Reason Magazine - Staff

Not-So-Radical Republicans

info@reason.com (Stephen Moore) — Wed, 01 Jul 1998 00:00:00 EDT

Late last year at a budget strategy session in his office on Capitol Hill, House Budget Committee Chairman John Kasich (R-Ohio) held a briefing for a handful of small-government types on the year's upcoming budget fight. I asked Kasich why Republicans had abandoned their agenda of terminating hundreds of useless federal programs. He cupped his hands behind his head, kicked his feet up on his desk, and declared: "You just don't get it. The jig is up around here when it comes to cutting the budget."

Every jaw in the room visibly dropped. We were stunned by this devastatingly frank declaration of surrender--especially coming from Kasich, the GOP's eternal optimist and the one man on Capitol Hill during the last three years most single-mindedly dedicated to downsizing our $1.75 trillion federal enterprise. That this budget hawk had so clearly lost faith that his Republican brethren would actually cut spending was a depressing and dramatic sign that the GOP's budget revolution was over.

We shouldn't have been so shocked. Kasich had merely jolted us with the obvious truth. As the 105th Congress winds down, the budget is bulkier than ever before. This spring, the Senate Republicans approved a budget that calls for spending and tax cuts that are, in the words of a disgusted Rep. David McIntosh of Indiana, "anemic and an embarrassment." If approved, the federal budget will be some $300 billion higher than when the GOP took over the reins of Congress in January 1995. Adjusted for inflation, the four-year spending total of $7.5 trillion for 1998-2002 is more money than America spent to fight both World Wars, the Civil War, and the Revolutionary War. In fact, in today's dollars, it is more money than the U.S. government spent on everything from 1800 to 1960.

This story is eerily familiar. In his masterful 1985 critique of the Reagan administration's failure to cut the budget, The Triumph of Politics, former Office of Management and Budget Director David Stockman complained that the Reagan revolution amounted to "the clearest test of doctrine ever likely to occur in a democracy like our own" and that "the anti-statist position was utterly repudiated by the forces of the politicians--Republican and Democrat alike." Stockman glumly concluded that, by 1984, "the Reagan White House was nearly bereft of any consistent anti-spending policy principles."

And so it is in 1998 with the Republican Congress. Only a few years after the November 1994 election that swept Republicans into power on Capitol Hill, the Newt Gingrich-led budget revolution on Capitol Hill is a shambles. Fiscal conservatives have been thoroughly trounced--again. Today there is no strategy and no will power to cut anything out of the budget: not maple syrup research grants, not Jimmy Carter's home heating subsidies, not military funding to build skating rinks in Alaska, not taxpayer handouts to Fortune 500 companies. Nothing.

This duplication of the failed Reagan assault on the budget 15 years earlier raises two questions: Why won't Republicans--who continually advertise themselves as the party of smaller and smarter government--actually cut the budget? And have fiscal conservatives and libertarians been entirely naive in ever expecting them to?

The short answer to the second query is yes, and for reasons that relate to the first one. The dissipation of the Reagan "revolution" and its more recent analogue underscores basic insights of public choice economics: that government is predisposed to grow rather than shrink; that politicians, regardless of ideological bent, have strong incentives to spend tax dollars and to maintain or expand the power that spending confers; and that fundamental reform must ultimately come from deep-seated institutional change, not merely a switch in legislators. Add to that two other ingredients--a healthy economy that automatically generates enough revenue to balance the budget, thus removing the spur for serious cuts, and the fact that most congressional Republicans have never been committed to limited government--and the reasons for the GOP loss of nerve become clear.

Before exploring how and why the Republican budget revolution drifted off course so wildly and so quickly, it's only fair to acknowledge some impressive accomplishments made in the immediate aftermath of the electrifying election results of November 1994. Consider, for instance, the 1995 Freedom to Farm bill, which promises to end most crop payments by 2002. Though the law is far from perfect (and the jury is still out on whether subsidies will actually expire when the appointed time arrives), it allows farmers to produce for the market, not for the government.

Similarly, the 1996 welfare reform bill was a great victory for limited government. Despite its technical flaws and the subsequent restoration of some benefits, that bill reversed 30 years of federal welfare expansion. It changed the open-ended nature of welfare payments by requiring work and by devolving many welfare responsibilities to the states. We've already seen a 30 percent to 40 percent decline in welfare caseloads in many states. This bill was a watershed for another reason, too: For the first time in half a century, the left was forced to concede that a massive government undertaking--in this case, the $5 trillion Great Society welfare state--had failed.

But the most heralded, and improbable, fiscal accomplishment of the GOP Congress has been the balanced budget. Uncle Sam could end 1998 with a budget surplus of $50 billion or more. That will mark the first time since Lyndon Johnson's presidency that the budget has not been in the red. It's safe to say that the surplus would not have arrived had it not been for the GOP's unwavering crusade for an end to deficit spending. Arguably, Newt Gingrich's finest hour as speaker came in March 1995, when he rallied the entire Republican House caucus behind the idea of eliminating the deficit within seven years. Skeptics said it could never be done, and in a sense they were right: Congress didn't balance the budget in seven years--it did so in three. Clinton hogs the credit for the balanced budget, but the real turning point in the fiscal improvement came with the 1994 elections. When the Republicans took Congress, the baseline Clintonomics budget forecast was $200 billion deficits for as far as the eye could see.

Finally, since November 1994 Republicans have presided over a sizzling economy and a record bull market on Wall Street. When Republicans took over Congress in November 1994, the Dow Jones Industrial Average stood at 3,800. Since then, the Dow has gained more than 5,000 points--reflecting the greatest buildup of wealth in American history. Make no mistake about it: This is not a Bill Clinton but a Newt Gingrich bull market. "The markets love Republicans not for what they do, but for what they don't do," economist Arthur Laffer has hypothesized. "They don't raise taxes, they don't nationalize the health care system, they don't erect new protectionist trade barriers." Republicans can be counted on to do minimal harm, and in this global, high-tech economy, that may be good enough to keep markets chugging along.

Yet for all of these accomplishments, there is still the nagging and unavoidable reality that no matter how you measure it, the government--aside from military programs--isn't getting any smaller. Republicans have now approved four budgets (for fiscal years 1996 through 1999) that have allowed total nondefense expenditures to expand by $62 billion more than in the four years before the GOP took over Congress.

