The Laffer Era

I won’t presume to speak for “Ready for Hillary,” but it’s a fair guess that they hope to face Jeb Bush because Democrats believe they hold the ultimate trump card which has nothing to do with his name. It is “the 90’s.” The Clinton campaign is convinced that in a matchup with Bush, all they need do is trumpet the “Clinton economy” while decrying the “Bush economy.”

To borrow from Lee Corso, “not so fast.”

Let’s acknowledge that Jeb Bush is not George W. Bush and Hillary Clinton is not Bill Clinton. The odds of President Hillary pronouncing “the era of big government over” or signing a signature welfare reform are as remote as President Jeb Bush championing a new extension of Medicare or proclaiming “deficits don’t matter.” Still, it is inevitable that in a Clinton-Bush race the comparison between Bill Clinton and George W. Bush will be broadly accepted as fair. Team Clinton believes they hold an unassailable advantage because they act like Bill Clinton was the sole progenitor of the 90’s economy.

Now comes their bete noir Rand Paul poking holes in the myth. Speaking at a Lincoln Labs conference in Washington last week, Paul said “when we dramatically lowered tax rates in the ’80s, we got an enormous boom in our country, probably for two decades. Many of us believe that the ’80s and the ’90s, once the boom began, had a lot to do with lowering the tax rates.” With that explicit challenge to conventional liberal wisdom, Paul turned the comparison between the 90’s and the 00’s into a debate on whether the 90’s were really just a continuation of the 80’s.

Cue the long knives.

Jonathan Chait waded into the breach to rebut this claim, arguing in New York that “tax rates on the rich, at least at current levels, have little impact on economic growth.” Note the qualifier at least at current levels. Liberal discussion of the 90’s focuses on Clinton raising the top rate to 39.6% from 31% to the economy’s great benefit. This casually omits how Reagan reduced the top rate from to 50% from 70% and ultimately to 28% with the 1986 tax reform.

Another tactic used against Reagan is that he was a serial tax raiser who saw the light after the 1982 recession proved his initial rate reductions had failed. “For example, when Reagan cut taxes, economic conditions deteriorated thanks to high interest rates. When Reagan realized he’d cut taxes too much and reversed course, raising taxes seven of the eight years he was in office, the economy improved,” says Steve Benen of MSNBC, who can be forgiven for his ignorance due to being Rachel Maddow’s petulant blogger. The left never seem to grasp that not all taxes are created equal. For every minor increase in a payroll tax or specific targeted tax, Reagan’s legacy is indisputably as an historic tax cutter, as the tax rate that matters most for economic growth and capital investment is the top marginal rate. Investors invest in enterprises when they believe the return on their investments will bear returns sufficient to justify the risk. More capital is risked when greater returns are in the offing. When top marginal rates are high there is less incentive to invest.

The adage “capital goes where it is welcome” is a fundamental truth akin to the laws of physics. Reagan’s success in bringing down top marginal rates are, more than any other external or mitigating factor, the primary reason for the 25 year secular growth trend between 1982-2007. The dramatic rate reduction heralded a new era of entrepreneurial optimism and capital investment as individuals responded to incentives brought about by a more welcoming capital landscape. Yes, one consequence of this was that the rich got richer, but the boom in middle class standards of living as well as upward mobility (an entire new class, the “upper middle” owes its existence to this period) in the 80’s and 90’s was a straight line continuum, putting the lie to the myth that things were sour under Reagan and H.W. Bush until Clinton arrived to save the day with moderate increases in top rates. Any honest appraisal of this era must account for the steady gains in GDP, employment and overall consumer confidence which contributed to multiple quarters of 6% and 7% growth during both the 80’s and 90’s.

Because Bill Clinton did very little to reverse the Reagan revolution on taxes, and in fact bolstered it by lowering investment rates while increasing the top marginal rate nowhere near in proportion to the level that Reagan lowered it, any comparison of the 80’s and 90’s is ultimately moot. We might as well call it “the Laffer era.”

Stupid Laws and Unintended Consequences

The scourge of progressivism is always on display, but sometimes the sheer stupidity of its arguments goes to eleven.

