The Anti-Tax Movement

Yale Open Course <Power and Politics in Today's World>

Lecture 7: Shifting Goalposts: The Anti-Tax Movement

Notes

Origin of the anti-tax movement

• Post-Watergate soul-searching and the rise of activist think tanks on the right

  • think tanks to change the ideological terrain that had allowed for the New Deal and Great Society

• California Proposition 13 (June 1978)

  • referendum vote on limiting property tax

  • “government is the problem”

  • starting point of the anti-tax movement

The logic of referendum politics

• The Brexit Paradox

  • 2015 the majority of the Parliament pro-remain

  • 2016 Brexit referendum - 52:48 pro-leave

  • 2017 Parliament more pro-remain than 2015

  • Referendum votes focus only on single issues

    • masks the downstream effect and their relations to other issues

    • Kahneman & Twersky

      • Framing effect: how you frame an issue has a lot to do with what people will say about it

• Anti-tax movement

  • tax cuts as single issue politics

  • became non-negotiable for republicans to support tax cuts

    • GWHB - “no tax increases” → 1991 Gulf War + fiscal crisis: raised taxes → Newt Gingrich: “GWHB = traitor” → GWHB loses to Clinton

  • 1994 Gingrich “Contract with America”

    • manifesto of anti-new deal coalition on taxes

      • every republican to pledge anti-tax

  • 1932 - 1994: Senate mostly under the democrats; afterwards Republican congress

    • 1994 pivot point

Repeal of the Estate Tax (the “death tax”)

• estate tax = most progressive tax that almost no one paid but repealed with bipartisan support

• June 2001 Bush’s <Economic Growth & Tax Relief Reconciliation Act>

  • phasing out estate & gift taxes over a 10 year period

  • income and capital gains tax cuts

  • increased tax credit for children

  • *Reconciliation → didn’t have the senate’s 60 votes → go through budge reconciliation (only need majority in the senate); the changes to be introduced must balance budget over a 10 year period without increasing deficit → CBO refused to do dynamic scoring (scoring assuming economic growth) → bill phased over 10 years

  • banked on the idea that the tax cuts will likely be extended in 2011

  • where did the bipartisan support come from?

    • diverse coalition possible with single issue politics

      • black caucus, gay activists, etc.

    • what was the opposition doing? didn’t take the movement seriously

      • organized labor? too weak to do anything

      • non-profits? not an easy argument to make given they receive donations from the rich

      • insurance industry? republican-dominated industry

      • liberal democrats? split

  • the campaign

    • well organized & resourced

    • smart strategy & leadership

    • good at managing conflicts within the coalition

      • rates vs. threshold?

        • rates affect billionaires, thresholds affect small businesses

      • farmers vs. small businesses

        • farmers could influence the senate

        • small businesses could influence the house

    • How was the coalition held together?

      • ‘total repeal’ the rallying cry

      • moral narrative (ideology)

        • “morally repugnant tax,” “a moral cause”

        • moral argument headed off the splintering

Tax cuts and the Republican coalition

• “the one issue that unites the entire Republican party”

• Tax cuts & race (2nd dimension)

  • tax agenda & racial agenda linked

    • underlying idea: tax money spent on undeserving poor who are probably not white

• tax cuts for all

  • heads off the divide-a-dollar game

How much has the goalpost shifted?

• 2010 Obama administration

  • in recession → tax increase not a good idea, so extended the tax cuts for 2 years till 2012

  • 2012 → Republican Congress, 82% of Bush’s bill kept

    • estate tax:

      • 2010 - repealed

      • 2011 - $5 mil threshold

      • 2019 - $11.4 mil threshold at 40% rate (lower than the starting 55% 2001 rate)

How effective was the anti-tax movement in shrinking the size of the govt?

• not very:

  • ↑ # of govt workers + privatized/contracted out govt sectors

  • per capita spending ↑, deficit ↑

• funding govt with taxes → funding govt with debt