Republicans counter these depressing numbers by noting that Congress lacks unilateral authority to scale back ravenous entitlement programs--which is where most of the budget growth is. The president's signature is required to change the law on public benefits. For instance, back in 1995, during the infamous two-and-a-half-week-long shutdown of the government, Republicans had approved Medicare and Medicaid reforms that would have saved roughly $30 billion per year. Those savings were vetoed by Bill Clinton.

In the end, though, this explanation for federal budget expansions is unconvincing. If entitlements are the problem, why have congressional Republicans continued to accommodate the president's requests for new ones? Bill Clinton didn't put a gun to Republicans' head last year when they funded five new welfare, health care, and education entitlements.

Senate Budget Committee Chairman Pete Domenici of New Mexico has valiantly trumpeted the GOP budget record by announcing that total federal spending as a share of national output is falling. And indeed, federal spending is now below 21 percent of gross domestic product, down from its zenith of about 23.5 percent during the Bush-Darman years.

But there is no mystery as to what accounts for the decline: The Cold War ended. Military spending as a share of GDP is now at its lowest level since the late 1930s. The defense budget has been halved from 6 percent of GDP in 1967 to 3 percent today. Meanwhile, social spending has climbed to 18 percent of GDP, near its highest level ever. (See Chart 1.) This is the first postwar period in American history in which "peace dividend" savings have not been passed back to taxpayers through tax cuts. Instead, those defense savings have been diverted to honey bee research, Lawrence Welk museums, kiddie care, International Monetary Fund bailouts, and all of the other civilian programs crammed inside the 2,200-page budget. Of the $81 billion in new spending this year, virtually every penny will be deposited in domestic agencies.

Republicans are correct in complaining that Bill Clinton has been a tireless defender of the size and scope of government and a hindrance to every budget cut they have tried to make. For example, the latest White House budget contains 1,001 ideas for expanding government into every conceivable nook and cranny of domestic life. But in 1997, after belittling Clinton as a spenda-holic, Republicans proceeded to send to the Oval Office a budget that somehow managed to spend $4 billion more than the president requested. The truth is, Sen. Phil Gramm (R-Tex.) noted last year, "Some of our Republican members routinely want to outspend Clinton."

A lesson of the Reagan years was that in order to genuinely downsize government over the long run, it's simply not enough to prune back agency budgets. They have to be pulled up by the roots, and salt needs to be poured on the soil. If any part of a program's infrastructure remains intact, it will soon grow back to its original size, if not even larger. This was a lesson Republicans said they understood back in 1995. Newt Gingrich declared shortly after his elevation to the speakership that "Republicans will prove to the American people that we can get rid of programs, not just create new ones."

In the early days of the Republican "revolution," it seemed this proclamation would be carried out. Back in April 1995 the House Republicans--inspired by the libertarian-leaning class of 72 GOP freshmen--passed a courageous budget based on the Contract with America. By Washington standards, it was an unprecedented blueprint for governmental restructuring. It slated more than 300 indefensible federal programs and three worthless cabinet agencies--Commerce, Education, and Energy --for the scrap heap. Some of these programs, such as the Legal Services Corporation, bilingual education funds, and Bill Clinton's army of Americorps "volunteers," were little more than political slush funds for left-wing constituencies. Others--like the Tennessee Valley Authority and the Rural Electrification Administration--were so antiquated that Barry Goldwater pledged to shut them down some 35 years ago when he ran for president. Most of the rest were simply hopelessly ineffectual: the Economic Development Administration, Amtrak operating funds, federal transit grants, the Appalachian Regional Commission, and maritime subsidies.

In its audacity, the original Contract with America budget was reminiscent of the first Reagan-Stockman budget back in 1981. Unsurprisingly, it met with much the same fate: When Clinton vetoed the GOP budget and the government shut down, the GOP panicked and resurrected almost all of the condemned agencies. Last year I asked House Appropriations Committee Chairman Bob Livingston of Louisiana for a list of the programs that actually have been terminated. I received an impressive-looking, four-page list of canned programs. I am happy to report that we no longer spend tax dollars on the Cattle Tick Eradication Program, the U.S. Travel and Tourism Administration, the Rural Abandoned Mine Program, and the Women's Educational Equity Act. Similarly, a House parking lot, warehouse, and barber shop have all been privatized. Good riddance to bad rubbish.

But the good news ends there. All but a handful of the 297 programs on Livingston's list had price tags of less than $1 million--not even a rounding error in our $1.8 trillion budget. The total annual savings amounts to $3 billion--a microscopic 0.017 percent of federal largess. Sure, that's $3 billion more than the Democrats ever saved. But all the big fish got away.

In fact, it's worse than that. Spending has actually risen by 1.3 percent for the 38 biggest programs once slated for termination. (See Chart 2.) For instance, the budget for Americorps was $4.3 million when the Republicans took Congress. Now it's $504 million. The Goals 2000 program--"free money" for education that some states have actually rejected because of the strings attached--has roughly tripled in size over the same period, from $231 million to $668 million. In the 1997 appropriations, funds for bilingual education rose by 35 percent, for the Appalachian Regional Commission by 6 percent (even Clinton wanted to freeze this agency), and the World Bank by one-third. Republicans even gave a 10 percent raise to the Internal Revenue Service.

The single program that has become a fiscal litmus test for the GOP is the National Endowment for the Arts. The House narrowly voted to kill the NEA last year, but it was resuscitated by GOP senators. In fact, Sen. John Chafee (R-R.I.) was so incensed by the recklessness of the young turks in the House that he proposed increasing the NEA's budget by 70 percent. The compromise struck was to cut the $100 million arts budget to $99 million. As the Heritage Foundation's Marshall Whitman quipped, "We're on a 99-year glide path to kill the NEA." Sadly, that's far more progress than we're making with most obsolete and unproductive federal programs.

For advocates of minimal government, this refinancing of programs that Republicans have railed against for 30 years is excruciating to witness. Cutting nonentitlement domestic programs is something Republicans have the power to do unilaterally. If the GOP truly wanted to end the NEA, it could cancel the funding tomorrow. The president cannot appropriate a dime of money for the NEA--or any federal nonentitlement program. Only Congress can. True, the president can whine and moan--and even shut down the government via his veto power--but he can never force Congress to spend money it doesn't want to spend. As Appropriations Committee Chairman Livingston pointed out in the GOP's headier days of 1995, "If the president vetoes a zero, he's still left with zero." During the Reagan years, Republicans argued (unconvincingly) that the president cannot downsize the government, only Congress can. Now with the parties' roles reversed, many of these same Republicans seem to be saying, "Congress cannot cut the budget; only the president can."

