The twelve members of Congress who constituted the Deficit Committee have failed. The stock market, on Monday, certainly voted with its feet, fleeing equities as though the New York Stock Exchange were infested with Scarlet Fever. (An estimated trillion dollars has exited mutual funds in the past two years.) While blame for the failure of the Deficit Committee has at least twelve fathers, the man who has borne the brunt of the assault is Grover Norquist. Mr. Norquist is the founder of a tax payer advocacy group, Americans for Tax Reform. The fact that he was the subject of a CBS 60 Minute interview with correspondent Steve Kroft only added fuel to the fire. Mr. Kroft, a sanctimonious and partial interviewer, suggested that Mr. Norquist’s organization has some of the characteristics of a “protection racquet.” Grover Norquist steadfastly indicated no interest in compromise.
Norquist could be characterized as an “enfant terrible.” Whether one agrees with him or not, he has been candid and has said things many people find offensive. Nevertheless, in his early years he was prodigy-like. In 1985, at the age of 29, with two degrees from Harvard, and at the request of President Reagan, he founded Americans for Tax Reform. A year later the Tax Reform Act of 1986, the first major tax reform since 1954, was passed. Effectively, the Act eliminated many deductions and lowered the maximum effective tax rate from 50% to 28%. The effectiveness of the change could be seen in the fact that in 1985 federal tax receipts, as a percent of GDP, were 17.7%; in 1987 they were 18.4%. GDP during those two years rose from $4.218 trillion to $4.736 trillion. Lower nominal tax rates produced higher revenues, vindicating Arthur Laffer’s curve.
In the years since, Mr. Norquist has become a highly influential lobbyist in Washington, characterized by some – perhaps hyperbolicly – as the most important person in Washington. What he did do was to get 279 members of Congress to sign a Taxpayer Protection Pledge. The pledge is made to the taxpayers of the district of the Congressman and has two items: a pledge not to raise the marginal tax rate for individuals and/or businesses and, second, to oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by reducing tax rates. Its obvious purpose is to shrink government, which is a good idea in my opinion, but can be obstructionist in its adamancy, unhelpful in my opinion. The best comment I have heard regarding that, or any pledge was uttered by the hapless Jon Huntsman, the most sensible of the Republican candidates. At one of the debates, when the subject of the Pledge came up, Mr. Huntsman said, “The only pledge I would sign is a pledge not to sign a pledge!”
Nevertheless, it is easy to understand the frustration of fiscal conservatives that has driven them to make such pledges. Special interest groups have been feeding Democrats for years. Public sector unions owe their jobs, high salaries, unusually good benefit packages and a lack of accountability and responsibility to the symbiotic relationship they have with the Democratic Party. Those pledges and commitments to union members risk bankrupting our federal government, as they have been doing to our state and local governments. Since the early 1970s, federal government expenditures have been running between 18.5% and 20.5% of GDP. Receipts have generally been about one hundred basis points lower. In 2009, outlays increased to 25.0%, while receipts dropped to 14.9%. This year receipts are expected to fall further to 14.4%, and outlays will rise to 25.3%. Spending has gotten out of hand, but tax revenues are too low. Democrats have a responsibility to reduce spending, but Republicans must find means of increasing receipts. A pledge which essentially precludes tax reform only further ossifies an intractable problem.
What Congress must first determine is the vision of government the people want: what size government should we have relative to GDP? What role should government play in our lives? How intrusive should it be? Keep in mind that currently combined federal and state spending is roughly equivalent to 40% of GDP. Since government is solely dependent on the private sector, it seems pretty shortsighted on the part of Democrats to insist that current spending habits cannot be changed. If current trends persist, one of my great-grandchildren (or perhaps one of yours) may become the sole private sector worker supporting a cast of two or three hundred million government workers. That is obviously an embellishment, but it is the logical destination of the direction we are traveling.
Mr. Norquist has put on notice those Congressmen and women who, in moments of conciliatory weakness, deemed to violate their pledge. As he said in his interview with Mr. Kroft, Norquist “innocently” noted that he would only make the taxpayers, in the district of the feckless Congressman, aware of the breaking of a promise. However, when Congressmen of either Party remain obtusely obstinate, it results in Americans choosing homicide over political suicide.
The second item Congress must address (and related to the first) is: How best to generate economic growth? Again, Congress is split. Democrats argue that government should drive growth, ergo a focus on stimulative spending. Republicans understand that the private sector is both faster and more efficient, thus their focus on tax reform and reductions in federal spending.
My sympathies lie with Republicans in this regard, but stalemate helps no one. Bismarck, a man not noted for his cozy relations with his political enemies, once remarked: “Politics is the art of the possible.” Richard Brookhiser, in his biography, James Madison, writes about Madison, as the Constitution was being debated: “He lost arguments and changed his mind. That is because the Constitution was produced by politics as well as theory.”
Washington has become a theater of the absurd, and Grover Norquist is a principal player. But for 60 Minutes to imply he is the most powerful man in Washington only adds to the absurdity. That city has become filled with people more focused on re-election than on doing right by the American people. The President speaks in high moral tones, but his adamancy equals anything put forward by the Republican camp. Earlier this fall, he said he would veto anything that cut his new healthcare plan and insisted on $1 trillion in tax increases. During the final, climatic days before the cutoff, he skipped town. Can anyone imagine Lyndon Johnson not being part of the scrum?
Democrats in Washington have turned a deaf ear toward the logic of arithmetic. There is not enough money to do what they have promised. They have created a generation of dependencies, in which half the people pay no federal income taxes and in which about 70% receive more from government than they pay in. Democrats have always had the easier argument. It is more pleasant to give than to take, and to place blame on the “rich”. It has provided them the moral high ground, even as they know the gifts they have promised are ephemeral. Republicans are left to clean up after their prodigal brothers – to take away what is unaffordable.
The problem in Washington, the refusal to own up to the road to Socialism we are traveling, and the stalemate it has produced, is reminiscent of the Dead Horse Theory. The wisdom of the Dakota Indians, passed on from one generation to the next, says: “When you discover that you are riding a dead horse, the best strategy is to dismount.” Congress has tried everything from appointing a committee to study the horse, to re-classifying the dead horse as living-impaired. What they have not done is to acknowledge the problem for what it is – living beyond our means.
Grover Norquist grew up in middle class suburbs outside of Boston. Despite his notoriety and his success, he continues to live simply. While I don’t believe Mr. Norquist is evil, as Steve Kroft implied, his intransigent inflexibility does not serve the interests of fiscal conservatives, who share his belief in smaller government, but who recognize that a refusal to negotiate means nothing gets accomplished. The art of the possible in today’s political environment requires enlisting the support of independents. The President, with his flirtations with Socialism, is vulnerable. Republicans, with a center-right candidate, can move the country forward with far greater momentum than can an obstructionist like Grover Norquist.