Quick, what quack said this: “There is a point at which in peace times high rates of income and profits taxes destroy energy, remove the incentive to new enterprise, encourage extravagant expenditures and produce industrial stagnation with consequent unemployment and other attendant evils.”
The answer is (drum roll please): Woodrow Wilson! He’s not a guy who said very many sensible things in his time. To the contrary, as a certain new book argues, the guy was a terrible president, and the author of much of what is wrong with modern American liberalism. But like John F. Kennedy decades later, he understood that economic growth is important, and that punitive tax rates hinder growth. In fact, concerning Kennedy, let’s go to the tape, as they say, and recall this 1961 speech:
Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenue to balance our budget just as it will never produce enough jobs or enough profits. Surely the lesson of the last decade is that budget deficits are not caused by wild-eyed spenders but by slow economic growth and periodic recessions, and any new recession would break all deficit records.
In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now. . . The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.
So what do we get from liberals today? The Buffett rule, which will raise only trivial amounts of revenue. But for today’s liberals, it is more important to exact redistribution than to have a tax code that promotes growth; it is more important to get the rich than help the economy. That’s what happens when punitive liberalism replaces “growth liberalism,” which was the economic doctrine of Kennedy-era liberalism. The entire theory of LBJ’s Great Society was that economic growth would throw off so much cash that they could afford a huge expansion of the welfare state. Their economic projections called for surpluses as far as they eye could see. Today. Obama resists tax reform because he is concerned about “fairness” (recall once again his answer to Charlie Gibson in 2008 that he favored higher capital gains taxes because of “fairness” even if higher rates brought in less revenue).
The chart below, which Dan Mitchell’s terrific International Liberty blog flagged last week, shows one of the principal reasons the European welfare state is collapsing (low birthrates being the other leading cause)—the slow, steady decline in the rate of economic growth. This lesson is simple: you can’t have your national debt grow faster than your economic growth rate, or you get: Greece, Spain, Portugal, Ireland, Italy and . . . the United States.
This is simple: we won’t get back to normal long-term rates of economic growth until today’s liberals either change their mind and re-acquire their former emphasis on economic growth, or are routed at the polls. Let’s vote.