The Republican retreat from cutting programs related to health care, education, and the environment is somewhat understandable, given President Clinton's 1996 presidential campaign. In large part, Clinton's platform was built around promises to save such programs from any budget cutting. But Republican leaders are now reluctant to target even programs with little or no public support. What, for instance, could possibly explain the GOP's refusal to board up the last vestige of the oil crisis, Jimmy Carter's Department of Energy? We have a national energy policy that is working extremely well for consumers nowadays: It's called the free market, and it has helped deliver historically low prices on gasoline. On top of that, Hazel O'Leary, Clinton's first-term energy secretary, was a poster child for wasteful, unnecessary government spending: She used the DOE as her passport to travel first class around the globe at taxpayer expense and created a Nixon-style "enemies list" of free marketeers who want to privatize energy policy. Yet to repel the budget cutters, DOE officials staved off unwelcome GOP scrutiny by wisely forming an alliance with Western Republicans such as Rep. Dan Schaefer of Colorado and Sen. Pete Domenici of New Mexico, each of whom has national laboratories and other energy pork within his borders.

Republicans also continue to pour hundreds of millions of taxpayer dollars directly into the coffers of Planned Parenthood, the National Council of Senior Citizens, the Children's Defense Fund, the National Education Association, and trial lawyers. This is not merely a sign of cowardice--it also represents monumental political stupidity. The GOP has chosen to continue to fund the very advocacy groups that have declared a holy war against the Republican Party. Even after the unions spent an estimated $35 million against GOP candidates in 1996, Republicans continue to replenish their coffers through odious programs like the Davis-Bacon Act, an obsolete New Deal-era law which requires union wages on federal contracts, pumping tens of millions of federal dollars straight into the AFL-CIO political war chest. The Legal Services Corporation still receives $200 million a year to finance leftist legal activists dedicated to undermining the free market agenda.

Stockman used to preach about a budget reduction strategy that targeted "weak claims, not weak claimants." The corporate community in Washington that feeds at the federal trough each year has the weakest of claims but the deepest of pockets. The federal government spends nearly $70 billion a year on welfare for such impoverished companies as AT&T, General Electric, and Chevron, helping them to rig markets, stave off competition, and fatten their bottom lines. The results of such handouts are indefensible. For instance, the General Accounting Office estimates that price supports for sugar gouge consumers out of some $1.4 billion a year through higher food prices. Archer Daniels Midland, the $12.7 billion conglomerate that claims to be the "supermarket to the world," derives more than $200 million of its annual profits from the production of its government-protected high-fructose corn syrup.

Here's another weak claim: Under the late Ron Brown and now Bill Daley, the Clinton administration has converted the Commerce Department into a $5-billion-a-year, wholly owned subsidiary of the Democratic National Committee. The department is now used to shake down Fortune 500 companies for campaign contributions in exchange for millions of dollars of pork-heavy, high-tech grants and sweetheart deals with foreign governments arranged during trade missions around the globe. It is at the epicenter of the Clinton fund-raising scandals. In 1995 Brown created in his office a taxpayer-financed war room of government employees whose full-time job it was to save the department. This is a bureaucratic agency whose sole mission in life is self-preservation--the sort of dragon smaller-government Republicans should be able to slay in their sleep.

Then there's the Agriculture Department's Market Access Program, which subsidizes foreign sales by U.S. corporations. Every year American taxpayers cough up $100 million to help advertise the Pillsbury Dough Boy, Dole pineapples, Purina Puppy Chow, the dancing California raisins, and Napa Valley Cabernets on TV and radio in Europe and Asia. "Why can't Pillsbury spend its own money on advertising?" Kasich asks. Why, indeed. This program is an affront to American voters' sensibilities. But instead of terminating the program, Congress has kept the dollars flowing to the corporate looters. The only concession won by budget hawks has been a "time limit" for the aid. Ironically, while the welfare bill imposes a two-year limit on mothers receiving AFDC and food stamps, corporate welfare queens are permitted five years on the dole before they are tossed out of the safety net.

Funding parasitic corporations only reinforces the public's general suspicion that the GOP is the party of the rich, the privileged, and the corporate lobbyists. After witnessing the full funding of one corporate welfare program after another, I have to say the public's suspicions may be correct. (The Clintonite New Democrats, unfortunately, are no better.) The mercantilist policies of the Commerce and Agriculture Departments are the antithesis of the free market policies Republicans say they espouse--and, since they're extensions of a hostile Democratic administration, it's hard to understand why they continue not merely to exist but to flourish. Corporate handouts create a constituency of statist businessmen who have joined forces with politicians and bureaucrats to lobby for ever-expanding government. "If you can't push AT&T and G.E. off the dole," Silicon Valley venture capitalist Tim Draper told the Senate Government Affairs Committee in March, "how can we ever expect to get farmers, unions, artists, and seniors to give up their subsidies?"

Exactly. A handful of congressional Republicans do recognize that shrinking the corporate welfare safety net is simultaneously good policy and good politics. Sen. Sam Brownback of Kansas correctly insists that "cutting federal aid to business should be promoted as welfare reform, round two." He sensibly proposes earmarking savings from ending business subsidies to pay for a capital gains tax cut, small business tax relief, and other measures that will do far more to improve the overall competitiveness of U.S. industry. His one-man crusade against "welfare for the well-off" has been admirable, but so far he has lost to his corporate statist colleagues (who populate both parties) on nearly every vote. When I asked Newt Gingrich why the 105th Congress has not made a serious attempt to slice out corporate pork, he responded: "This really isn't one of our top priorities. And I don't like the term corporate welfare much anyway." You can lead an elephant to water, but you can't make him drink.

