Republicans Create Uncertainty, Too

A blog about business, finance, and economics.
Sept. 17 2010 7:30 AM

Republicans Create Uncertainty, Too

One of the most persistent and vexing political memes of recent weeks is the notion that our current unemployment crisis is caused by "uncertainty." Businesses are terribly confused, you see, by taxes and health care costs, so they're too scared to hire anyone. You get this argument from straight-up Republican outfits like the Freedom Project ; from Tea Partiers (who, whatever else their virtues might be, do represent how some small-business owners think); and even in somewhat sophisticated form from the former Republican economic advisers who occupied most of yesterday's Wall Street Journal opinion page.

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You may have noticed, though, that this uncertainty principle gets applied to only Democratic presidents and legislatures, who apparently possess unique bamboozling powers. That's striking, because if you look at the tax policies of most Republican leaders in recent memory, they weren't exactly pillars of certainty. As Jeanne Sahadi reminded us last week , Ronald Reagan spoke tirelessly about the need for personal tax cuts. But once they were implemented in 1981, the budgetary shortfalls they created caused his administration to enact the highest tax hikes America had ever seen in peacetime, "through 'base broadening'—that is, reducing various federal tax breaks and closing tax loopholes. For instance, more asset sales became taxable and tax-advantaged contributions and benefits under pension plans were further limited." Those seeking more detail can look here .

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His successor, George H.W. Bush, must have sent waves of uncertainty to the business community when he raised taxes in 1990, having famously pledged that we could read his lips to the contrary. And no matter what John McCain may have said on the 2008 campaign trail about cutting taxes , his chief financial adviser, Doug Holtz-Eakin, was admitting to journalists that tax hikes of hundreds of billions of dollars were going to be necessary , no matter who was in the White House. If a candidate says one thing and expects to do its opposite, that seems like a recipe for uncertainty.

There are two main problems with the uncertainty canard. One is logical. Yes, of course businesses need to plan years ahead, but honestly: Coming up with scenarios based on different possible political outcomes is not that difficult a task. In such scenario-building, uncertainty is a two-way street. Someone's plan to cut taxes—or someone's plan to do nothing about the skyrocketing health care costs of the last two decades —introduces just as much uncertainty into the equation as a proposed tax hike. "Uncertainty" is not what these business actually despise; as always, a higher tax rate is, and uncertainty is a faddish way of expressing that.

The second problem is political: If you genuinely believe that American businesses use taxation as the chief factor in hiring and investment decisions, then you must resign yourself to a lifetime of uncertainty. Our political system is so swayed by whining about taxation that it forces politicians of all stripes to make public pronouncements, from appeasement to outright lies, that simply cannot be used as a reliable guide to what will happen with taxes. Most American businesses are smart enough to know that; it's mostly politicians complaining about uncertainty. 

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