by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Amity Shlaes‘ latest column for Forbes explains why she believes a ban on bailouts might be more important than tax reform for the Republican Party’s presidential aspirants.
QUALITY TAX POLICY unites America and prepares us for stronger economic growth. That’s why Republican presidential candidates have traditionally made taxes the central plank in the GOP platform. Under an optimal tax plan all people are treated the same. Rates are low. …
… Yet that logic doesn’t seem to hold in this election round. The early tax plans–and some would even hesitate to call them plans–are not optimal. Candidates currently favor a disunified mishmash, singling out groups for various preferences. …
… Republicans are producing divided tax plans because they’re addressing a genuine economic divide. Wall Streeters, the energy sector and a few others are faring well, but others are not. Middle-age Americans observe that they owe more money, drive older cars and hold less equity than they had imagined they would at this point in their lives. For their part, young people sense that they are, to cite the title of economist Diana Furchtgott-Roth’s new book, “disinherited.” Only debt and subpar jobs lie ahead.
The reason for this divide is bailout policy that dates back to the 2008 financial crisis. In the summer of that year President George W. Bush and presidential candidates Senators John McCain and Barack Obama were spending more time on Scott McClellan’s Iraq tell-all, Sarah Palin’s performance as Alaska governor or the Obama campaign’s mastery of social media than on mortgage-backed securities. The crisis surprised all three men. Uncertain, first President Bush and then President-elect Obama joined Congress in turning to bailouts and subsidies as the answer. Those bailouts ultimately hurt the economy because they “picked losers,” investing in firms whose dissolution might have made better sense. Companies didn’t hire the way they might have had there been no bailouts.
The corporate and bank bailouts ceased, but the greater bailout, the Federal Reserve’s monetary bailout, continues to this day. …
… The 2008 crisis is the elephant in the elephants’ room, the event that affects voter trust in the GOP. Since voters aren’t sure what happened in 2008–and aren’t sure what will happen in the next crisis, either–they’re in no mood to take the sort of leap of faith tax reform requires. Understandably resentful, they prefer a tax handout. Politicians sense this and deliver accordingly.
Suggestion: Postpone the tax talk, and, instead, push the candidates on bailouts. Force them to declare whether they consider themselves to be “Austrian” or neo-Keynesian.” Let them say whether, come the next crisis, they’d wing it, à la Hank Paulson, or actually put forward a plan. Clear the air on 2008, and there will be trust enough for tax reform.