Similarly bizarre is the congressional Republicans' devotion to foreign aid programs. Every poll for the past 20 years has found that American voters loathe foreign aid. And for good reason: The economic evidence continues to mount that the $15 billion the U.S. government spends on the Agency for International Development, the World Bank, U.N. development programs, the IMF, and other forms of developmental assistance merely perpetuates poverty in Third World nations and underwrites corrupt regimes. As this is being written, congressional Republicans seem poised to extend an $18 billion federal line of credit to the corrupt IMF, as House Majority Leader Dick Armey fights a lonely battle against the international statists.

In March 1997, when House International Relations Committee Chairman Ben Gilman (R-N.Y.) convened a hearing on the future of foreign aid, seven of the eight witnesses testified in favor of more funding. Six of them were on the dole themselves: the American-Israeli Public Affairs Committee, the Irish National Caucus, Africare, World Vision, the American League for Exports and Security Assistance, and the nation's leading corporate welfare queen, Bechtel Corp. As Investor's Business Daily reported, "The free enterprise viewpoint on foreign aid got a better hearing when the Democrats ran Congress." In fact, Gilman's bill was so generous that a leftist organization called Interaction, a conglomeration of hundreds of groups that receive foreign-aid goodies, praised the Republicans for "passing a bipartisan bill that restores U.S. funding for international affairs." Gilman has circulated the letter to try to rally votes for his bill. This would be like Chicago's chief of police boasting of an endorsement from Al Capone.

For all intents and purposes the GOP's budget-cutting crusade ended with the 1997 budget deal--a negotiated settlement that would be more accurately described as the terms of budget surrender. With each passing day the extent of the victory for the pro-spending lobby becomes more apparent. Last summer, for instance, The Washington Post ran a front-page story aptly titled "Social Funding to Increase Significantly." "After years of assuming that a balanced budget agreement would inevitably entail deep cuts in domestic programs and catastrophic consequences for the neediest," began the story, "liberal advocacy groups and other analysts have found an extraordinary surprise: significant increases in funding for the elderly, the indigent, the college-bound, families with children, and immigrants." That covers just about everyone. To emphasize the point, the Post reported that funding for health, education, and welfare programs has soared by 29 percent since the Gingrich revolution was launched. Jubilant social welfare agency spokesmen proclaimed, "We got most everything we wanted."

The welfare industry's crown jewel in the 1997 pact was the $24 billion Kennedy-Hatch health insurance bill, which Kennedy touted as "a major step forward toward national health care." Steve Pollack, director of Families USA, a welfare-advocacy organization, praised it as "providing the most significant advance in funding for health care coverage since the Medicare and Medicaid programs were enacted 32 years ago."

Newt Gingrich and Trent Lott have been scrambling to try to convince their constituents (and themselves) that they have successfully tamed the budget. Ironically, to camouflage the torrent of new spending, Republicans have reverted back to the deceptive rhetoric of current services budgeting--a practice they lambasted when they were in the minority. The 1996 GOP platform trashed baseline budgeting as "a deceptive and reprehensible shell game." Now we have Republican leaders Pete Domenici, Newt Gingrich, and Trent Lott embracing the practice, applauding hundreds of billions of dollars of "savings" and "cuts" in a Republican budget that allows spending to grow by at least $75 billion. A shell game indeed, when the level of spending cuts promised in the Contract with America is compared with the actual level of spending. (See Chart 3.)

No single bill exemplifies the decisive rout of fiscal conservatism on Capitol Hill more than the 1998 highway bill. The first sign of trouble was the stampede of Republican House members pleading for a coveted slot on the Transportation Committee shortly after the 1996 elections. The committee ballooned to 73 members, making it the biggest spending committee in the history of Congress. The $214 billion bill, drafted by Chairman Bud Shuster (R-Pa.), represents a 40 percent, five-year increase; it's the most expensive public works bill in American history. The standing joke in Washington this spring was that because of his penchant for laying cement, no blade of grass in America is safe while Bud Shuster runs the committee.

The bill contains 1,467 white elephant transportation "demonstration" projects for bicycle paths, hiking trails, bus museums, parking garages, subway systems to nowhere, and university research. That's three slabs of bacon for every congressional district and 10 times more pork projects than in the Democrat-drafted highway bill Ronald Reagan vetoed a decade ago. It is $30 billion above the already generous spending caps set during the 1997 budget deal. Even President Clinton lashed out at the bill, rightly calling it "fiscally irresponsible."

In the Senate there was not a peep of protest against this fiscal travesty. The bill passed 96-4, with the only nay votes coming from the delegations of Wisconsin and Pennsylvania--which complained that their states were getting shortchanged in the spending sweepstakes. In the House, only a third of Republicans voted no. One who did, Rep. Chris Shays of Connecticut, a moderate, declared shortly before the House vote, "This bill is a dramatic sign that the Republican revolution is dead."

So what lessons should voters learn from the collapse of the GOP's budget-cutting agenda? The parallels with the disappointing Reagan budget revolution are striking. David Stockman concluded in The Triumph of Politics that the heretics in the 1980s were not Tip O'Neill, Ted Kennedy, and other liberals hell-bent on preserving the status quo. Rather, the real problem lay in Reagan Cabinet members who would wear their Adam Smith ties to meetings, only to plead for ever-increasing funding for their own agencies. Congressional Republicans during the Reagan years also quickly abandoned the idea of cutting the budget in favor of power, prestige, and thick slabs of pork. In the end, writes Stockman, the Republicans could not bring themselves to say no to "Social Security [cost-of-living adjustments], corporate protectionism, safety net programs, urban aid grants, and farm price supports."

Similarly, after four years of a Republican Congress, the downsizing agenda has itself been downsized, almost to the point of completely disappearing. The conventional explanation for the GOP's fiscal retreat is that the public backlash from the failed government shutdown episode has turned the Republicans into a bunch of Milquetoasts. But the truth is that even if Republicans had won that early battle with Clinton, they would still have made a separate peace with the pro-spending lobby by now. There are simply too many James Jeffordses, John Chafees, Al D'Amatos, and Bud Shusters in the GOP to sustain a credible small-government agenda.

Indeed, the big spenders' control of the party's fiscal agenda seems distressingly secure. Liberal House Republicans are now conspiring to elevate House Appropriations Committee Chairman Bob Livingston, big spender extraordinaire and the enduring symbol of the let's-make-a-deal school of politics, to the speakership. They may well succeed. And who will be the next majority leader to lead this fiscal revolution? Bud Shuster?

