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Riding the Tiger > Category: Economic Policy

Riding The Tiger

“I discovered that being a President is like riding a tiger. A man has to keep on riding or be swallowed.” Harry S. Truman

Mehrotra in Bloomberg on the Income Tax and the Fiscal State

Ajay K. Mehrotra, a former Miller Center National Fellow and a professor of law and history at the Maurer School of Law at Indiana University, Bloomington, has published an op-ed in Bloomberg in which he reflects on the significance of the 100th anniversary of the federal income tax. Mehrotra writes:

As Tennessee Representative Cordell Hull, one of the chief architects of the new law, explained, the goal of the 1913 income tax was to ensure that the rich were paying their fair share of increasing government expenses. “I have no disposition to tax wealth unnecessarily or unjustly,” Hull said on the floor of Congress, “but I do believe that the wealth of the country should bear its just share of the burden of taxation and that it should not be permitted to shirk that duty.” Hull intended the income tax to counterbalance the regressive elements of the existing regime. “Something is needed to restore the equilibrium,” he said, “and that something can scarcely take any form except that of an income tax.”

As we commemorate the centennial of the 16th Amendment and look ahead to looming budgetary battles, we ought to keep in mind that the foundations of our modern fiscal state are rooted not in efforts to radically redistribute wealth, but in attempts to balance fiscal duties and civic responsibilities. The progressives who bequeathed this state to us certainly knew the difference.

Read the full op-ed here.

What Would TR Have Done in Fiscal Cliff Negotiations?

Anthracite Coal Strike Commission Appointed 1902 by President Roosevelt.

Anthracite Coal Strike Commission Appointed 1902 by President Roosevelt, a stereo card of the commission appointed by Theodore Roosevelt to resolve the Coal Strike of 1902. Photo by William H. Rau and courtesy of the Library of Congress. PD.

In politics, appearances often matter more than reality. Theodore Roosevelt understood this point well. Edmund Morris relates the fact particularly well in a chapter of his acclaimed book, Theodore Rex.

In 1902, the 26th President brought together John Mitchell, President of the United Mine Workers, and members of the business community for talks at the White House. The goal: an end to the Anthracite Coal Strike that had endured for over five months. The struggle had not only led to the loss of seven lives, but also had become a serious drag on the nation’s economy.

Roosevelt’s subsequent performance showed a mastery of negotiation. It rested on two pillars. First, he let both sides posture and talk themselves hoarse. Second, and most importantly, he crafted a genius compromise.

Both parties in question needed some form of arbitration. However, both had stuck their respective necks out so far publicly that they could not appear to capitulate at this point.

Roosevelt worked around the problem with the creation of an independent commission to solve the matter. In essence, the agreement allowed both sides to settle without appearing to do so.

After wrangling over nominal titles and membership within the commission, both parties agreed. The President summed up the entire issues as follows:

I shall never forget the mixture of relief and amusement I felt when I thoroughly grasped the fact that while they would heroically submit to anarchy rather than have Tweedledum, yet if I would call it Tweedledee they would accept it with rapture.

In short, Roosevelt realized that the secret to mediation was the placation of vanity.

Fiscal Cliffnotes: The Republican Party and Tax Policy Positioning

President Ronald Reagan delivers his address to the nation on tax reduction.

President Ronald Reagan delivers his address to the nation on tax reduction. July 27, 1981. PD.

The current partisan rift over fiscal policy and the deadlock negotiators face regarding the impending fiscal cliff are nothing new. Indeed, divisions over fiscal policy have long been at the center of competition between the two parties. While both parties are taking positions that will benefit them electorally, they may be doing so to the detriment of the country’s broader economic well-being. But it is worth noting that the parties’ positions on fiscal policy have not been stable over the last seventy years, and both have switched on matters related to taxes and debts. A brief review of the history of the modern Republican Party’s fiscal policy positioning provides insights on the origins of the situation we face today, as well as insights into the party’s use of tax policy as means to combat government expansion and to win elections.

