and Means (331) Aggressively pushed Rep agenda, excluded Dems from the process. House Leadership: Moved Before Bush: March 1, 2001 Tax Cut (332) House introduced H. R. 3 Econ. Growth and Tax Relief Act of 2001: $958 billion tax cut.

Politics of Taxing and Spending in Congress Reps in the Senate: Masterful Manipulation of the Rules To Pass Tax Cut Nature of Rep Tax Cuts: Phased and Out over Ten Years Rep Tax and Dem Policy on Collision Course: Additional Tax Cuts (333) 9/11 Tax Cut: Job Creation and Worker Assistance Act of 2002 $94 Billion Tax Cut over 5 Years

Politics of Taxing and Spending in Congress Additional Tax Cuts (333) Even as Revenue Estimates Fell and Spending Increased (War on Terror) Jobs Growth Tax Relief Reconciliation Act of 2003. Resulted in a 330 Billion cut over 11 years, third largest in country’s history. Jumpstart Our Business Strength (JOBS) A Fourth Cut: 2004

Politics of Taxing and Spending in Congress Additional Spending Medicare: $ 395 Billion to 1 Trillion over ten years What About Deficits? Who Benefits from Rep Tax Cuts: These tax cuts have disproportionately favored top 20% of the income bracket. The bottom quintile received less than. 01 percent.