Are We Being Beastly to the Gipper?

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These
pieces, first and second in a series of five articles, first appeared
in the Libertarian Forum, Vol. XVI, No. 2, March 1982, and No.
3, March 1982.

Part
1

One
of the reasons we launched the Libertarian Forum way back
in 1969 was that a number of "libertarians" had eagerly
formed themselves into a (largely unpaid) intellectual bodyguard
for the new president, Richard Nixon, and were given to trumpeting
the President's allegedly libertarian concerns and designs. Well,
we know all too well what happened to that theory. But,
lo and behold, plus ca change, and here we are, one year
into the new Reagan Administration, and still more libertarians
are now heralding the Gipper as the Libertarian Messiah. If the
Gipper is truly our Redeemer, then of course churls such as myself
have to be attacked for strenuously resisting the New Dispensation
and presuming to claim that the Gip really has no clothes.

Sure
enough, the right-wing of our movement, some of whom have quasi-cushy
jobs in and around the Administration, have been doing a great
deal of such trumpeting and alibiing. Robert Poole, Toni Nathan,
David Friedman, David Henderson (now comfortably ensconced in
the Labor Department,) and Bruce Bartlett (deputy head of the
Joint Economic Committee of Congress) have weighed into the lists,
defending the poor old Gipper from the alleged calumny of myself
and other unreconstructed libertarians, such as CCE's Sheldon
Richman. If the others merely Deplore Our Negativism and frankly
urge "critical support" for the Reagan Administration,
it remains for one Lance Lamberton to take off the gloves
and denounce us purists for sniping at the greatest libertarian
of our century (Ronnie Reagan, natch), and to resort to psychosmearing
to "explain" our churlish resistance to the New Order
("Give the Gipper a Break," Frontlines, October
1981). In addition to the usual statist claims that we are negativists
and ridden with envy at our Leader's accomplishments, Lamberton
asserts that we are all suffering from an "identity crisis"
because we insist on clinging to the view that there is something
wrong with the State itself. Well, gee whilleckers! Where did
we get that notion from, I wonder?

Methinks
that if anyone is suffering from an "identity crisis"
it is Lamberton himself, who persists – or has the chutzpah – in
calling himself a "libertarian" even while he smears
and besmirches the ideas and the movement. At least when Jerome
Tuccille deserted the movement a few years ago he frankly called
himself a "conservative"; it would be nice if
Lance were to follow suit. Nice but not to be expected.

Meanwhile,
there is no need to employ psychobabble to explain the new course
of Mr. Lamberton. The last time I saw Lance Lamberton he was a
pure but impoverished young lad, working at the stronghold of
libertarian radicalism, the Laissez Faire Bookstore. Now Lamberton
has come up in the world, employed as a lobbyist in the Bowels
of the Beast (Washington, D.C.) for the U.S. Chamber of Commerce.
Might his 180-degree change of outlook be in some way related
to his new-found prosperity as a conservative flack?

We
are now one year into the Reagan Administration, so let us now
examine the libertarian status of the Reagan record. Have we really
been beastly to the Gipper? Or have we scarcely begun to rip open
the veil of sanctity that our "libertarian" conservatives
have assiduously tried to wrap around the President?

We
will start at the Gip's allegedly strongest point – his economic
record – since even Lamberton does not muster the temerity to claim
that Reagan's foreign, military, and social policies are pristinely
libertarian. Let us first tackle the Gip on Reaganomics.

1. Macro
Reaganomics: The Budget

We
begin with the famous Reagan budget victories in Congress last
summer – widely heralded by the Reagan Administration and by the
media as "massive" and "historic" budget and
tax cuts, cuts that significantly turned around the decades-long
trend toward Bigger and Bigger government in the United States.

Okay,
let's look at the "historic budget cut" effected by
the Reagan Administration, a cut punctuated almost daily by pathetic
TV interviews with various bozos supposedly suffering from the
cuts. In fiscal 1980, the last full year of the Carter regime,
he of Big Spending and modern liberalism, total federal government
spending was $579 billion.

