Public Nuisance

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The first Republican president once said, "While the people retain their virtue and their vigilance, no administration by any extreme of wickedness or folly can seriously injure the government in the short space of four years." If Mr. Lincoln could see what's happened in these last three-and-a-half years, he might hedge a little on that statement.
-Ronald Reagan

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Tuesday, January 06, 2004
 
Kevin Drum likes Clark's new tax proposal, and makes some interesting points. Kevin's discussion of how Clark's plan resembles the original income tax is especially useful; not many people today understand that income taxes when first instituted were highly progressive, and were a liberal proposal to replace protective tariffs. Tariffs provided the majority of government revenue before the income tax, but were in essence taxes on consumption, since by increasing costs of imports, they increased the overall cost of living. The 19th century tariffs, combined with the gold standard, caused another problem quite unfamiliar to modern government: the first Cleveland administration ran surpluses so large, there was concern that all that gold piling up in government coffers, and therefore being taken out of circulation, would wreck the economy. And the opposition to lower tariffs was fierce, even in the face of surpluses, since their real purpose was protectionism rather than revenue.

The Harrison interlude between the two Cleveland administrations found the obvious solution: they went on a spending spree to build public works. The sudden increases in government costs were considered shocking at the time, and Harrison's first Congress was tabbed with a name that reflected its extravagant ways: the Billion Dollar Congress. Democrats ran against the fiscal irresponsibility that had pushed government spending to the unimaginable level of $500 million a year. After Republicans lost almost 100 seats in the mid-term elections, Harrison was seen as already something of a lame duck and Cleveland was ready for his political comeback.

On one point I have to correct Kevin. He says:

The plan is revenue neutral. For a presidential campaign this is the right way to go, but eventually we're going to have to face up to the necessity of either raising taxes or running deficits forever.

In fact, the new plan supplements, rather than replacing, Clark's existing commitment to repeal the Bush tax cuts for people earning over $200,000 a year. That will produce well over $1.5 trillion in revenue enhancement, exceeding $2 trillion when the reduced cost of interest in the national debt is figured in. So Clark isn't coming up short on the revenue side.



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