While the modern Republican Party has long been viewed as the fiscally conservative party, the meaning of fiscal conservatism has varied over the last seventy years. The position of the modern Republican Party has its roots in the mid-1900s. During the 1940s, Republicans had proposed tax cuts as a means to force government retrenchment in the wake of New Deal policies and spending. Just as we are witnessing in the current fiscal cliff standoff, Republican Members of Congress in the 1940s and 1950s rejected increasing taxes as a means for addressing the nation’s fiscal imbalances. For example, in 1951, House minority leader Joseph Martin (R-MA) argued against President Harry Truman’s proposal to increase taxes:

The Administration’s contention that this tax bill is needed to control inflation is economic voodoo talk. No set of controls and no pyramid of taxes ever devised by man wills top inflation in America when the root of the evil is government spending.

Similarly, as they do today, Republicans argued that tax cuts were a better means for stimulating the economy. In 1953, House Ways and Means Committee Chairman Daniel Reed (R-NY) argued that “tax reduction, far from enlarging the deficit, would serve to increase federal revenues by stimulating economic growth.”

Although the modern Republican Party has come be associated with support for tax cuts and opposition to tax increases, this wasn’t always the case.

Scholarly Response: “Remember the 1990s? Partisan Rancor, Volatile Electorate, and Balanced Budgets”

On Sunday, August 19, the Miller Center partnered with ABC’s “This Week with George Stephanopoulos” on the third of six special episodes examining some of the key issues heading into the 2012 Election.  On Sunday, six distinguished panelists discussed and debated whether or not the U.S. is headed towards bankruptcy.  Today’s guest post is from political scientist and former Miller Center Fellow Jasmine Farrier offering her assessment of the arguments presented in the debate.

Let’s reconcile the harsh sound bite and glib wrap-up – both telling moments in the Miller Center panel this past Sunday on ABC News’ “This Week”.  First, Grover Norquist called President George H.W. Bush a liar for breaking the infamous 1988 “no new taxes” pledge in 1990.  Second, despite profound disagreements over entitlements, revenue, and discretionary appropriations, some of the other panelists concluded that somehow America will muddle through the current economic and political crises and stave off European-style bankruptcy. 

While this final sentiment may strike some as naïve in light of the deep partisan and policy divisions showcased on the program, Norquist’s barb inadvertently served as a reminder that it is OK to indulge in this bit of optimistic fantasy.  

Scholarly Response: “Tax Increases Essential to Fiscal Balance”

On Sunday, August 19, the Miller Center partnered with ABC’s “This Week with George Stephanopoulos” on the third of six special episodes examining some of the key issues heading into the 2012 Election.  On Sunday, six distinguished panelists discussed and debated whether or not the U.S. is headed towards bankruptcy.  Today’s guest post is from historian and former Miller Center Fellow Molly Michelmore offering her assessment of the arguments presented in the debate.  

The exchanges during the Miller Center’s debate “Is America Headed Toward Bankruptcy” proved one thing: the supply-side faith is still alive and well in the United States.

Join the Debate: Is the U.S. headed toward bankruptcy?

This Sunday, August 19, the Miller Center is once again partnering with ABC’s “This Week” for a debate on the question, “Is the U.S. headed toward bankruptcy?” Panelists include:

·         Sen. Pat Toomey (R-PA)

·         Rep. Chris Van Hollen (D-MD)

·         Neil Barofsky, Former Special Inspector General for Troubled Asset Relief Program (TARP)

·         Austan Goolsbee, Former Obama Economic Adviser

·         Grover Norquist, Americans for Tax Reform

·         Kimberley Strassel, Wall Street Journal Editorial Board

Jake Tapper, senior White House Correspondent at ABC News and a regular contributor to ABC programs “Good Morning America,” “Nightline,” and “World News with Diane Sawyer” will moderate.

The panel will take questions via twitter and Facebook. Join the conversation by posting your question by Friday on Twitter to @ThisWeekABC and @Miller_Center and on Facebook here and here.

Check ABC’s This Week for airtimes in your area (scroll down to the bottom of the web page).

