Giuliani, Forbes, and the Flat Tax

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"I've talked to a few of the presidential candidates, and it just baffles me," Dick Armey told me last week. The Republican former House majority leader now runs Freedom Works, a small-government advocacy group. What "baffles" Armey is the unwillingness of any of the major GOP presidential candidates to embrace major new tax cuts, particularly radical tax reform such as a flat or consumption tax. "Steve Forbes ran on the flat tax in 1996 and scared the other candidates half to death, even though he ended up losing in the primaries."

Not long after I chatted with Armey, former New York Mayor Rudolph Giuliani announced not only that Forbes was endorsing his 2008 candidacy, but also that the magazine publisher was joining his embryonic campaign as a national cochair and senior policy adviser.

All this was in leading up to Giuliani's presentation before the Club for Growth, a tax-cut advocacy group, at its winter meeting in Palm Beach, Fla. (Former Massachusetts Gov. Mitt Romney and Sen. Sam Brownback of Kansas also spoke there.) So did Giuliani endorse a version of the flat tax?

Now the meeting was off the record, but sources tell me that Giuliani, as well as Romney, merely endorsed–again–extending the Bush income and investment tax cuts due to expire in 2010 and spoke vaguely though forcefully about a commitment to lower taxes. (It should be noted that Brownback, trailing badly in the early polls, has already endorsed a flat tax.)

"Romney and Giuliani gave interesting speeches, but they were both short on specifics," one attendee told me. For its part, Romney's campaign released a bit of what its candidate had to say:

"I believe we must do as John F. Kennedy did in the 1960s and Ronald Reagan did in the 1980s: We must cut income tax rates for all Americans. This approach is fair, simple, and extends the pro-growth benefits of tax rate cuts to all Americans. And by increasing incentives, a marginal rate cut will energize our economy and grow and create jobs. It's absolutely critical that we make the Bush tax cuts permanent. In the process of making the Bush tax cuts permanent, let's also drive a stake through the heart of the death tax and truly kill it once and for all."

All this tax-cut talk reminds me of the whimsically named Two Santa Claus Theory. As laid out some three decades ago by the late journalist and supply-side economics guru Jude Wanniski, this political theory holds that if one political party appeals to voters by proposing more spending, the other cannot hope to win by proposing somewhat less spending. (It's the difference between finding a Wii under the Christmas tree and tearing open a Christmas card and finding someone has donated to the "Human Fund" or other charity in your name. Both are nice, but ... well ... you know.)

Fiscal prudence is a political loser. So, according to Wanniski, if Democrats appeal directly to voters with more spending–say national healthcare or free college for everyone or some such–the Republicans need to make their own direct pitch by proposing tax cuts.

And indeed the GOP has done just that for the past 25 years, capturing the presidency in five of seven elections and controlling Congress for a good chunk of the past dozen years until last January. Now, as I point out in my U.S. News story "Giving the Boot to the Tax-Cut Era" this week, there seems to be little interest in Republican circles right now for sticking with the tax-cutting approach that brought the party so much electoral success.

Making this all especially tricky is the probable willingness of the 2008 Democratic nominee to endorse in some fashion the middle-class-friendly parts of the Bush tax cuts–specifically, the increased child tax credit and "marriage penalty relief"–while at the same time coming out against extending the cuts on top marginal rates, capital gains, and dividends. This would smartly allow Democrats to keep a populist vibe going while also cutting taxes in what many will consider to be a more fiscally prudent manner.

At best for Republicans, this approach would blur the differences on taxes between the two parties while, at worst, opening them up to familiar attacks as the party of the rich.

Yet I'm not sure that countering with a bold proposal like a flat tax would be the best political move for the GOP in an environment where Democrats, the media, and even President Bush are harping about growing income inequality. The flat tax is easy to demagogue as being regressive, since everyone would pay the same basic rate–though not the same amount, which, I guess, would be a pure flat tax.

Making sweeping rate cuts–much less totally scrapping the current tax code and instituting a flat tax or a consumption tax–in the current environment is "unrealistic," Ramesh Ponnuru, a senior editor at the conservative National Review magazine, told me recently. At the very least, it would take an articulate candidate committed in his bones to making the argument for such huge change. So what other options do Republicans have? More about that tomorrow.

Questions or comments can be sent to jpethokoukis@usnews.com.

TAGS:
Giuliani, Rudolph
taxes
Forbes, Steve
Armey, Dick
Republican Party

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