Behold the progressive left’s comprehensive rebuke of Rand Paul’s recent argument that cigarette taxes and the black markets which consequently ensue are partly responsible for Eric Garner’s death. Because racial division benefits the Democratic Party politically, there exists a profound desire on the left to sustain such a beneficial narrative for as long as possible when afforded the opportunity. Conversely, an even stronger desire to prohibit the narrative from being hijacked by other focal points manifests whenever someone challenges the established left wing conventional wisdom.

On MSNBC’s Hardball, Rand Paul offered this completely reasonable opinion on Eric Garner’s tragic death:

I think it is hard not to watch that video of him saying ‘I can’t breathe, I can’t breathe’ and not be horrified by it. I think it is important to know that some politician put a tax of $5.85 on a pack of cigarettes so that driven cigarettes underground by making them so expensive. But then some politician also had to direct the police say, ‘hey we want you arresting people for selling a loose cigarette.’ For someone to die over breaking that law, there is really no excuse for it. But I do blame the politicians. We put our police in a difficult situation with bad laws.

The last thing the left wants is their racial injustice narrative derailed by concerns over taxes or big government (which is not unlike radical feminists’ desire that the agenda outweigh the truth). Hence the surreal spectacle of countless left wing pundits levying passionate rebukes of Paul and the broader right who picked up on his critique. Jon Stewart made the splashiest headlines with his “What the fu*k are you talking about?” zinger on The Daily Show.

Joan Walsh weighed in to pronounce Paul’s 2016 hopes “wrecked,” while Gawker, Vox, Rachel Maddow’s stenographer Steve Benen, and Jeffrey Toobin all joined the chorus condemning Paul for his comments.

Meanwhile, Jonah Goldberg, Rush Limbaugh, Sean Hannity and others on the right responded to the left’s claims with justified scorn. There are some lines of attack that go unanswered because they are not worth responding to, such as charges that Republicans wish to “throw grandma off the cliff” (by reforming Medicare) or wishes to “see kids starving in the streets” (by cutting food stamps). But then there are some arguments belched out of the left’s hive mind that demand swift correction and incessant mockery. The argument that taxes had nothing to do with the Eric Garner tragedy is just plain stupid.

With the opposite of all due respect for Jon Stewart, let me explain just “what the fu*k” Rand Paul and everyone else with a brain is talking about. New York progressives believe that nothing is immune from their regulatory reach, especially those activities which they define as bad. Smoking is indisputably bad for individual health, ergo there must be government restrictions on access to this legal product. That constitutes the “seen” whereas all the unintended consequences that go into enforcing these laws constitute what is “unseen.” By and large, the right knows at least that the unseen exists as a real phenomenon that must be accounted for in public policy, while the left treats the unseen at best as an abstraction and at worst as a sort of urban legend, a myth invented by unsophisticated rubes who can’t quite wrap their puny minds around the need for government to operate as independent arbitrator.

The unseen in the matter of Eric Garner is the human response to incentives. Had there been no six dollar surtax on cigarettes, there would have been no need for the emergence of a massive smuggling racket, whereby trucks would smuggle cigarettes up from the South by the half million. Contrary to popular liberal mythology, human nature is not malleable and thus not prone to radical shifts in personal behavior just because the authorities believe that passing a law equals solving a problem.

Who smokes cigarettes? It’s not coastal elites or academia’s assembly-line activists, that’s for sure. It’s middle American whites and inner city minorities. It’s nice and noble that nannies wish for them to quit, but you know what is not nice and noble? Making packs in New York City and Chicago $14. You think by magic all these smokers are going to magically and radically change their behavior? No, they’re going to look for cheaper avenues to acquire smokes. Progressive do-gooderism and a failure to understand market dynamics, incentives and human behavior leads them to passing these sorts of taxes and levies on the poor in all of our big cities. And the left gets mad when the people don’t comply with their central plans, so they create a strike force (as Cuomo did) to crack down on those nefarious criminals who dare to sell “loosies” outside of the jurisdiction’s onerous taxes.

Progressives want everything to be about social justice and race, and nothing to be about economics or the perverse incentives created by well-intentioned government programs. Both things can be true: Eric Garner was a victim of excessive force by above-the-law police and he was also the victim of the tragic unintended consequences that often arise when black markets emerge in response to bad policy. This is not complicated, but judging by the left’s reaction, I guess it is.