Originally,
the Reagan projection of his own spending in the first full year
of his regime, fiscal 1982, was $695 billion – thus
keeping federal spending below the magic $700 billion mark. This
"massive" and "historic" spending cut, dear
reader, amounted to a 10% annual increase over the budget
in the last days of the Bad Old Carter regime. (We can now omit
the intervening year, fiscal 1981, as a year of mixed Carter/Reagan;
its actual budget was in between, at $661–$665 billion.)

This
egregious fraud, this hoax, this "massive cut," this
10.0% annual increase in the budget, contrasts vividly
to mild old Ike Eisenhower, who no one, including himself, thought
of as a conservative or economic libertarian militant. Ike, in
his first full fiscal year in office from 1953 to 1954, actually
cut the budget (cut-cut) by a fairly hefty 8.7%.

But
that is scarcely all. For in the space of a few short months,
the Reaganite estimates of its own spending this year (fiscal
1982) have already risen from $695 billion to $705 billion,
and now up to $735 billion! So, with the fiscal year hardly begun
(it ends every year on Sept. 30), we now have an estimated per
annum increase from the last full Carter budget to the first
full Reagan budget of no less than 13%! And Lord knows
how high the spending will get to when we finally finish the current
fiscal year.

So
what are these so-called "cuts," and where did this
balderdash come from? Because, in Jimmy Carter's January 1981
budget proposals, his suggested 1982 spending was a whopping $739
billion. Hence, in their original enthusiastic estimates, the
Reagan $695 billion for 1982 was going to be a 6.0% cut
from Carter's proposed 1982 budget, not from the actual
spending in the last days of Jimmy the Peanut.

But
all this is hokum on several different levels. In the first place,
a sinister semantic trick is being performed here. In the old
days, the days of my youth, a "budget cut" meant precisely
that. If this is the year 1954, and if the 1954 budget comes in
at less than the previous year, then that is a "cut."
Simple and straight-forward enough. But now, the meaning of the
term "cut" has been subtly changed. No sophisticated
observer expects a cut-cut any more; no one thinks that the budget
will actually be less next year. What "cut" now
means is a reduction from the pie-in-sky blather emitted by a
previous President, with no connection to any real budgetary process.
Hell, I could do that, too. I could issue "projections"
of a $1 trillion budget for this year and then hail Reagan for
his "massive cut" of $265 billion from this non-existent
hokum figure. No, if we are to keep the meaning of language, a
cut must mean a cut from the previous year. After all,
it's not inconceivable. Moderate old Ike did it in his first two
years in office.

And
finally, as Reagan spending bloats and balloons upward, projected
spending for this year is already almost even with the Carter
estimate, and so there is not even a "cut" in this
sense. There might well be a whopping increase before the
year is out.

Perhaps
we might salvage the "cut" hoax by saying that Reagan
only wants to cut the rate of growth of government
spending rather than spending itself. But first, that would be
a monumental betrayal of Reagan's professed objective of rolling
back Big Government. If we have two political parties, a liberal
party committed to advancing government, and a conservative party
committed only to slowing down the rate of increase, then the
inevitable long-run trend will be full-scale collectivism. For
when, in that case, are we going to get to roll government back?

But
even on these absurdly reduced terms, the Reagan record is an
abysmal one. For if we compare the first full year of the Reagan
term with the first full year of the Carter regime, we find that
the increase per annum of the first full year of the Carter
budget over the last full year of the Ford budget was 11.7%, a
striking contrast to what is already projected as a 13.5%
annual increase for Reagan. So, comparing the first years of Reagan
with those of Carter, we find an increase in the rate of growth
of spending.

David
Friedman, David Henderson, and other "libertarian" apologists
for Reaganism have protested that such an attack is unfair since
inflation can reduce the "real" level of government
spending, as corrected for inflation. But while it is perfectly
valid to correct yours and my incomes for inflation to see how
well off we really are, it is impermissible to do
this for the federal government, which, by its printing of counterfeit
money, is itself responsible for the inflation. It is truly
bizarre to try to excuse the growth of Reagan spending by pointing
to inflation's reducing the "real" level of spending,
for in that case, we should hope for an enormous amount of inflation
and hail Reagan's spending "reductions" if such hyperinflation
came about. To take a deliberately extreme example to highlight
the point: Suppose that the Reagan Administration suddenly doubled
the money supply, thereby doubling or tripling the price level
next year. Should we then hail Reagan for "cutting"
"real" government spending by one-half or two-thirds?
How grotesque can the Reagan apologists get?

