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. On May 20, 1953, President Dwight D. Eisenhower took a controversial stand against the party’s position at the time. While the majority of Republicans in Congress favored tax cuts despite the deficits of the Truman administration, Eisenhower told Congress:
As a matter of basic-long term policy, we must look forward to reducing tax revenues as Government expenditures are curtailed. But it is also wise under existing conditions not to reduce receipts any faster than we can cut back on expenditures.
George Humphrey, Eisenhower’s first Treasury Secretary, also agreed that “deficits should be avoided like the plague,” even if this meant no tax cuts. Following President Eisenhower’s stand, most of the Republican Party went along with his view that balancing the budget was more important than raising taxes. Indeed, during the Kennedy and Johnson administrations, Republicans opposed the liberal Democrats’ policy of stimulative tax cuts and sought to block measures that were not linked to reductions in expenditures.
During this period, fiscal conservatism was defined as balancing the budget at all costs. Even conservative Barry Goldwater, who was often at odds with the moderate elements of the Republican Party, generally held similar views on fiscal policy. In Conscience of a Conservative, he argued:
While there is something to be said for the proposition that spending will never be reduced so long as there is money in the federal treasury, I believe that as a practical matter spending cuts must come before tax cuts. If we reduce taxes before firm, principled decisions are made about expenditures, we will court deficit spending and the inflationary effects that follow.
Goldwater held this position during the 1964 presidential campaign and contrasted his proposal for gradual tax reductions with the “impulsive, massive, politically motivated tax cut gimmickry” of the Kennedy-Johnson plan. Richard Nixon also reiterated this position when he signed the 1969 Tax Reform Act, arguing that “if taxes are to be reduced, there must be corresponding reductions on the expenditure side.” In 1969, Nixon defended the federal income tax arguing that it gave “life to the people’s purpose in having a Government to provide protection, service and stimulus to progress.” Gerald Ford insisted that that any cut in federal tax revenues should be “coupled with a cut in the runaway growth in federal spending.”
However, the position of the Republican Party began to shift in the late 1970s with the party’s embrace of “supply-side” economics. Since 1978, the party has generally opposed tax increases and supported tax reductions, at least more so than Democrats who also have been just as averse to raising taxes on most people. The leadership for the position change this time around came from House Republicans, including Jack Kemp and David Stockman, who became Ronald Reagan’s Director of the Office of Management and Budget. Despite his previous position, President Ford endorsed the Kemp-Roth tax cut proposal in 1978, which would have cut all federal income tax rates by about one-third. Even Ronald Reagan changed his position. During the presidential campaign in 1976, Reagan supported balancing the budget, but by 1980 he accepted the supply-side argument. In a debate with George H.W. Bush, Reagan argued:
I’ve heard for a great many years that we can’t possibly reduce taxes – this is Washington’s cry – we can’t reduce taxes until we reduce government spending and I have to point out that government does not tax to get the money it needs; government always needs the money it gets. Now your son can be extravagant with his allowance and you can lecture him day after day about saving money and not being extravagant, or you can solve the problem by cutting his allowance.
Since embracing supply-side economics, Republicans have also argued that spending reductions are the only means to reduce debts, while minimizing the ramifications of those policies for the nation’s debt and deficit.
Just as Presidents and Members of Congress have contributed to changes in the party’s position, so too have think tanks and interest groups. The media has been abuzz about the role of Grover Norquist and the Americans for Tax Reform pledge in constraining the positions of members of Congress during the current fiscal cliff negotiations. But Norquist and ATR have a long history of advocating an anti-tax position as a means for constraining government growth. Furthermore, as Norquist conceded in an interview last year, he first envisioned the pledge as a way for the Republican Party to brand “itself as the party that wouldn’t raise taxes” and that would “be a way for the Republican Party to succeed” (read: “win elections”). Similarly, the Club for Growth has also consistently advocated cutting taxes and spending and has sought to punish policymakers who do not support tax cuts in all cases. Think tanks, such as the Heritage Foundation, have provided intellectual capital and helped to promote fiscal policies and ideas, including supply-side economics, that have been adopted by Republicans.
Negotiations to prevent a fiscal crisis are complicated by the history of partisan position-taking and divisions over fiscal policy. If modern history is any guide, leadership that puts the nation’s fiscal interests above partisan politics from either the President (as Eisenhower demonstrated when he took a controversial stand against his own party) or from members of Congress could help salvage the country’s economic well-being.
Be sure to check out the Miller Center’s Presidents and Tax Policy exhibit. For more on the Republican Party and position taking on fiscal policy, I recommend chapter five of Party Position Change in American Politics by David Karol from which this post has drawn material.