No Representation Without Taxation

U.K. Tightens Belt Despite Hard Times.

Yes, you read that right: despite hard times, the U.K. is tightening its belt, i.e., being cautious about spending. Thus the International Herald Tribune, i.e., The New York Times or The Washington Post, on its front page this morning dilating on the budget unveiled yesterday by the new Chancellor of the Exchequer, George Osborne. (I write from the south of France with extremely limited internet access so must apologize for not supplying the usual plethora of links: Google is your friend and you can easily find the story by Landon Thomas Jr.)

“Defying a plea from the White House for continued economic stimulus by developed countries, the British government unveiled a sweeping emergency budget Tuesday that combined tax increases and severe spending cuts as part of Britain’s deepest fiscal retrenchment since the early Thatcher years.”

Let’s take that piece by piece. First a possibly supernumerary observation: since the Obama administration has treated Great Britain with ostentatious contempt since it swept into power eighteen months ago, why should Britain attend to its “pleas”?

More pertinent is number two: the phrase “economic stimulus.” Class is in session now and today’s quiz consists of just one question: “In What Way Is ‘Economic Stimulus’ Different From What Your Mother Called Irresponsible Spending?”

Third, the allusion to “the early Thatcher years”: What can the writer have meant by that? I think he is counting on his readers to make this association: Thatcher = Conservative = Bad.

He is probably on sound psychological ground there. It is not surprising, for example, that the academic economist he appeals to concludes that Britain’s new budget is “just right-wing orthodoxy.”

Yes, it is that. But is it, just possibly, also true? As Thatcher pointed out, the problem (well, one problem) with socialism is that sooner or later you run out of other people’s money to spend. Are we there yet?

There’s also the question of whether Mr. Thomas’s readers are as naïve as he thinks they are. Anyone who actually remembers the Thatcher years will remember that they were the years in which a doughty Prime Minister lifted large parts of Britain out of the slough of socialist poverty into unprecedented capitalist abundance. I first started visiting Britain in the late 1970s and I remember the shadow of post-war austerity still hanging over the kingdom. Even in London it was not uncommon to find traces of want and meanness in daily life. Your bath in a hotel might be fitted out with a contraption that dispensed an inch or two of tepid (they called it “hot”) water for 10 shillings or whatever. There was a sense of meagerness everywhere.

Margaret Thatcher changed all that, partly by crushing the labor unions, partly by nurturing that great engine of wealth creation: the free market.

Obama and his minions appeal instead to the outmoded theories of John Maynard Keynes, according to which you escape from debt by spending more money.

This brings me to the observation that Mr. Osborne’s budget, like the one Mrs. Thatcher’s party proposed 30 years ago, includes tax increases as well as spending cuts. Constitutionally, I am opposed to tax increases. I think that tax increases can generally be counted upon to put a damper on growth. Increased taxes act as a disincentive to consumer and corporate spending, to entrepreneurial risk taking. But sometimes some taxes must be increased, at least temporarily. Is this the case now in Great Britain? I do not know. I hope not. But I also note that Thatcher found she had to raise taxes when she took power in 1979. (She cut them drastically a few years later.) And perhaps the Untied States will find that is the case now.

But if so (and notice I say “if”), what taxes? Where I would start is not by repealing the the Bush tax cuts or by raising the tax rate on dividends or capital gains. Rather, I would revisit the compromise (or perhaps “capitulation” would be a better word) the Republicans made back when they managed to get the Democrats to agree to the Bush tax cuts in the first place. The compromise was this: in exchange for the tax cuts, some 43.4 percent of tax-filers were taken off the income tax rolls entirely. Yes, that’s right: nearly half of those who file income tax returns pay no income tax. None. Zip. Nada. Think about that.

A friend of mine who was a Congressman and on the relevant committee at the time reports that he argued passionately against this divisive scheme according to which a huge part of the population would be excluded from having any stake in the enterprise of fiscal responsibility. Since they paid no income tax themselves, what incentive did they have for economic prudence and restraint? Would they not rather have an incentive to vote for politicians who would spend freely, regardless of the consequences? After all, it wouldn’t affect them if taxes were increased.

Several European countries now are embracing policies of what Landon Thomas refers to as “fiscal discipline.” In my view, productive fiscal discipline should start with two things: spending cuts and policies that encourage growth. One example of what not to do if you want to encourage growth: threaten to raise energy costs by attacking the coal industry, which is what Obama has done with his “cap-and-trade” boondoggle. By nature, I believe, tax increases inhibit growth. But as I said above, I acknowledge that in certain circumstances tax increases make sense.

I am not sure that we are in such a situation now in the U.S. I remain confident, however, that Great Britain is doing the right thing by insinuating a little fiscal restraint into its budget and that it is a very bad thing — politically and morally as well as economically — that so many tax payers in the U.S. pay no income tax at all. Some public-spirited lawyer should bring a class-action suit on their behalf, asking why so many people have been denied this essential perquisite of citizenship simply because they are of (relatively) modest means. It is an outrage (this counsellor should argue) that this not-so-hidden half of the population be treated as second-class citizens and be deprived of a stake in the future of our commonweal. No representation without taxation! I offer that as a rallying cry. Perhaps the ACLU will shortly take up the cause.