But Republicans have an even bigger problem confronting them. For 30 years they have dedicated themselves to the mantra of a balanced budget. To their credit, that objective has been achieved--though mainly through record tax increases and military downsizing. Without the demon of the deficit, Senate Republicans are content to preserve the status quo--and even to brag about spending surplus funds on new social programs. In the wake of the balanced budget accord, few are comfortable articulating the case for smaller government. And you can count on one hand the number of Senate Republicans who are comfortable voting for it. The 1998 Senate budget resolution passed in April was nothing but a resounding affirmation of the status quo. It specified zero program terminations.

There is a silver lining, though, in the House, where a few Republican budget hawks remain. They are mostly from the freshman class of the 104th Congress and include stalwarts such as Mark Neumann of Wisconsin, Mark Souder and David McIntosh of Indiana, Mark Sanford of South Carolina, J.D. Hayworth and Matt Salmon of Arizona, and Steve Largent of Oklahoma. There are perhaps 50 or so Republicans who have remained true to principle and have rejected the spendthrift mentality of the past two years. Within the GOP caucus, they are treated like tobacco lobbyists at a health care convention.

Given that, it's tempting to conclude that cutting the colossal federal empire in Washington is futile. That was David Stockman's disgruntled conclusion in 1985. It's also how many analysts are interpreting the 105th Congress's performance. Applying the public choice analysis of the late Mancur Olson, Jonathan Rauch, author of Demosclerosis: The Silent Killer of American Government, believes that the continued growth of government under a GOP Congress means that "conservative visionaries who still hope to radically reduce Washington's reach are today just as pie-eyed as liberal visionaries who hope to turn America into Sweden." Political writer E.J. Dionne of The Washington Post says politicians are simply "delivering all the government that the voters want." The Weekly Standard's Bill Kristol and David Brooks write of a need for the GOP to stop being "unfriendly to big government." Instead they believe that the American people long for Uncle Sam to serve as a vehicle for achieving "national greatness." Even though they're coming from different perspectives--Olson/Rauch as political economists, Dionne and Kristol/Brooks as ideological advocates--all agree that cutting the government is hopeless.

The double lesson of the Reagan and Gingrich eras is that Republicans are perhaps a necessary but not a sufficient condition for achieving smaller government. After 12 years of GOP presidents and four years of a GOP Congress, all of the public choice barriers to cutting government that existed in 1980 are still present today. The political process is still severely biased in favor of spending, rather than cutting. This suggests that the most promising political strategy for cutting government is to devote money and energy to institutional reforms--to actually change the rules of the game, rather than simply trying to outplay the other side.

Foremost among these rule changes is term limits. When Republicans took over Congress in 1995, the new majority leader, Dick Armey, one of the few dedicated limited-government conservatives in Congress, declared that if Republicans did their jobs, "maybe the public's desire for term limits will subside." Just the opposite has transpired: The 104th and 105th Congresses have been shining monuments to the need for limiting terms. My colleague at the Cato Institute Aaron Steelman has found that the propensity to tax, spend, and regulate rises in an almost linear fashion with length of time in office. In fact, that's particularly true for Republicans, since Democrats usually come to Washington already inclined to spend other people's money. For Republicans, taxing and spending are learned behaviors.

Tax limitation measures are also imperative. Here the experiences of the states are instructive. The Western states--such as Arizona, Colorado, Montana, and Nevada--that have enacted supermajority or voter approval requirements for tax increases have stopped them dead in their tracks. Other states have constitutional constraints on the rate of spending growth--normally tied to population growth plus inflation--that require tax rebates instead of spending hikes during boom periods. A two-thirds supermajority requirement for new taxes would have prevented the last five federal tax increases--including the Bush and Clinton hikes. At the end of April, the House voted down a constitutional amendment requiring a two-thirds majority, 238- 186, primarily along party lines.

Fiscal conservatives should have by now been jolted from their 30-year fantasy that if only Republicans controlled Congress, government would become smaller, less consequential, and less intrusive. Those (including me) who once upon time believed this fairy tale should have known better. As in the early 1980s, we have once again collided with the central reality that despite the appealing rhetoric, the GOP is not a small-government party. The Democratic cardinals on Capitol Hill have simply handed over the reins of power to a cast of Republican cardinals.

This is not to say that libertarians and fiscal conservatives should conclude that cutting the government is infeasible, as Rauch, and apparently Kristol and Brooks, have surmised. Before advocates of limited government can change the country, they must change the GOP. It's not a fantasy to imagine that someday Republicans can cut the budget and rein in the federal government; it's just that these Republicans won't do it.

When Bud Shuster was recently asked to justify all the pork spending projects in the highway bill, he cavalierly replied: "Look, congressmen aren't angels." No, they certainly are not. And the lesson of the last four years has been that they are not angels even--and in some cases especially--if they have an R next to their names.

The Great Tax Revolt of 1994

info@reason.com (Stephen Moore) info@reason.com (Dean Stansel) — Sat, 01 Oct 1994 00:00:00 EDT

Two years ago, when businessman-turned political-activist Douglas Bruce launched Amendment I in Colorado, a ballot initiative requiring that all new and increased state and local taxes and debt be approved by popular vote, his political opponents waged a holy war against him. Bruce was characterized as a "terrorist" who would "lob a hand grenade into a schoolyard full of children." Defeating the proposal was said to be the moral equivalent of "fighting the Nazis at the Battle of the Bulge."

And these, mind you, were just the comments of the governor, Democrat Roy Romer.

The public-employee unions, education lobby, and bond traders were far less civil. One bond trader, fearful that the voter-approval requirement for new debt would put him out of business, even suggested that if Amendment I were adopted, the pope might be assassinated when he came to Denver, for lack of police. Despite the hyperbole, hysteria, and nearly $1 million spent to defeat the initiative (versus less than $300,000 spent by taxpayer groups in support), Amendment I was approved by 54 percent of the voters in November 1992.

It has had an immediate policy impact. Tax increases have been stopped dead in their tracks. In November 1993, one year after Amendment I's passage, Colorado voters were asked to reinstate a relatively trivial 0.2 percent tourism tax that had expired. They rejected the $11-million tax hike by a margin of 55 to 45. Last year Colorado property taxes rose by less than 1 percent--the smallest increase in 20 years. Without new revenue sources to tap easily, state government in Denver is changing the way it does business. "These days, when agencies want more funds, they are forced to cannibalize each other," says Bruce.

