Are We Being Beastly to the Gipper?

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.

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