It
is true that a tiny handful of obnoxious agencies got cut-cut,
and one or two actually got eliminated. But all this amounted
to very little, and, as we have seen, was more than offset by
massive increases.

Notice
what I am not saying. I am not, as a well-known radical,
denouncing Ronald Reagan for being too moderate, too gradualist,
in the right direction of cutting Big Government. If this were
1954, I would have said that about Ike. I am saying something
very different: that Ronald Reagan is moving us further ahead,
and not very gradually or moderately either, in the direction
of Big Government and collectivism. He is not moving gradually
in the right direction, but at a smart clip in the wrong direction.
He has not turned the country around, except in the mistaken notions
and fantasies of the media, of deluded rank-and-file conservatives,
and of our right-wing libertarians. Only his rhetoric, not his
actions, can be called libertarian in any sense. In an age of
hype, Reagan's public-relations success was – very temporarily
– astounding. But, as we shall see in the case of the deficit,
the chickens are already coming home to roost.

2. Macro
Reaganomics: The Deficit

The
deficit turned out to be the Achilles heel of Reaganomics. Reagan,
during his campaign and in the early weeks of his Presidency,
pledged a balanced budget. No more Bad Old Keynesianism, but fiscal
sobriety. In his budget estimates during 1981, Reagan persistently
forecast a $43 billion deficit this year, and finally, a balanced
budget in 1984. Then suddenly, in the fall of 1981, the President
threw in the towel, and abandoned his solemn pledge. The balanced
budget is kaput even in promise, and has gone the way of
the Carter "balanced budget" of 1976. And suddenly,
Administration forecasts of its own 1982 deficit have zoomed alarmingly,
already hitting the enormous total of $109 billion.

And
so, to add to the biggest budget in American history, President
Reagan proposes to give us the biggest deficit in our history.

The
great Reagan macro-hoax, the non-existent budget and tax "cuts"
(on taxes, see part II), emerged from a game plan: the phony cuts
would give heart to the market, and inflationary expectations
would reverse sharply, bringing down interest rates from their
historic highs. The interest drop and reversal of inflationary
expectations, went the theory, would give a "breathing space"
for the monetarists at the Treasury and the Fed to do their work:
i.e., very, very gradually reduce the rate of counterfeiting,
so as to lower inflation in slow, painless degrees. Pain, and
a severe recession, would thereby be avoided, and we could, for
the first time gradually end inflation with no severe corrections,
dislocations, or recessions.

Well,
it was too late for all that. Inflationary expectations are ingrained
in the American psyche. No one trusts the government anymore.
No one trusts the Fed. And so, sensing the hoax, and seeing the
deficit rise rather than fall, Wall Street's inflationary expectations – and
therefore interest rates – remained at their embarrassing highs.
The confident prediction of the Friedmanite monetarists in charge
of Reaganomics: that interest rates would fall swiftly because
inflation had "abated," was knocked by reality into
a cocked hat.

The
first, shameful and panicky reaction by the Administration was
to start hectoring Wall Street. Senator Baker and Representative
Michel – the Republican leaders in Congress – yelled at Wall Street
and, like King Canute, ordered bond prices to rise. If they didn't,
the Congressional leaders threatened Wall Street with dire consequences:
credit controls, extra taxes on interest, even wage-price controls.
None of this received any denial or repudiation by the Administration.
Indeed, Secretary of the Treasury Regan added his own hectoring,
chastising Wall Street for not having enough faith in America
(thereby taking his own old Merrill Lynch TV commercials seriously).

In
the last months of 1981, interest rates finally fell, though not
spectacularly, but Reaganites took little comfort, since the cause
was not the disappearance of inflation but a severe recession
that hit in the fall. With unemployment rising sharply, production
falling, and inflation still at near double-digit levels, the
ever-zooming deficit has left the Reaganites panicky, on the ropes,
reduced to praying, like Mr. Micawber, that "something will
turn up."

