Taking on class warriors and the economy

0 Comments | Insight on the News, May 27, 2003 | by Ralph De Toledano

Byline: Ralph de Toledano, INSIGHT

Washington is full of mysteries, and the biggest one today is why the White House and Republican congressional leaders are not using their strongest arguments against Democratic opposition to President George W. Bush's economic program. The argument that cutting taxes and elimination of double taxation on dividends will jump-start the economy are true enough, but they do not demolish Democratic demagoguery that tax cuts and ending double taxation on dividends favor the "rich" and create huge deficits.

These are "class-war" arguments, and the liberals love them. They are fiction, but this makes them that much easier to sell to a public which still believes that the Democrats ended the Depression of the 1930s. When Franklin D. Roosevelt became president, there were 11.5 million people unemployed; four years later when he ran for re-election there still were 11.5 million unemployed. What ended the Depression and the 1937 Roosevelt recession was the country's growing involvement in the World War II market.

Blockbusting arguments to counter Democratic propaganda are there but, for some reason, the Bush administration ignores them.

Economic and political history from the late 1940s proves that the United States emerged from World War II with a huge and snowballing deficit. The Republicans were concerned and sought to reduce government spending, advocating a fiscally responsible program as a means of bringing revenues into line with federal outlays. They were hooted down by the Democrats.

"There's nothing wrong with deficits," the Democrats argued. "We only owe it to ourselves." And they trotted out the usual gaggle of tame economists to lecture on the benefits of overspending.

The fact is that even the most liberal economists once held that in times of recession and/or threatening deflation, the soundest policy is to cut taxes to spur economic growth. This puts more money into the economy and encourages the activity necessary to encourage production and employment. Yet some of the same economists now argue that cutting taxes would delay recovery. History and experience, of course, are against them but when does that bother practitioners of the dismal science?

Twice in recent history we have seen what cutting taxes achieves. President John F. Kennedy cut tax rates and the economy zoomed. The wastrel policies of President Lyndon Johnson, the multibillion-dollar "war on poverty," gutted the U.S. Treasury but had no effect on the so-called "poverty rate." President Ronald Reagan, assuming office during a recession caused by President Richard Nixon's Keynesianism and President Jimmy Carter's disastrous "stagflation," drastically cut taxes. As any economist would have predicted, the lower rates strongly stimulated the economy and brought in more revenue.

The Democrats today, with customary blandness, argue derisively that the deficit grew during the Reagan boom. This is true. But what they studiously fail to mention is that this was caused by a Democratic Congress which went ape on spending the Reagan increase in federal tax revenues.

Today the welkin is ringing with Democratic charges that ending double taxation on stock dividends, thereby pushing up the stock market and bringing much-needed capital to industry, would be a gift to those nasty, greedy investors. No mention is made that there are some five times as many investors as there are members of labor unions. Or that the unions control market-invested pension funds of an estimated $400 billion. Practically every wage earner, from the rockbound coast to the sunny shores, depends on those pension funds for retirement. So any policy that favors those funds favors wage earners.

The Democrats, with their class-war mind-set, endlessly cry out that tax cuts and a fair dividend policy favor only the fat-cat supporters of the president and the Republican Party. As the 2004 campaign begins to heat up, former House Democratic leader and presidential aspirant Richard Gephardt of Missouri is calling for the defeat of Bush's proposed tax and dividend program and repeal of the 2001 reduction of tax rates in short, he is demanding the biggest and most devastating tax increase in living history.

But where the Republicans are most mistaken is in fighting the battle on Democratic terms. Mr. Bush has the "bully pulpit" of the White House to explain to the American people that prosperity depends on the health of business and industry, which provide the jobs and the payrolls. The class warriors on the left will scream, but if the American people are told the facts, clearly and convincingly, they will respond.

Meanwhile, we should ponder Mark Twain's comment: "What is the difference between a taxidermist and a tax collector? The taxidermist takes only your skin."

Ralph de Toledano is the dean of Washington columnists and a frequent writer for Insight magazine.