Be sure to also check out additional background materials prepared by the Miller Center, including information on the panelists.

Why Aren’t the Candidates Addressing Poverty?

President Lyndon B. Johnson signs the Poverty Bill (also known as the Economic Opportunity Act).

President Lyndon B. Johnson signs the Poverty Bill (also known as the Economic Opportunity Act) on August 20, 1964. LBJ Library photo by Cecil Stoughton. PD.

This month marks the anniversary of the passage of the Economic Opportunity Act of 1964, the legislative centerpiece of President Lyndon Baine Johnson’s War on Poverty.

President Johnson declared the War on Poverty in his State of the Union Address on January 8, 1964:

This administration today here and now declares unconditional war on poverty in America. I urge this Congress and all Americans to join me in that effort...

Poverty is a national problem, requiring improved national organization and support. But this attack, to be effective, must also be organized at the State and local level.

For the war against poverty will not be won here in Washington. It must be won in the field, in every private home, in every public office, from the courthouse to the White House.

Very often, a lack of jobs and money is not the cause of poverty, but the symptom.

Our aim is not only to relieve the symptoms of poverty but to cure it–and above all, to prevent it.

No single piece of legislation, however, is going to suffice.

Johnson made the War on Poverty the central concern of the nation, but as he noted in his SOTU address, it also required several bills and acts to create programs meant to alleviate poverty and improve the living standard for the poor. It also required presidential leadership and partisan compromise.

A half a century later, poverty has fallen off the national agenda. Furthermore, according to a recent Associated Press survey of economists, think tanks and academics finds that the poverty rate is set to rise to 15.7 percent this year, the highest levels since the EOA was adopted. What’s more, the presidential candidates aren’t addressing the poor in this election. Instead, both the Obama and Romney campaigns are battling for the middle class.

Friday Roundup: It’s Economy + Personality, Stupid!

Obama Vs Romney.

Obama Vs Romney. Photo Courtsesy Malwack, CC BY-SA.

Today, the Bureau of Labor statistics released its monthly jobs report, which is the last report before the Republican and Democratic National Conventions are held later this month and in early September. As in June, July brought mixed results. One the one hand, payroll employment increased by 163,000, a promising rise after three straight months of disappointing job gains. On the other hand, unemployment ticked up slightly, from 8.2% to 8.3%. Romney reacted to the unemployment in a statement calling it a “hammer blow to struggling middle-class families.” Focusing on the positive aspects of the report, Alan Krueger, chairman of the White House Council of Economic Advisers, said in a statement on the White House blog:

While there is more work that remains to be done, today’s employment report provides further evidence that the U.S. economy is continuing to recover from the worst downturn since the Great Depression.

So, with less than 100 days until the election, just how important is this jobs report for the presidential race? First, we know from a Gallup Poll released this week that voters rate job creation as the number one priority for the next president to address. However, Romney’s campaign has so far been unable to capitalize on the stagnant economic performance. Even though voters believe that Romney would be a better manager of the economy, personal image is playing an important role in this election. Because the campaigns are primarily being waged in the battleground states, we might look there to get a better sense of the candidate prospects, rather than just relying on the national averages. The table presented below compares the unemployment rates in key states with the most recent Gallup Poll January-June 2012 presidential approval ratings released this week. Read on for more!

 

Toss-ups

June 2012 Unemployment

Obama Job Approval

Colorado

8.2

43

Florida

8.6

46

Iowa

5.2

46

New Hampshire

5.1

43

Nevada

11.6

45

Virginia

5.7

46

 

 

 

Leans Democrat

 

 

Michigan

8.6

49

Pennsylvania

7.5

46

Wisconsin

7

49

 

 

 

Leans Republican

 

 

North Carolina

9.4

45

 

Taxation Without Persuasion

Ronald Reagan addresses the nation on federal tax reduction legislation, July 27, 1981.

Ronald Reagan addresses the nation on federal tax reduction legislation, July 27, 1981. PD.