Perhaps
the most shameful Reaganite reaction to the accelerating deficit
came from the Administration's three top economists, members of
the Council of Economic Advisers, Weidenbaum, Jordan, and Niskanen,
all of whom have been advising us that deficits are really not
so bad, and that therefore We Should Relax and Enjoy It. Surely
the ghost of Lord Keynes is smiling now! The single most disgraceful
message that We Should Learn to Love Deficits came from my old
friend, "libertarian" Bill Niskanen. Niskanen opined
(a) that, after all, the "real" public debt – oops,
there we go again! – is declining, and (b) that government assets
are growing too, so that an accelerating increase in the debt
is not that bad.

The
point of the "real" public debt gambit is that, as the
government prints more money and creates inflation, the value
of its public debt in real terms goes down. No doubt, but this
is hardly something to cheer about. When the German government
created runaway inflation in the early 1920s,
one of its reasons was to wipe out its public (especially its
foreign) debt. It succeeded all too well. Are we supposed to cheer,
Bill, because the government suckers its citizens into buying
its debt and then creates inflation to wipe out its "real"
debt burden?

The
second shameful argument of Niskanen's is that government "assets"
too, are growing. As the New York Times paraphrased
him, "If the borrowed money were invested constructively
– not just spent for immediate consumption – the deficit
financing might be laudatory." Infamy! Government "investments"
are "laudatory?" Since when is government spending anything
but unproductive and parasitic "consumption" expenditures
by politicians, bureaucrats, and their confederates? Here we
see the reductio ad absurdum of our "free market"
public choice economists (of whom Bill Niskanen is a distinguished
member) who treat government as if it were just another –
albeit largely inefficient – business firm, making investments,
piling up assets, weighing asset and debt, etc. No, the government
is not just another business firm; it is not a business firm at
all. It is our enemy; it is Leviathan. As the Wall Street Journal
mildly noted in response to Niskanen, some conservative economists
"weren't happy with the picture of a steadily growing government,
preferring to see government shrink." How old-fashioned of
them!

Niskanen
is relatively far-out in his service to the State. Other, less
repellent, Reaganite arguments on Why We Should Learn to Love
Deficits are those of the dominant monetarists, and the fringy
but scrappy and voluble supply-siders or Lafferites. To the monetarists,
deficits are not inflationary unless they are financed by new
money created by the Fed, and since the monetarists propose to
order the Fed not to do so, then there is no problem. But, while
this is technically true, no one who knows anything about politics
or the way the Fed works believes that it will refrain from "monetizing"
$109 billion and even higher deficits. Of course much of the deficits
will be financed by new money. Already, Secretary Regan has been
exhorting the Fed to create more and more money. So, in practice
huge deficits will be inflationary; Wall Street's apprehensions
are right and the arrogantly confident monetarists are wrong.

But
furthermore, even deficits not at all monetized will have a baleful
effect. For they will mean that precious and scarce private savings
will be siphoned off into unproductive government boondoggles.
Growth rates, already alarmingly low, will sink further because
government spending will "crowd out" private investment
from the capital markets. Interest rates will therefore be driven
upward. But the major problem is not the rise in interest, but
the crippling effect on private investment, productivity, and
economic growth. Deficits Do Matter!

The
other set of Reaganite deficit-apologists are the Supply-Siders.
First, they don't care about deficits, for they want only tax
cuts, and they favor keeping spending levels high. The
supply-siders are interventionists and not free-market advocates;
they simply want different kinds of intervention. But they agree
with liberals and Keynesians that spending levels should be kept
high, largely because that is what they think the public wants.
Professor Arthur Laffer, in his extreme Laffer Curve variant of
supply-side, claims that cuts in tax rates, particularly income-taxes,
will almost instantaneously raise tax revenue so much (because
of increased work, thrift, and production), that this will achieve
a balanced budget painlessly. Like the monetarists, the Lafferites
demagogically promise painless economic adjustment; spending levels
(and therefore all the goodies from Papa Government) can be kept
up; tax rates can be sharply cut; and yet we can achieve
a balanced budget through a rise in revenues.

But
the vaunted "massive" income tax cut has already led,
not to a balanced budget, but to unprecedented and enormous deficits.
And so Lafferism has been politically discredited – actually unfairly
since, as we shall see later, taxes were not really "cut"
at all. A crackpot theory has been unfairly discredited, but eventual
discredit was inevitable. It was just a matter of time.