But the real impact of Amendment I, and the great untold political story of the year, is how rapidly this initiative is invading other states. Oklahoma and Washington voters have already joined Colorado in passing it. Similar initiatives have qualified for the November ballots in Nevada and Oregon and will likely also appear on the ballot in Florida, Missouri, Montana, and North Dakota. Grover Norquist, president of Americans for Tax Reform, which advises state taxpayer groups across the country, predicts that "the way things are going, by 1996 every state with initiative and referendum will have passed a version of the Colorado law." So far, the measure seems to command the same kind of broad-based populist appeal as term limits.

Welcome to the great tax revolt of 1994. Not since Howard Jarvis successfully spearheaded California's Proposition 13 property tax-cut initiative in 1978--and unleashed a taxpayer protest that eventually swept through more than half the states and catapulted Ronald Reagan to the White House--have there been more citizen-driven efforts to roll back taxes. Consider the wide array of anti-tax actions on tap across the country:

* This year taxpayers in 11 states, with a total population of nearly 50 million people, may be voting on some form of anti-tax or spending-restraint ballot initiative.

* In addition to voter-approval requirements for taxes, a parallel anti-tax measure gaining momentum is the idea of requiring a two-thirds vote in the legislature to raise taxes. In November 1992, 72 percent of Arizona voters approved this supermajority requirement. Similar initiatives may appear on the ballot in Montana and Nevada this year. (Significantly, Congress has this requirement reversed for Washington, D.C.: A three-fifths supermajority vote is required to cut taxes, but only a majority is necessary to raise them.)

* In June, for the first time ever, California voters rejected every bond initiative on the ballot, $6 billion worth. Those included proposals to pay for everything from schools to parks to earthquake relief to crime prevention. Reported The Wall Street Journal: "State legislators are reeling in disbelief."

* Meanwhile, almost half the states have enacted tax cuts this year. New Jersey's newly elected Gov. Christine Whitman delivered on half her promised 30 percent income tax-rate reduction; Michigan's John Engler chopped the property tax in half; and Mississippi's Kirk Fordice eliminated the state capital gains tax. Arizona's Fife Symington has cut the state income tax three years in a row and has now pledged to completely abolish the state income tax if reelected. Art Laffer's supply-side movement--a subject of widespread ridicule among the Washington intelligentsia--has never had more dedicated practitioners.

* Even prominent Democrat lawmakers have caught the tax-cutting fever. In Georgia, Gov. Zell Miller won approval of a $100-million family-income tax cut that over two years will increase exemptions for elderly residents by $2,000 and dependent children by $1,000. Meanwhile in California, Willie Brown, speaker of the assembly for more years than anyone cares to remember and perhaps the sponsor of more expensive tax hikes than any politician in American history, has suddenly discovered supply-side religion. Brown proposes a 6-percent investment tax credit as the surest way "to keep and expand jobs in California." He predicts that the tax credit will "generate additional income, property, and sales tax revenue for the state"- -and no, that's not Jack Kemp talking.

* All told, 1994 will be the first year in more than a decade that state tax burdens will actually fall.

There are several explanations for this sudden and intense taxpayer discontent. One is simply pent-up frustration with gigantic expansions of state budgets in recent years. "In the 1980s, tax dollars rolled into state treasuries in wheelbarrows, and were quickly spent," Connecticut Gov. Lowell Weicker, hardly a fiscal tightwad himself, has observed.

He's right. In the Reagan era of "greed and over-consumption," few Wall Street fat cats could match the spending binge of many state governments. Though some state spending increases were the result of federal mandates in areas such as welfare and Medicaid, frugality did not otherwise reign among the states. In Florida, the budget was $7 billion in 1980; today it's $30 billion. In 1980 Arizona had a $3-billion budget; today, it's $10 billion. Connecticut's expenditures have roughly quadrupled since 1980. Even adjusting for inflation, most states have budgets roughly twice as large as they did 15 years ago with virtually no corresponding improvement in services--indeed, public-opinion polls suggest a deterioration in schools, crime prevention, and the like. This is natural grist for a storm-the-Bastille taxpayer revolt.

Also driving the tax rebellion is an increasing recognition that the soak-the-rich tax strategy employed by many states during the past recession is shrinking state economies. A 1993 Joint Economic Committee study reports that since 1990 alone, the top 10 tax-hiking states have created zero net new jobs; the top 10 tax-cutting states gained 650,000.

Nearly two-thirds of the jobs lost during the 1991-92 recession disappeared from just two states: California and New York. There are many factors behind these states' decline, but certainly it's no coincidence that both have among the highest tax burdens in the country. Boise, Idaho; Reno, Nevada; and Salt Lake City, Utah are three of the fastest growing cities in America. With the lure of very low taxes and a business-friendly regulatory climate, they are successfully cherry picking off of California's industrial base. California Gov. Pete Wilson's tax policies have done more for the prosperity of those cities than 1,000 economic development offices.

Then there is the economic revival in Michigan. Inheriting a $1.8 billion budget deficit four years ago, Engler spurned the Florio-Weicker-Wilson putting-taxes-first fiscal solution and took a chainsaw to the budget, carving out savings in every state program from welfare to arts subsidies. He also cut taxes--11 times in fact, including his recent controversial $1.1-billion property-tax cut. (See "Engler's Angle," August/September.) Those policies now appear to be paying off. Once derided as the epicenter of the rust belt, today Michigan has a lower unemployment rate (5.5 percent) than the national average for the first time since Ford introduced the Mustang convertible--in 1966. And the state is now debating what to do about this year's $300-million budget surplus.

Perhaps the single largest impetus for the sudden wave of tax-cutting frenzy for politicians is pure political survival. Since 1990, voters have ousted eight tax-raising governors at the polls. The election that sent political shock waves throughout state capitals nationwide was, of course, Christine Whitman's triumph over Jim Florio in New Jersey last November. Florio came to power in 1990 as the self- proclaimed anti-Reagan, pledging to replace supply-side doctrine with a new-age progressive populism. His agenda of combining soak-the-rich tax hikes with Robin Hood wealth-redistributing education and social welfare spending programs was greeted with worshipful applause in Washington and in the media. A month after his record $2.8-billion tax package passed, New York Gov. Mario Cuomo praised Florio as a "bold and instant national hero." He even received the annual JFK Profile in Courage award.