Just about everyone is talking taxes this week. On Capitol Hill, Congress has been feuding over tax rates that are part of the “fiscal cliff” towards which the nation is headed post-election. Republicans want to keep the Bush-era tax rates for all individuals, while Democrats seek to raise taxes on the wealthiest Americans, largely repeating the president’s tax message.

Meanwhile, on the campaign trail, President Obama is making the case for tax equality and framing Romney’s plan as a tax burden on the middle class. Citing a Brookings Institution study while stumping in Mansfield, Ohio, President Obama told supporters that Romney “is not asking you to contribute more to pay down the deficit. He's not asking you to pay more to invest in our children's education or rebuild our roads or put more folks back to work. He’s asking you to pay more so that people like him can get a big tax cut.” The Obama campaign is also launching a new campaign ad that will air in eight key states. Citing a report by the nonpartisan Tax Policy Center, the ad argues Romney has paid a lower proportion of his income in taxes than many people of lesser means: “He pays less, you pay more.”

Mitt Romney isn’t taking the punches sitting down though. Romney advisor Eric Fehrnstrom called the report “a joke,” challenging its impartiality and methodology. (Ezra Klein has a worthwhile post on why Romney’s tax plan and the campaign’s response to report are problematic here.) The Romney campaign is also attempting to shift the focus away from the tax issue to the economy, charging that the president has not fulfilled promises made in the 2008 campaign.

Although Article 1, Section 7 of the Constitution gives Congress the power of introducing bills to raise revenues, a brief survey shows that modern presidents have been a powerful force in proposing and selling tax policy to Congress and the American public, especially as part of broader plans for economic recovery. Presidential persuasion is requisite when it comes to attempts at major tax reform. The Miller Center has compiled an online exhibit demonstrating how presidents have used the bully pulpit over the years to sell tax policy -- sometimes successfully, but not always. Although modern presidents have played an important role in crafting and selling plans, since the Kennedy administration, compromise with Congress and across party lines was necessary to achieve major policy reform.  Check out the exhibit or read on for highlights.

King Andrew’s Bank War

Cartoon of Andrew Jackson from anonymous artist circa 1832, used in campaign posters.

Cartoon of Andrew Jackson by an anonymous artist circa 1832, used in campaign posters. PD-US.

Last week I blogged about President Martin Van Buren’s Independent Treasury Act and the partisan rancor surrounding the legislation that ensued through the three subsequent elections. The independent Treasury was the culmination of a bitter partisan battle that was rooted in Andrew Jackson’s fight against the Bank of the United States. On July 10, 1832, President Jackson delivered his veto of the re-charter of the Second Bank to Congress, triggering a Bank War and the formation of the Whig and Democratic Parties. The Bank War was at its core a battle over how Capitalism should be organized and what the role the state should play in managing the economy. The veto also became the key issue in the 1832 election between Jackson and Senator Henry Clay.

To be sure, the National Bank was barely an issue in the 1828 election between Jackson and John Quincy Adams, though Adams’ platform included a strong national bank to regulate the economy. Instead, the 1828 election focused more on the character of the candidates and intense personal attacks. Jackson only began a two-fold concerted attack on the Bank once he assumed office. To Jackson, the Bank threatened liberty and symbolized corruption, political oppression and privilege. Jackson also argued that the Bank was unconstitutional because Congress didn’t have the power to charter corporations and exclude them from government regulation or taxation, although the Supreme Court had previously rejected this argument in the landmark case of McCulloch v. Maryland in 1819. Nonetheless, Jackson reiterated his opposition to the Bank on these grounds in his annual messages in 1830 and 1831.

In 1832, Bank President Nicholas Biddle, who had incensed Jackson when Biddle approached him in 1829 with an early request to re-charter, worked behind the scenes with Senator Clay on legislation to re-charter the Bank. The move of course confirmed Jackson’s concerns about the Bank’s meddling in politics. Congress passed the bill, but without the two-thirds necessary to override the President’s veto.

Jackson’s veto message was, in historian Daniel Feller's words, the “the rhetorical apex of his presidency.” 