The
Reagan Administration, however, has done something about
the deficit problem. It has aggravated deficits, but it has managed
to get the conservative Republicans in Congress off an embarrassing
hook. In the good old days, we had a statutory debt limit, and
every year or so the Administration would come to Congress and
induce it to up the limit. One of President Reagan's first acts
was to come to Congress and ask it to raise the debt limit once
again, to over $1 trillion. Veteran conservative Republican Congressmen,
who had voted against rises in the debt limit all their lives,
changed their stance with tears in their eyes. They justified
their change of stance because now a good conservative
was in the White House, and they all trusted Reagan to fulfill
his balanced budget pledge. Well, that pledge is now out the window.
But the conservative Republicans in Congress don't have to worry
any more. They are off the hook. For, unbeknownst to practically
everyone, the Administration managed to change budget procedures
last summer so that the debt limit never again will have to be
raised officially. The debt "limit" now automatically
increases whenever Congress votes a deficit. Some "limit"!

The
Reagan Administration of course benefits from this bit of deception.
The conservative Republicans are no longer embarrassed in front
of their constituents. Only the American people are the losers.

Part
2

3.
Macro/Reaganomics:
Taxes

If
Deficits Do Matter, this does not in any sense mean that they
should be rectified by tax increases. Taxes should never be raised
under any circumstances. They should always be cut, anywhere and
everywhere. Why? First and foremost, because taxation is theft,
and the more people are allowed to keep their own money the better.
Second, because a price, no matter how high, is always better
than a tax. Consumers paying high prices, no matter how distraught
by inflation, are at least getting some goods and services
for their inflated money. But the taxpayer gets nothing from his
coerced payment except grief and the buildup of an oppressive
State Leviathan. Taxes are never justifiable. And third, strategically,
as Milton Friedman often points out, the only way the government
can be forced to reduce its spending is by cutting off its water
and lowering taxes.

Deficits,
therefore, should be eliminated by drastic slashes of government
spending. But where and how? The answer: anywhere and everywhere.
There is no mystery about it. Just slash with a hefty meat axe.
Go down, for example, the Eisenhower budget and reduce every item
back to it. Or better yet, the Roosevelt budget of the 1930s.
Still better, the Grover Cleveland budget. Still better
yet, return to the average annual budget of the Federalist period
of the 1790s: $5.8 million dollars. If that was good enough for
the statist Alexander Hamilton, it should be good enough for our
"libertarian" Reagan Administration.

Of
course, my most preferred position is that the United States budget
go back, or rather go forward, to a nice round Zero. But, to demonstrate
my devotion to moderation, I could live with a transitional level
of $5.8 million for a year or two.

At
any rate, none of this needs a young blow-dried Whiz Kid with
a magical facility with "the numbers." All we'd need
to effect this program is a genuine devotion to liberty and a
modicum of guts.

Getting
down to cases, shouldn't we be hailing, at least as a first giant
step down the road to a taxless society, the "massive"
and "historic" Kemp-Roth income tax cut we are all now
enjoying, plus the other cuts in business and capital gains taxes?
The answer is: We should if there were such a thing, but the problem
is that there is no income tax cut. The "tax cut,"
like the non-existent "budget cut," is a gigantic hoax.

Forget
that the original 30% cut in three years was postponed, and reduced
to 25%. The important point is that the income tax "cut"
for 1982, which is supposed to spur work, thrift, and investment,
is not a cut but an increase. Projected tax revenue for
1982 is about $50 billion higher than 1981, reflecting
not Lafferite voodoo but an increase in income tax rates
far offsetting the puny but extravagantly publicized "cuts."
For two massive increases in rates every year consist in (a) a
programmed increase in Social Security tax rates; and (b) "bracket
creep." Social Security is an admitted sacred cow of the
Reagan Administration, even though all sides admit that the Social
Security program is bankrupt, and will have to be drastically
amended in years to come. But tax rates for this fraudulent program
(undoubtedly the biggest single racket imposed by the New Deal)
continue to rise every year.

u2018u2018Bracket
creep" is the sinister process by which the federal government
gives a devastating one-two punch to the average American. The
first punch is the Federal Reserve printing more money every year,
thereby driving up prices and extracting more resources from the
private and productive sector. The second punch comes as Fed-created
inflation raises prices and incomes across-the-board. For as it
does so, the average person is wafted up into a higher tax bracket,
and has to pay a higher percentage of his income in taxes.