Christine Whitman's victory shattered the Florio delusion. Exit polls from that election revealed just how thoroughly voters had trounced Florio's progressive liberal vision: 60 percent of the electorate said they preferred "fewer government services with lower taxes," while only 33 percent said they wanted "more of both." But what is really discombobulating to the left is that as Whitman has made good on her ambitious tax-cutting agenda, her approval rating has soared to over 70 percent--even as her "right-wing, supply-side agenda" is reviled with almost daily regularity in TheNew York Times and New Jersey newspapers. So popular is her tax-cutting program that now Whitmanomics is being copy-catted in GOP gubernatorial campaigns in Connecticut, New York, and a handful of other states. Whitman, a housewife by trade, is even seriously discussed as a vice-presidential candidate.

The accomplishments of Whitman, Engler, and other tax-cutting governors are impressive. But the real revolutionaries transforming state politics in America today are ordinary, unelected citizens like Douglas Bruce. They are relying on grass-roots direct democracy to permanently change the way states do business. While a popular politician's legacy can be quickly dismantled once he's gone, the latest wave of populist anti-tax ballot initiatives could foil the tax-raising efforts of teachers, unions, Naderites, and other pro- spending lobbies for many years to come.

Consider Montana, which is well on its way to ensuring that the taxman is held at bay for the foreseeable future. This November, there are three tax-related initiatives on the ballot. It all started when a first-ever state sales tax plan was put up for public vote in a special election in June 1993. The legislature sneakily passed a $73-million income tax hike that would go into effect if the sales tax were defeated--a virtual certainty according to the polls.

Not only was the sales tax defeated 75-25, but 20 percent of Montana's voters signed petitions to suspend the $73-million "blackmail tax" and put it, too, to a public vote this November. Public sentiment is running high in favor of repeal, though Rob Natelson, the law professor leading the petition drive, has been labeled a "tax dodger" by the Montana Education Association, and one Republican legislator has threatened to introduce legislation to eliminate the law school where Natelson teaches.

Two other tax-limitation measures are on Montana's ballot. CI-66 would require voter approval for any new or increased state tax; CI-67 would require a two-thirds supermajority of the relevant lawmakers to pass any new or increased state or local taxes and fees or to exceed the previous budget's level of spending. While there is some disagreement among anti-tax activists as to whether it is wiser to rely on voters' discipline (as CI-66 would) or politicians' discipline (as CI-67 would), both measures enjoy wide public support. Thus, both are likely to pass, giving double protection against the expansion of state government in Montana.

Passing such ballot initiatives tilts the political playing field in the taxpayers' direction. Before enacting the "It's Time" supermajority initiative in 1992, the Arizona legislature had raised taxes eight times in nine years. "But these days," boasts taxpayer advocate Sydney Hoff Hay, one of the principal sponsors of It's Time, "the legislators don't even bother to propose new taxes." Arizona Gov. Symington agrees. "The little secret [of the supermajority requirement] is that my income tax cuts are pretty much irreversible," he says. Government in Arizona will be ratcheted downward, not upward.

The supermajority requirement makes it difficult for state lawmakers to tax even the most demonized industries: tobacco companies, big oil, utilities, and the like. Says ATR's Grover Norquist: "Any industry that's large enough to be worth looting probably has the political clout to muster the necessary one-third- plus-one votes of the legislature to inoculate themselves from tax hikes."

Supermajority vote requirements aren't a fail-safe protection against higher taxes, of course. Pete Wilson was able, after all, to wrangle the two-thirds votes he needed out of the California legislature to secure his $7-billion 1990 tax hike.

Still, the political establishment views anti-tax ballot initiatives with a combination of fear and loathing. Public-employee unions, school boards, lobbyists, and even local chambers of commerce are mobilizing to defeat these measures. Their defense strategy is one of containment: Spare no expense to defeat the tax initiatives wherever and whenever they appear on the ballot.

In Florida, the Tax Cap Committee is sponsoring four amendments, probably the most ambitious anti- tax effort in any state this year. The two most controversial would require taxpayer approval for new and increased taxes passed by the legislature and would require a two-thirds popular vote for any constitutional amendments that impose a new tax. Opponents are attacking the messenger rather than the message. Nearly 90 percent of the Tax Cap Committee's finances are alleged to have come from U.S. Sugar Corporation, a firm that was the target of a proposed amendment--since struck down by the state Supreme Court--seeking to impose a tax on sugar to fund pollution abatement in the Everglades. Thus, The Miami Herald suggested that the hidden motivation behind the two-thirds vote requirement to impose new taxes by constitutional amendment is to "derail efforts to clean-up the Everglades."

Tax Cap chairman Dave Biddulph objects that this charge is "blatantly false," noting an Everglades cleanup bill has already been passed by the legislature and signed by the governor this year. He further explains that government regulations make it very difficult and expensive for citizens to get initiatives on the ballot. "We knew from all the experience that if you don't end up with some money some place along the line, it never is going to happen," Biddulph says. (The proposed amendment to tax big sugar also received most of its money from an out-of-state multimillionaire commodities trader.)

Despite the large amount of funding from U.S. Sugar, this is, in many ways, a genuine grass-roots political movement. Tax Cap chairman Dave Biddulph emphasizes that his organization existed before U.S. Sugar Corporation realized that it could be a strategic ally. Tax Cap has 9,000 individual financial contributors, and nearly a million Floridians have signed the Tax Cap ballot petition. One such taxpayer asked petitioners, "Is there anything I can sign to keep from paying taxes at all?" He later said, "I'm just fed up with taxes eating up more than half of everything I make. I can either get in a boat and sail away or I can do something to protest."

Florida's legislature itself is attempting to scuttle the Tax Cap initiatives. They placed their own spending cap--a much weaker one, excluding several key areas of state spending--on the November ballot. The legislators even tried to install a "poison pill" provision into their initiative that would allow it to supersede any other tax limit approved by the voters. But thanks in part to a Tax Cap Committee-organized phone blitz on Tallahassee, that provision was dropped.