Bryan’s Cross of Gold and the Partisan Battle over Economic Policy

1896 William Jennings Bryan campaign poster.

Print shows the “Cross of Gold speech” by William J. Bryan; portraits of William J. Bryan and his family, and a farmer and a blacksmith. The speech helped Bryan win the Democratic Party nomination for president. By Peter Tracey, 1896; Courtesy of Library of Congress.

The election of 1896 was just as much a partisan battle over the future of American economic policy as this year’s election. On this day in 1896, William Jennings Bryan delivered his rousing speech as a delegate to the Democratic convention declaring that mankind would not be “crucified on a cross of gold.” In the speech, Bryan, who was from the western farming state of Nebraska, advocated the inclusion of a silver standard for U.S. currency, which rallied the populist base of the Democratic Party and helped Bryan win the nomination for the presidency.

To take a step back in history, the source of the issue began with the Gold Rush in 1849, which altered the bi-metallism status quo. For decades, both gold and silver backed U.S. currency and both silver and gold specie could be turned into a Sub-Treasury Mint for dollars. The government valued silver at a ratio of 16:1 to gold in ounces. With the flood of gold to the market following the Gold Rush, people could sell their silver privately and to foreign markets at a lower ratio, thus making more money. However, when silver was discovered in Nevada in the 1860s, the ratio of silver to gold sold privately or abroad increased, but the government continued to offer the 16:1 ratio. In short, the government policy increased currency circulation, benefitting westerners, rural farmers, and the poor who could more easily pay off debts or make purchases. Meanwhile, Wall Street and banks in the East mobilized against the government’s policy because they would not receive as much profit on loans to farmers and the poor.

However, by 1873, the flood of silver into government coffers created an economic crisis. Congress responded by passing the Coinage Act of 1873, which effectively ended bi-metallism by eliminating the silver dollar and by making gold the only metallic standard (though the U.S. did not accept the Gold Standard de jure until 1900). Western miners and farmers termed it the “Crime of 1873.” Their “Free Silver” movement became a core constituency of the Democratic Party, represented by William Jennings Bryan.

A clear partisan divide in the elections of 1896 and 1900 centered on the bi-metallism debate. Republican candidate William McKinley blamed the Democrats and their platform of bi-metallism for the Panic of 1893, while Republicans and Eastern banking interests called the gold standard “sound money” policy.  In the “Cross of Gold” speech, Bryan argued that the Democratic Party’s focus on bi-metallism in its platform was justified because a gold standard alone could not solve the country’s problems at the time, including debt, small business failure, and monopolies.

Partisan Rancor and the Independence of the Treasury

Martin Van Buren Campaign Poster Celebrating Independent Treasury

One of the few campaign prints issued in support of Democratic incumbent Martin Van Buren’s 1840 presidential bid. Above his portrait flies an eagle holding a streamer with the words “Independent Treasury and Liberty,” celebrating Van Buren’s Independent Treasury Bill, passed in July 1840.

While many Americans will be celebrating Independence Day, July 4th is also worth reflecting upon as it marks the anniversary of Martin Van Buren’s signing of the Independent Treasury Act in 1840, a bill that “divorced” the federal Treasury Department from its relationship with all banks. While the deeply partisan battle for the Independent Treasury’s establishment would continue for six more years, the legislation marked a significant triumph in Jacksonian laissez faire philosophy and the assertion of States’ Rights and Supremacy. A brief look at the legislation’s history is also a reminder that the partisan rancor surrounding policy proposals to deal with the economic crisis the country faces today is not unique. Indeed, it suggests instead that we are amidst one of the nation’s periodic partisan battles over defining the government’s role in the economy and society.

The Independent Treasury Act was a response to the Panic of 1837. The economic crisis of 1837 was triggered by the Deposit Act of 1836 and the collapse of state banks that had been using funds distributed by President Andrew Jackson from the Bank of the United States as a basis for speculation. With the collapse of credit, banks could no longer redeem currency notes in gold and silver despite demand for it. Meanwhile, the situation was exacerbated by a depression in England, which ended British loans to the United States and forced the price of cotton to drop. The United States had also accumulated debts and unemployment rates were high. Although President Jackson used popular opinion to attack the national banks and although he extended executive power as a bulwark of popular rights against moneyed interests, the bottom line in 1837 was that the American economy was unstable.

