Commentary Magazine


Topic: Kemp-Roth tax plan

The Romney-Ryan Tax Budget

On “Fox News Sunday” with Chris Wallace yesterday morning, David Plouffe, senior adviser to President Obama, talked about Paul Ryan’s recently announced budget plan. You can see the discussion here with the relevant portion beginning about 9:30. With a distinct now-we’ve-got-’em! note of triumph in his voice, Plouffe said that the plan had been endorsed by the Republican presidential candidates and that, with Mitt Romney the frontrunner, this was now the Romney-Ryan Budget. It calls for cuts in government spending through basic entitlement reform, such as means testing and block grants to the states, and tax cuts coupled with limits on tax deductions that would be targeted at the rich. Obviously, the Obama team is looking forward to running against this proposal and is anxious to tie the probable Republican nominee to it.

This reminded me, as so much of the Obama presidency has reminded me of the Jimmy Carter presidency, of Carter’s re-election campaign in 1980. The country was in the throes of the worst peacetime inflation in its history, with 12 percent inflation in 1980 (with an unemployment rate well over 7 percent). The prime rate, the benchmark interest rate on loans, was over 20 percent (it’s 3.25 percent this morning). Read More

On “Fox News Sunday” with Chris Wallace yesterday morning, David Plouffe, senior adviser to President Obama, talked about Paul Ryan’s recently announced budget plan. You can see the discussion here with the relevant portion beginning about 9:30. With a distinct now-we’ve-got-’em! note of triumph in his voice, Plouffe said that the plan had been endorsed by the Republican presidential candidates and that, with Mitt Romney the frontrunner, this was now the Romney-Ryan Budget. It calls for cuts in government spending through basic entitlement reform, such as means testing and block grants to the states, and tax cuts coupled with limits on tax deductions that would be targeted at the rich. Obviously, the Obama team is looking forward to running against this proposal and is anxious to tie the probable Republican nominee to it.

This reminded me, as so much of the Obama presidency has reminded me of the Jimmy Carter presidency, of Carter’s re-election campaign in 1980. The country was in the throes of the worst peacetime inflation in its history, with 12 percent inflation in 1980 (with an unemployment rate well over 7 percent). The prime rate, the benchmark interest rate on loans, was over 20 percent (it’s 3.25 percent this morning).

While decrying the problems that inflation was causing, many liberal politicians secretly liked inflation because at that time income tax brackets were not indexed for it. Thus, as wages were increased to match the rise in the cost of living, that pushed people into higher and higher tax brackets. In other words, marginal tax rates meant to sock it to the rich were now socking it to the middle class and federal revenues were rising even faster than inflation without Congress having to vote to raise taxes. For many liberals–who never saw a government revenue increase they didn’t like–that was a win-win situation.

Jack Kemp, a Republican congressman from Buffalo, New York, a former quarterback for the Buffalo Bills and a future vice-presidential nominee (in 1996), and William Roth, Senator from Delaware, proposed to slash marginal rates and, crucially, to index tax rates to inflation to prevent bracket creep. When Ronald Reagan endorsed the proposal, the Carter campaign pounced, redubbing the Kemp-Roth tax proposal the Reagan-Kemp-Roth tax proposal, convinced that it would be a drag on Reagan’s election prospects.

They were, of course, suffering from the “Pauline Kael effect,” named for the long-time movie critic of The New Yorker, who is supposed to have said after the 1972 election, “I can’t believe Nixon won. I don’t know anyone who voted for him.” Millions of voters outside the Beltway and the Upper West Side of New York thought the Reagan-Kemp-Roth proposal was a great idea. Ronald Reagan signed it into law only eight months into his presidency, while Jimmy Carter felt sorry for himself sitting in Plains, Georgia.

I suspect the same situation obtains today. The people are far more ready to seriously tackle the federal government’s chronic revenue imbalance than is the liberal establishment.

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