The GOP vs. Public Opinion on the Necessity of Tax Hikes

Economics reporter Catherine Rampell traces the GOP's stubborn refusal to raise taxes back to the 1970s and the Laffer Curve.

Saturday's Business Day 'Economic Memo' by New York Times economics reporter Catherine Rampell tried to set up the GOP against public opinion on the importance of raising taxes - 'Tax Pledge May Scuttle a Deal On Deficit.'

Three-quarters of Americans - including more than half of Republicans - say they believe that any deficit reduction plan should include tax increases, according to a recent New York Times/CBS poll. But Congressional Republicans are not so sure.

Republicans on the deficit-reduction supercommittee have offered a deal with 24 cents of every dollar in savings coming from tax increases, and the other 76 cents from spending cuts. That's less from taxes than recommended by the leaders of last year's blue ribbon panel on deficit reduction, which proposed 30 cents and 70 cents.

The latest proposal, even if agreed to by the committee, might have trouble surviving the full Republican caucus. Nearly every Republican in Congress has signed a pledge never to raise taxes, regardless of how much red ink is on the country's balance sheet.

But previous Congressional budget deals relied significantly more on taxes than anything on the table now.

Rampbell makes the obligatory reference to Grover Norquist and his anti-tax pledge, but traced the GOP's stubborn insistence on no new taxes to the 1970s and the Laffer curve.

In 1974, Arthur B. Laffer, a supply-side economist at the University of Chicago, doodled his now-famous Laffer curve, which showed that tax cuts could, counterintuitively, narrow deficits: lower tax rates encouraged people to earn more money, thereby creating more income that could be taxed, thereby raising total tax revenue. A related but somewhat contradictory supply-side theory was the starve the beast argument, which posited that tax rate cuts would lead to lower total tax revenue, forcing spending cuts and then balancing the budget from both sides of the ledger.

'There was a different makeup of the United States Congress then than there is now,' said G. William Hoagland, vice president for federal affairs at Cigna Insurance who has worked for the Congressional Budget Office and for Senator Bill Frist, the former Republican Senate majority leader. 'There was much more willingness to reach across the aisle in a bipartisan manner for the good of the country as opposed to the next election.'

Slowly, the Republican old guard was replaced. And with each subsequent budget bargain, more and more Republicans jumped from the antideficit bandwagon to the antitax one, egged on by conservative groups.

On July 10 Rampell wondered where the left-wing outrage was among the unemployed (perhaps foreseeing the leftist sit-ins of the Occupy movement?).