A more imminent threat to the Tax Cap Amendments is State Attorney General Bob Butterworth, who is challenging the legality of the measures before the Florida Supreme Court. He argues that the wording of the ballots is confusing and that they effectively deal with more than one subject. (One of the four amendments sponsored by Tax Cap is specifically designed to allow a citizen-sponsored ballot amendment to deal with more than one subject when the state's taxing power is concerned.) The court appears to be a huge hurdle: Judges have struck down three of the last four Florida ballot initiatives on technical grounds.

Another common tactic employed by opponents of anti-tax measures is to frighten the public about the alleged dire fiscal consequences of passing them. The Missouri Education Association has organized and funded a front group called "Citizens to Protect Missouri's Future" to defeat the state's tax and spending limitation initiative known as the Hancock II Amendment. The group complains that if the amendment passes, University of Missouri tuitions will double, thousands of government employees will be laid off, prisons will shut down, hardened criminals will be turned loose on the streets to prey on the public, and-- horror of horrors--$4.5 billion of free federal highway aid will have to be sent back to Washington.

To bolster their point about the devastating impact that tax-limitation measures can have on state governments, opponents often point to California's Proposition 13. Prop. 13--the granddaddy of citizen tax- limitation initiatives--rolled back local property taxes to 1 percent of assessed value, limited assessment increases to the lower of 2 percent or the annual inflation rate, and required two-thirds voter approval for new local taxes and a two-thirds legislative majority for new or increased state taxes. A Sacramento Bee editorial captured the essence of the attacks on Prop. 13: "There is almost nothing in the state that hasn't been affected by Prop. 13 for the worse," the newspaper stated.

Similar stories have appeared nationally in TheNew York Times Magazine and Money magazine. The Money article, titled "The Tax Revolt that Wrecked California," was crammed with sorrowful tales of a tax revolt run amok. Wrote Richard Reeves: "Fifteen years later, the lessons of Prop. 13 read like cliches: There's no free lunch; you get what you pay for. Inevitably, as revenues fell, spending and critical public services were cut. In California, those cuts have led to crises in education, medical care, and public safety. They have triggered a civil war pitting the old against the young, longtime residents against new, whites against blacks and browns, haves against have-nots." For some reason Reeves was unable to find a connection between Proposition 13 and the recent earthquakes.

California taxpayers no doubt only wish that Prop. 13 had been half as effective in rolling back government as Reeves suggests. Joel Fox, president of the Howard Jarvis Taxpayer Foundation, notes that property tax revenue has been climbing by about 10 percent a year for a decade and the California budget has tripled from $15 billion to $54 billion a year since 1978, when Prop. 13 rocked the nation. State and local governments in California have many problems these days, but being starved for revenue is surely not one of them. (See "Pushing the Limit," November 1993.) And perhaps the citizens are the best judges of whether their state has been ruined by Prop. 13: Opinion polls still show that if it were voted on today, Prop. 13 would pass with the same two-thirds majority it did 15 years ago.

Oddly enough, considering the avalanche of criticism in the media about the allegedly draconian effects of Prop. 13, some skeptics oppose these tax limits for the opposite reason: that they have little fiscal impact one way or the other. These critics point to the multitude of methods politicians have invented to evade tax and spending limits. For example, most of these measures cap only the "general fund" budget, typically about 40 percent of the state budget. That provides a major loophole for politicians wanting to increase spending and revenue.

Perhaps the most blatant end run around a tax and spending limit occurred recently in Connecticut. In 1992 nearly 80 percent of Connecticut voters approved an initiative limiting spending growth to the growth rate of personal income. But the state attorney general has ruled the measure inoperative until the legislature defines what "growth of personal income" and other such terms mean--which it conveniently refuses to do. While the Hartford politicians dragged their heels, Connecticut's budget expanded by 7.2 percent last year instead of the 3 percent the limitation would have allowed. Faced with a legislature that stubbornly refuses to enact a constitutional amendment approved by a huge majority of the voters, a freshman Republican state legislator and a group of taxpayers have sued the legislature for defying the state constitution. The state filed motions to dismiss the suit on the grounds that it infringed on the state's sovereign immunity and that the issue was a political matter outside the purview of the court. The court has already ruled against the state on the first motion; at press time, a decision on the second one was expected shortly.

Given opposing complaints that they have done too much and too little, what is one to conclude about the performance of tax and spending limits? Somewhere between the claim that their impact has been apocalyptic and the claim that their impact has been trivial lies the truth. Our just-released Cato Institute study compares the growth of per-capita spending and taxes in the 18 states that adopted binding tax and expenditure limits in the last tax revolt versus those that did not. We found that spending continued to grow in the tax-limit states, but at a slower pace than in other states. We also found that real per-capita taxes in states with tax limitations grew by 11.9 percent over the five years before enactment but fell by 2.8 percent over the first five years after enactment. As a result, the state tax burden per family of four in tax- expenditure limit states was $650 lower (five years after the limit was enacted) than it would have been if state tax growth had not been reversed. Admittedly, that's a far cry from the revolutionary change in state government that had been sought and promised by the promoters of measures like Prop. 13, but it is progress.

Nonetheless, taxpayer frustration with the relative inability of Prop. 13-era limits to more effectively deter the expansion of state government over the past 15 years has sparked the current anti-tax ballot strategies. And today's taxpayer groups have learned from the experiences of their predecessors. They recognize that the main cause of the ineffectiveness of Prop. 13-era limits is that they left the ultimate authority for slowing the growth of Leviathan with Leviathan itself. To address that problem, the current movement is toward measures that leave the ultimate authority with the voters. These new measures have the potential to become the most effective ironclad restraints on government expansion ever.

The latest polls suggest that most of these initiatives stand a good chance of passing. The Oregon anti- tax measure has 66 percent support; Missouri's Hancock II amendment has 82 percent support; and the Nevada and Florida voter-approval requirements both command near 90 percent support. But they are hardly done deals. The history of initiatives is that approval levels often fall off sharply as election day approaches.

Remarkably, while this citizen-driven anti-tax uprising sweeps through state capitals from Tallahassee to Carson City, Washington, D.C.'s attitude has been one of oblivious unconcern. In fact, CNN political guru William Schneider recently stated that "I see no great tax revolt out there." And he gets paid a lot of money for such opinions.

But stay tuned. This November, even Washington may be feeling the effects of the tax revolt of 1994.