Thus,
suppose that a number of years ago, the average American was earning
$10,000, and that now he is earning $20,000 but that prices have
more or less doubled since then. In "real" terms, he
is no better off, since the purchasing power of his income is
the same as before. Everyone now understands this sad fact. But
what is still not fully recognized is that he is now in a higher
tax bracket, and will be socked a considerably higher percentage
of his income in taxes. He is worse off than he was before.

It
is estimated, then, even by the Administration, that the average
person will be paying considerably higher income taxes in 1982
than he did last year. Misled by Administration and media hype
about alluring tax "cuts," he will deservedly be bellowing
with rage at the government when he finds out that his tax bill
is going to rise not fall.

But
this is not all. For the increased taxes will fall exclusively
on the poor and the middle class, while the wealthy will enjoy
a hefty tax cut. Why? Because (a) the Social Security tax is a
regressive tax, so that the wealthy pay a lower proportion
of their income to Social Security than the poor or middle class.
And (b) because bracket creep of course cannot affect the highest
bracket, since that bracket cannot rise with inflation. When
we also consider that the Reagan tax package lowered the top-bracket
income tax on dividends and interest as well as on wages from
70 to 50 percent, and also liberalized depreciation requirements
and cut the capital gains tax, we see that the wealthy and business
received substantial tax goodies, while the rest of the population
has been squeezed further. Not only is this unjust, it is clearly
political suicide for the Reagan Administration.

Now
don't get me wrong: I'm all in favor of drastic tax cuts for business
and the wealthy, the more the better. But it is both unjust and
politically moronic to couple that with tax increases for
everyone else. The only way to get the public to agree to tax
cuts for the wealthy is to give them hefty tax cuts as
well. In this way, there would be sizable tax-cut goodies for
everyone, and we could build a coalition for freedom, a coalition
based on morality as well as self-interest for all the coalescing
groups. Thus, we could "buy" votes for freedom instead
of for statism. But if, instead, the average American is socked
still further, the result can only be political disaster.

In
an illuminating article in the Business Review of the Federal
Reserve Bank of Philadelphia, Stephen A. Meyer and Robert J. Rossana
estimate the tax impact of the Reagan program on various income
groups, conservatively assuming an 8% inflation rate this year.
On this assumption, they demonstrate that marginal income tax
rates at the $13,000 level (in 1978 dollars) remain about where
they were – about 24%, while households' with incomes from
$13,000 to $40,000 (the broad middle class) will suffer rising
marginal tax rates. Thus, families earning $22,500 who do not
itemize deductions will suffer a rise in marginal tax rates from
24% to 35% in 1983. Those who itemize deductions will suffer a
jump in the marginal tax rate from 32% to 40%. Families who take
the standard deduction earning $40,000 will find marginal taxes
rising from 39% to 49%, while those who itemize will remain the
same at about 43%. However, very high-income families will enjoy
a substantial drop in their marginal tax rates.

The
only really important tax cut in the Reagan tax package passed
in 1981 was forced upon the Administration by the Southern Democrats
(the "boll weevils") in Congress. That was to index
income taxes for inflation so as to eliminate bracket creep. Unfortunately,
however, indexing is only slated to begin in 1985, based on 1984
income and tax levels, and hence so far off it is just pie-in-the-sky
promised for the future. The way things are going, I would not
bet my life savings that the indexing provision will still be
there when 1985 rolls around.

The
media, led by supply-siders Evans & Novak, are now filled
with the saga of the heroic President Reagan manfully resisting
the urgings of all his top advisers to raise taxes. "I will
seek no tax increases this year," proclaimed the President
in his 1982 State of the Union message on January 26. But the
President lied. He is seeking tax increases, to the tune
of $32 billion over the next two years, and his tax raises are
more pernicious than mere figures indicate. It. is true that the
President decided not to follow the full Thatcher route
immediately, as his advisers urged, and therefore not to recommend
the doubling of excise taxes on liquor and tobacco, or an increased
4 cents a gallon tax on gasoline. Neither has he succumbed to
Senator Baker's monstrous proposal for a national sales tax.

