That "Greedy Hand" Is Helping Your Grandmother

Dionne and Shlaes

That "Greedy Hand" Is Helping Your Grandmother

Dionne and Shlaes

That "Greedy Hand" Is Helping Your Grandmother
An email conversation about the news of the day.
Feb. 2 1999 6:33 PM

Dionne and Shlaes

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Dear Amity,

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I admire your doing two things: 1) avoiding the obvious story, and 2) promoting your new book. This is the spirit of enterprise, and what better used is there for these pages--or whatever it is one calls cyber-pages?

It won't surprise you that my take on this budget and these issues is different from yours. Here's what's happened since President Reagan left office: Congress raised taxes, almost entirely on the very well off, first under Bush in 1990 and then under Clinton in 1993. Bush and Clinton got trashed for this. Your side said the economy would collapse, the wealthy would stop investing--nay, stop working--the sky would fall and Lord knows what other calamities would ensue.

It didn't happen. Not only that: The economy boomed. Even as the very wealthy grumbled about 40 percent tax rates, they got much richer. The budget went into balance. The growth rate last quarter went over five percent. Unemployment is at its lowest rate in roughly four decades.

No, this isn't a speech on behalf of Clinton or anyone else. There are many reasons why this happened, including some changes in the private economy. The point is that the magical supply side theory had one large practical test. Supply siders said flatly (and, one can say, honestly) that their theory told them that this couldn't happen. The theory was proven wrong.

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And do you really believe that cutting taxes on the wealthy back to, say 28 percent, would make the economy grow much faster than it is now? Why should any of us believe that theory when the other theory went so awry.

Lots of people knock Clinton's mini-tax cuts. Hell, I can do that, too. There's a limit to how many carefully targeted tax credits you want. (Before long we'll have the Landscaping Environmental Tax Credit--50 bucks for every family that doesn't use chemical fertilizer on their lawn.) But if we're going to have tax cuts at a time when--until recently--there was growing inequality, why not target tax cuts to the middle class and the poor whose incomes haven't been growing as fast as the people in the top 10 percent?

And guess what? Big government is unpopular as a phrase and a concept but its very big parts are very popular--Social security and Medicare among them. Last year, using the surplus to save Social Security trumped tax cuts in the public argument. It's not easy to attack government's "greedy hand" when the hand is helping your grandmother and mother-in-law and yourself--and paying for cops and teachers and the like.

All of which is to say that the debate is very different now than it was in 1980. "Big government has been reborn and reinvented in this budget," Sen. Pete Domenici said today (see George Hager's good roundup in today's Washington Post.) Rep. Bill Archer talked about a "kitchen sink approach to government."

Now I wouldn't use their words, but each has a point: There are things government can act on now that it couldn't in the era of deficits. Without deficits, it's possible for voters--not just "greedy" government types--to think through what they'd like government to do, compared with how much they might want their taxes cut. Your colleague warned about this a year ago when he spoke of the dangers (in his view) of "balanced budget liberalism." He noted, correctly, that it's easier to consider spending in times of surplus when every dollar spent doesn't have to matched against a growing deficit.

Now don't worry: you may get some kind of tax cut out of this Congress, but it will probably be modest and more progressive than you'd like.

So try to convince me already--and plug your book again in the process. (Remember: the internet is libertarian-friendly, so the people reading this probably agree more with you than with me.) The question: why is it that an across the board tax cut that especially benefits the wealthiest among us is to be preferred over helping our grandparents and our older friends get their Social Security and Medicare? Or did I put the question badly?

Be well, E.J.

E.J. Dionne is a columnist at the Washington Post and a senior fellow at the Brookings Institution. Amity Shlaes, the author of The Greedy Hand: How Taxes Drive Americans Crazy and What To Do About It, is a member of the Wall Street Journal's editorial board.