Government Gridlock, Saving America From Even Worse Laws

Many hands are being wrung among the elite governing class about Congressional gridlock.  The Democrats have invoked the “nuclear option” — allowing the Senate majority in effect to prevail by simple, rather than 60%, majority. (This will come back to haunt them if majority control turns Republican in next year’s election.)

Fortunately for us mere citizens the House is still Republican controlled.   It thereby is situated to block the worst Big Government initiatives.

In the great “Hunting of the Snark” on Capitol Hill many legislators of both parties have broken their picks in “supercommittees” and “gangs” and other efforts to foment a “grand bargain” or other grandiose deal. This typically is done in the name of “bipartisanship.”

“Bipartisanship” makes this writer uneasy.   It often represents Washington code signifying collusion by Republicans and Democrats to stick it to the taxpayers and citizens.   So in this celebratory season gridlock is something to celebrate.

The Founders intentionally created a legislative, and governmental, system where it was hard to enact bad ideas.  Our ruling elites have a burden of persuasion, built right into the Constitution, that the laws they seek to enact are all (or at least mostly) to the good.

Legislation should be difficult.  As President John F. Kennedy unforgettably observed in announcing the manned moon program: “We choose to go to the moon … and do other things, not because they are easy, but because they are hard.”

The Obama administration, from the president on down, has sought to circumvent its Constitutional burden of persuasion.  It has done so through duplicity, as in “If you like your health care plan, you can keep it” — an aggressively repeated claim that has won the president Politifacts’Lie of the Year.”  The Obama administration also has sought to circumvent the Constitutional burden of persuasion through abuse of the regulatory process, which Heritage Foundation calls an upcoming Regulatory “Superstorm.”

Bipartisanship, in the system designed by the Founders and currently being trampled by progressives, is something to be reserved for really good ideas.  The “American Way” simply is not amenable to the jejune notions of Romantic Utopians such as those of our dear “progressives.”

And thus it is worthy to reflect, in this season of Glad Tidings of Comfort and Joy, on a Camelot of bipartisanship only hazily, if at all, remembered: Senate passage of the Tax Reform Act of 1986 reducing the top marginal tax rate on individual income from 50% (only shortly prior, 70%) to 27% (28% as enacted).  By a vote of 97 to 3.

A long time ago in a galaxy far away, two former political adversaries — one Democrat and one Republican — sat in a Senate office.   They were there, together, to celebrate their signal legislative triumph.  This represented an historically extraordinary collaboration.

Sen. Bill Bradley and his former Republican rival for that office, Jeffrey Bell (with whom this writer has a professional association), sat, together, in Sen. Bradley’s office.  When word of its overwhelming passage arrived, they opened and shared a bottle of champagne.  Their triumph, for which credit was shared by a very small cadre of paradigm-shifters called “the Supply Side,” was sweet.  It doesn’t get more bipartisan than 97 to 3.

This triumph heralded an epoch of tremendous economic growth spanning the administrations of Ronald Reagan and William Clinton. Reagan’s administration saw splendid recovery growth rates leading to one of the largest electoral landslide re-elections in American political history.  By (mostly) maintaining low marginal tax rates and cutting the capital gains rate and reforming welfare (the latter two under the impetus of then House Speaker Newt Gingrich), the Clinton administration enjoyed such economic growth as to place the federal treasury into surplus.

To achieve this paradigm shift from high marginal tax rates and cheap money to low marginal tax rates and healthy money was not easy.  It was hard.

The capital had been occupied by big government Democrats and by a docile minority of establishment Republicans.  A tiny but doughty band of dissidents arose.  They argued that the poor economic growth was caused by an inverted economic policy.

This band was collected and empowered under the moral leadership of the Wall Street Journal’s editorial page editor Robert Bartley (the tenth anniversary of whose passing we recently observed), whose memoir of this era, The Seven Fat Years, recently here was celebrated by Forbes’s own John Tamny as “one of the greatest economics books ever.”  Candidate Jeffrey Bell put Supply Side on the political map.  Jack Kemp became its official champion.

Bartley formed a Salon des Refusés.  >From it, presidential candidate Ronald Reagan took up Supply Side economics.  His prescription of lower tax rates and monetary integrity was mocked (“voodoo economics”) by political rival George H.W. Bush and by incumbent president Jimmy Carter.  Reagan defeated both.  Even influential Democrats took up the cause of cutting marginal tax rates.

The conceptual architects of Supply Side were two great economists, Robert Mundell and Arthur B. Laffer.  Their proposal to shift the paradigm  to across-the-board lower marginal tax rates and healthy money was distilled by Wall Street Journal editorial writer and public intellectual Jude Wanniski in an iconic piece in National Affairs, the Mundell-Laffer Hypothesis.

Laffer’s work, in connection with Mundell (and, later, with Forbes.com contributor, currently on sabbatical, Charles Kadlec) propounding monetary policy with integrity — specifically, at one point in Laffer and Kadlec’s case, the gold standard — was of no less importance.  Running with the Supply Side also was a pre-eminent classical gold standard proponent, Lewis E. Lehrman (founder and chairman of the Lehrman Institute which this writer professionally serves).

Most of the political elites, then as now, were blinded by a static equilibrium model.  This model, lacking motherwit, ignores effects of policy on workers and businesspeople, such as the fact that if you tax something too heavily you will bring in less, not more, tax revenue.  It ignores the nonlinear effects of economic growth under government policies respectful of free enterprise. As Forbes.com columnist Peter Ferrara observed:

In The End of Prosperity, supply side guru Art Laffer and Wall Street Journal chief financial writer Steve Moore point out that this Reagan recovery grew into a 25-year boom, with just slight interruptions by shallow, short recessions in 1990 and 2001.  They wrote:

We call this period, 1982-2007, the twenty-five year boom–the greatest period of wealth creation in the history of the planet.  In 1980, the net worth–assets minus liabilities–of all U.S. households and business … was $25 trillion in today’s dollars.  By 2007, … net worth was just shy of $57 trillion.  Adjusting for inflation, more wealth was created in America in the twenty-five year boom than in the previous two hundred years.

Gridlock is a brake for bad laws.   The American people simply will not, absent deception, connive in “the end of prosperity.”  Gridlock is a feature, not a bug.  It protects us, mostly, from the more outré prescriptions of the Romantic Utopians ever amongst us.  So, three cheers for gridlock!

Yet as the holiday season reaches its crescendo, let us raise a toast — champagne if you please — to the 97 to 3 Senate passage of the Tax Reform Act of 1986 reducing the top marginal tax rate to below 30% and the healthy growth of jobs and wealth that ensued.  While we are at it, let us hope that the abandoned element of Reagan’s recipe — monetary integrity — the missing link to strong and sustained economic growth — is rediscovered.  Policies of growth are the true source of healthy bipartisanship.

The ideal of bipartisanship in addressing monetary policy for growth is a torch held aloft by Joint Economic Committee Chairman Kevin Brady (R-Tx) in his proposed Centennial Monetary Commission — to be equally populated by Democrats and Republicans.  Freshman House rising star Rep. John Delaney (D-Md) broke the ice by becoming this legislation’s first Democratic co-sponsor.

A healthy competition as to how to cut rates developed between Kemp and growth-minded Democrats such as Sen. Bill Bradley and Rep. Dick Gephardt.  That competition propelled all who engaged in it to national stature.  Those who aspire to greatness in public service would do well to remember the popularity of the bipartisanship generated in reducing the top marginal tax rate to 28%.  While those low rates has been somewhat eroded all signs point to restoring integrity to monetary policy as the great 21st century opportunity to reignite economic growth.

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