In response to the economic crisis, President Van Buren, a proponent of Jacksonian laissez faire philosophy, called for a special session of Congress to deal with the government’s financial situation. Van Buren opposed the establishment of a new central bank, arguing that the American people had spoken against it in the previous two elections. Further, he argued that it was not government’s business to regulate “domestic exchange.” Instead, Van Buren proposed a policy that would completely separate the government from banks. In addition, the government would collect, keep and disburse it’s own funds independent of the national banking and financial system. (Senator Gordon of Virginia had made a similar proposal in 1836.)

As David Kinley wrote in 1893, the Independent Treasury System was established on the “violence of partisan feeling.” According to Kinley:

“It was a question on which parties lost and won; a question on which great statesmen changed their opinions, and parties shifted their ground; on which there was a flux and reflux of public opinion and governmental policy, until it was settled at last, nearly a half a century ago, more as a party issue than a question of scientific economics; a vindication of party strength, and a necessary outcome of the drift of practical politics rather than a triumph of economic and financial truth over fallacy, or the consensus of concerted and convinced opinion as to the merits of the question.”

Do Gaffes Matter?

Treasury Secretary Timothy Geithner speaks during a meeting with President Barack Obama in the Oval Office, June 4, 2012.

Treasury Secretary Timothy Geithner speaks during a meeting with President Barack Obama in the Oval Office, June 4, 2012. Official White House Photo by Pete Souza.

Political analysts and pundits are abuzz over a press conference last Friday in which President Barack Obama said, “the private sector is doing fine.” Ezra Klein contends that President Obama’s original message was mangled and lost. Before his comments on the private sector, the president was discussing the global economic crisis and said, “Given the signs of weakness in the world economy, not just in Europe but also some softening in Asia, it's critical that we take the actions we can to strengthen the American economy right now.” President Obama was also using the press conference to push his administration’s plans for recovery at home. The president’s private sector comment actually sounds to me like a point made by New York Times op-ed columnist and Nobel Prize-winning economist Paul Krugman during our 2012 Election National Discussion and Debate Series on the Economy in April. During the debate, Krugman asserted that one of the most unique attributes of the economic recovery was that it largely benefited the private sector. Chris Cilliza of The Fix at the Washington Post asserted yesterday that President Obama’s remarks will be fodder for the election. That got us thinking about historical examples and the conditions under which gaffes might matter in the election.

Scholarly Response: “This Economic Recovery Is Still Being Built”

Debaters on ABC's This Week

On Sunday, April 29, the Miller Center partnered with ABC’s “This Week with George Stephanopoulos” on the second of six special episodes examining some of the key issues heading into the 2012 Election.  On Sunday, six distinguished panelists discussed and debated whether or not America’s economic recovery is “built to last.” Today’s guest post is from historian and former Miller Center Fellow Julia Ott offering her assessment of the arguments presented in the debate.  

On Sunday, George Stephanopoulos asked a panel of six distinguished commentators whether or not America’s economic recovery is built to last.  No one answered “no” outright, but pessimism pervaded.  

Scholarly Response: “It’s Hard to Put a Happy Face on This Recovery”

Debaters on ABC's This Week

On Sunday, April 29, the Miller Center partnered with ABC’s “This Week with George Stephanopoulos” on the second of six special episodes examining some of the key issues heading into the 2012 Election.  On Sunday, six distinguished panelists discussed and debated whether or not America’s economic recovery is “built to last.” Today’s guest post is from historian Brian Domitrovic offering his assessment of the arguments presented in the debate.

Paul Krugman said some misleading things in this debate. “This is not especially worse than the recovery from the 2001 recession,” for example. And, “If you actually just look at the job gains, or lack thereof, they’re more or less on track.”