The Na Ga Da Republicans

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“Not gonna do it [creepy laughter], not gonna do it [creepy laughter], not gonna do it [creepy laughter],…did it.” So went comedian Dana Carvey’s legendary impersonation of President George H.W. Bush. Whatever the underlying issue to which the routine was referring, it was rolling-on-the-floor hilarious because the na-ga-da (the shorthand for this sequence that became a cultural buzzword) captured, perfectly, Bush’s unbelievable reversal of his solemn 1988 Republican presidential nomination acceptance speech pledge never to raise taxes.

“Read my lips, no new taxes,” the man said in 1988, at the pinnacle moment of his political career and as the transition from the tremendous Reagan years was at hand. That was the first na-ga-da. A few more came once Bush was president in 1989 and early 1990 and then…in the summer of 1990…“heh heh heh heh…did it.” Bush went for tax-rate increases, in particular in the top rate of the income tax. Congress, run by Democrats, gleefully obliged, and the tax-rate increases headlined by a hike at the top came later in the year.

The rout President Bush experienced in his re-election effort two years later was a sight to behold. The man took 37 percent of the vote. No incumbent, and I mean no incumbent ever does that poorly in a re-election effort. Hoover in 1932? He took 39.6 percent of the vote. In a delicious irony, Democrat Bill Clinton, the victor in 1992, said thanks a lot and raised the top tax rate to 39.6 percent. The fellow rubbed it in.

You know why we are going into all this. Just now the controlling Republicans in Congress are considering raising the top rate of the income tax, currently at 37 percent thanks to the 2017 tax cut but really at 40 percent because of the mandatory Medicare add-on. Republicans are indeed considering doing a na-ga-da. The purpose of Republicans, the party has been aware for decades now, is to ensure that the top tax rate does not rise. The political economics of the matter is as Arthur Laffer and I put it yesterday: Keeping the top tax rate low is the guarantee of the American Dream for everybody. Raising the top tax rate is wholesale the stuff of the idiot left.

There is no credible economics or budgetary concern for raising the top tax rate. Do tax shelters exist in this country? To the extent they do—and that extent is enormous—the top tax rate is not optimal and can be cut productively. The debate is over. Yet economics Nobelist Peter Diamond has an equation showing the top tax rate should be 70 percent? He does. The tippy-top econ journals have all sorts of proofs that income tax rates should be raised at the top. The profession also—we sure have seen this lately—speaks with one accord that the tariff rate should be zero, the necessary corollary of the concept of free trade.

Income tax 70 is best, tariff zero is best, the proofs are in the Greek letters, and look at these Nobels. It is important to recognize, as the ludicrousness of the 70-zero difference screams, that the whole of the scholarly economics profession’s discussion of taxation is rot. Throw it all out—in whole—and act rationally, like actual, non-over-intellectualized leaders, and figure taxation from scratch. Even Hayek and Friedman talked confidently about a flat 25 percent income tax—as if Andrew Mellon, who had unmatched wisdom on this score, was incorrect that any rate over 10 percent prompts the full menace of flows into economically unproductive shelters.

Throw out all of the stuffed-shirt consensus and cut the top rate. When has this failed? About the only answer anyone ever comes up with, with some illusion of credibility, is 2001. W. Bush cut the top tax rate, see, and on came the Great Recession. He cut the top rate from 39.6 percent to 39.1 percent while expanding all sorts of credits and such below the top rate. Take a hike.

When has it succeeded? Mellon’s cuts, top rate from 73 to 25 percent—Roaring 1920s. The Depression came when in 1929 Hoover told Mellon we’re stopping at 25. Kennedy’s in the 1960s—6.1 percent per annum economic growth (that’s not a misprint), 1961-66, as JFK willed a 21-point-top-tax-rate cut into being. See Larry Kudlow and me on that. Reagan’s, 70 to 28 percent at the top, led to permanent 4 percent growth and a collapse of inflation, the insoluble problem of the 1970s, along with a two-decade moonshoot in stocks, but we deindustrialized. Oops no we didn’t. Industrial production soared in real terms by 80 percent 1980-2000. But we had a deficit burdening our grandchildren. Oops no we didn’t, national debt less than what the Fed needed to conduct open market operations within a decade.

The H.W. Bush team—what a sad-sack picture they made as the economy tilted into recession over 1990-91 and they were trying to gear up for the re-election effort. This C-span video from 1992 of the troika, Treasury secretary, Council of Economic Advisors Chair, and Budget Director, doing a beautiful impersonation of the walking dead as they hype, after a fashion, the Bush record.

Their boss had done it —raised the top tax rate—from some weird amalgam of not wanting to take orders from a lower-class predecessor in Reagan, some pseudo-Episcopalian sense that the rich should “chip in” (his luxury tax killed the industry of yachting craftsmen and entrepreneurs), and some unwillingness to look at the clear-as-day data that the Reagan deficit kept going down as the 1980s proceeded in growth glory and top tax rates got cut. In another delicious irony, as Bush increased the top tax rate, inflation went up. Stagflation recrudesced!

There are still cheerleaders who say H.W. and Clinton’s top-tax-rate increases underlay the 1990s boom and budget surpluses. Newt Gingrich did not take government by the throat and impose his will after 1994? Nice try, anti-supply-siders. Republicans in Congress and the executive—it would be preferable to rehearse all this history as an affair of leisure. That it is altogether relevant right now is exceedingly disappointing.