Reagan
tries to cover up his lie by semantic trickery, calling his proposed
tax increase "revenue enhancement," and merely "closing
loopholes." Under this camouflage, Reagan has decided to
recommend: acceleration of business and corporate tax payments,
cutting back tax exemptions on industrial development bonds, and
the elimination of energy tax credits for businesses. Moreover,
the President proposes substantial increases in the minimum tax
paid by corporations, and he urges delay of corporate write-offs
of interest and taxes incurred for construction of commercial
buildings. All these tax increases will cripple business recovery
and economic growth. Already, furthermore, the excise tax on coal
has been doubled at the behest of the Administration.

The
pernicious concept of "closing loopholes" echoes the
old liberal notion that any amount of one's earnings that the
government graciously allows one to keep is a "loophole"
which deserves to be "closed" by Uncle Sam. Ludwig von
Mises pointed this out decades ago, and one would expect the President,
who claims to be a devoted student of Mises' writings, to be aware
of this fact. (See A. Director, ed., Defense, Controls, and
Inflation, University of Chicago Press, 1952, pp. 151–152).

Another
noxious device of the 1982 Reagan budget is to raise taxes but
to call them "user fees." In some cases they are simply
taxes outright. Others might not be called taxes, but they
have the same effect of shifting money from private producers
to the State apparatus, raising charges for services monopolized
by the government. Thus, while the Administration abstained from
an increased gasoline tax, it proposes a savage multi-level assault
on an airline industry in deep recession by (a) increasing the
federal tax on airline tickets from 5% to 8%; (b) tripling
the four-cent-a gallon tax on general aviation gasoline, then
raising it by another two cents a year for four more years; (c)
imposing a new 5% freight waybill tax; and (d) a new $3 international
departure tax.

In
addition, navigation and boat and yacht fees are supposed to raise
an additional revenue of almost $2 billion in the next two years.
Nuclear waste fees are to be imposed on electric utilities, to
the tune of $800 million in two years. Passport fees on the public
are to be doubled, and immigrant visa fees to be quadrupled; this
is supposed to raise $100 million a year. Fees are to be levied
for various mediation and arbitration "services" provided
in labor disputes by federal mediation agencies. And worst of
all, the commodity futures market is to be forced to pay a user
fee of 25 cents per contract to pay for its own regulation by
the government.

But
the most malignant aspect of Reagan's revised "non-increase"
tax package for 1982 is his idea that the federal government launch
a withholding tax of 5% on interest and dividends. This
evil notion was suggested by President Carter, but was fortunately
defeated by the lobbying of the elderly, who get a large proportion
of their income from capital and endowment income.

Officially,
of course, the withholding tax involves no tax increase, but everyone
knows, in fact, that the monstrous withholding provision (put
in during World War II as a "wartime emergency" measure,
the details of which were worked out by Milton Friedman, then
in the Treasury Department) is the key to the success of the income
tax plunder. In practice, the withholding tax on interest and
dividends will not only be costly in terms of red tape, but will
also cripple savings by greatly increasing the tax burden on savers.
What price supply-side now?

Monstrous
as this is, it should not be a surprise to anyone, for it was
the self-same "libertarian" Gipper who, as governor
of California, imposed the withholding system for the state income
tax.

If
Reagan had any libertarian instincts, the very least he
could do about the income tax would be to weaken the IRS, by drastically
lowering its budget and its personnel. But what is our Gipper
doing? Quite the contrary: he is proposing adding 5,000 employees
to the IRS bureaucracy so that more taxes can be collected. This
is not only raising taxes, it is doing so with a vengeance.

It
is, finally, characteristic of this Administration that the only
hope for its proposing decontrol of natural gas prices is if it
can be coupled with a whopping "windfall profits" tax
(in fact, a graduated excise tax at the wellhead) on natural gas.

Look for Part III.

Murray
N. Rothbard (1926–1995), the founder of modern libertarianism
and the dean of the Austrian School of economics, was the author
of The
Ethics of Liberty
and For
a New Liberty
and many
other books and articles
. He was also academic vice president
of the Ludwig von Mises Institute and the Center for Libertarian
Studies, and the editor – with Lew Rockwell – of The
Rothbard-Rockwell Report
.

Murray
Rothbard Archives

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