In 1994, Republicans won majorities in the House and Senate and all but a handful signed and kept the pledge to never raise taxes. Republicans learned from painful failure that tax hikes only feed big government and strengthen the party of big government in the United States: the Democrats.
So the Reagan Republican Party became the party that would never raise your taxes. But opposing tax increases is a necessary but not sufficient condition to achieve limited government.
Reducing spending
The second step is to stop spending so much money. One of the failures of George W. Bush’s eight years as president was that he was very good at not raising taxes – but not so good at restraining spending. He had learned the dangers of tax hikes. Bush 43 watched dad raise taxes and lose his bid for re-election in 1992. Dad had been a great president on many things; he managed the collapse of the Soviet Union without a lot of blood on the floor, and kicked Iraq out of Kuwait without getting stuck occupying the place for a decade. There was one problem: he raised taxes. And he threw away a perfectly good presidency as a result.
We did begin to make progress in limiting government spending in 2011. What changed was the arrival of the Tea Party movement. This was a radical change in American politics. It has completed the circle in terms of who sits around the centre-right’s ‘leave us alone’ table.
Before the Tea Party revolt beginning in 2009, most Americans believed that you could not win elections by attacking government overspending. But Americans would organise opposition and win elections once ‘spend too much’ became ‘tax too much’. That was the lesson of the 1978 taxpayer victory of Proposition 13 designed to cut property taxes in California. The California tax increases in the late 1970s were the product of overspending, but the revolt followed the tax hikes not the earlier overspending. Reagan ran for president promising to cut federal spending by $90 billion in 1976 and lost a Republican primary. He won in 1980 and 1984 as the tax cutter. QED. Americans hated tax hikes but not necessarily government spending.
In January 2009, Obama came into power. Within two and a half months, he had threatened to spend trillions – the stimulus and more. The whole point of the stimulus package was to take over $800 billion dollars and throw it in the middle of the ‘takings coalition’ table to keep everybody happy.
This scared Americans, and we had about a million Americans in the streets demonstrating at between 600 and 800 rallies around the United States on the week of 15 April. This was unprecedented. These were not unemployed students. These were men and women with jobs, lives, families. They had never been in a demonstration. And they were not reacting to tax increases – those were yet to come. They were organising in opposition to government spending.
There have been some very good studies about how this affected the voter turnout in places where you had rallies compared with places where they planned a rally, but it rained, so it was cancelled. You could see that we gained between three million and six million voters in 2010 because of increased political activism: the idea of showing up, seeing other people, realising you weren’t alone and that you weren’t crazy was very important.
This was all part of fighting against ‘spend too much’. In November 2010, we elected a great number of people largely on the anti-spending issue. To ‘no new taxes’ the movement added ‘and stop spending so much’. We now have a more internally consistent Reagan Republicanism that opposes tax hikes and spending demands: a focus on reducing spending that buttresses and complements the other ‘leave us alone’ issues.
So, in 2011, when we had the argument between the Republicans in the House and Obama over the debt ceiling increase we were confident we had popular support. We held fast and won. The final agreement did not raise taxes as the Democrats had demanded. Instead we won $2.5 trillion in spending restraint: cuts from planned spending over the decade with real budget caps and a sequester protecting those budget savings.
The Ryan budget
Just as the Tea Party demonstrations in 2009 and the Republican capture of the House of Representatives in November 2010 demonstrated real political muscle in the anti-spending movement, Congressman Paul Ryan of Wisconsin introduced his Path to Prosperity budget for the United States. Potentially, this is the U-turn on the road to serfdom. The Ryan plan combines tax reform and spending reform. Ryan’s tax reform lowers corporate and individual marginal tax rates down to 25 per cent and moves the United States to a territorial tax system so that we don’t double tax expatriates who live overseas and businesses that are doing business overseas. It also moves towards full expensing for business investment. The plan would be very pro-growth and it greatly simplifies the tax code and makes it more transparent.
On the spending side, Ryan takes many of the 185 means-tested welfare programmes and would provide block grants to the 50 states. States would, over time, receive less in federal aid in return for more freedom to run their programmes. When this was done with AFDC – the aid to families with dependent children programme – in 1996, the states dramatically reduced welfare spending and many poor Americans were freed from welfare dependency. We reformed welfare and saved money by giving states more autonomy. The Ryan plan proposes this for the other major welfare programmes. Ryan also proposes reforms to underfunded entitlement programmes, such as Medicare, to eliminate unfunded liabilities.
Without such reforms, government spending on entitlements will drive total federal spending from 20 per cent of GDP to as high as 40 per cent of GDP. The Ryan plan reforms government to cost less and lowers federal government spending down to somewhere below 20 per cent of GDP.
So the Ryan plan would take government to about half of what it would otherwise be. But turning a ship round takes a long time. The reforms in this plan would be phased in slowly, minimising opposition. The Republican Party is united in support of the Ryan plan. One or two people voted no because they thought it wasn’t tough enough. But almost every Republican Congressman and Senator supported the budget, voted for it, and they got re-elected in 2012.
They have now voted for it three times. There is a depth of understanding within the modern Republican Party of what this plan does. When I was first speaking with Congressman Ryan about his plan, I asked, ‘Do you want me to help to get co-sponsors?’ Normally, a congressman wishes to have many co-sponsors to show support and strength. Instead Ryan said, and I paraphrase, ‘No, I’m not going to let anyone co-sponsor the Ryan budget plan until I am convinced they understand it, so that when they talk to the press, they articulate it correctly; they don’t misstate what’s in it or say things that might come back to hurt the plan. I want them to be serious advocates and apostles for the plan.’ And he did that.
Again, early in 2013, I called Congressman Ryan and said: ‘You know, Hernando De Soto would like to come by and visit you to talk about some of the work he’s doing on property rights in Tunisia and some other countries.’ Ryan said: ‘Oh, that would be great. I’m a big fan of his work. Let’s get together in two and a half months.’ I said, ‘That long? He just needs half an hour.’ Congressman Ryan said: ‘At the moment, I am meeting with every member of the Republican caucus to work through this budget; the update of the last one, so that they have a full understanding of what is in the budget.’ He is talking in detail about the changes from last year to this year. That is the depth of knowledge about the plan. So, when we talk about Republicans taking the Senate and the presidency we know what they will do.
This is not wishful thinking. The Republican vision for saving the economy and American liberty is the Ryan plan. It is written down. Every member of Congress gets yelled at about it by folks from the left; they get asked about it by the press. They can competently defend it and articulate it, which I think is extremely important.
The role of inter-state competition in widening the ‘leave us alone’ coalition
So that’s the national level; that’s the future in the United States. We are on the road to serfdom. We do the U-turn when we have a Republican majority in the House of Representatives and a Republican Senate – where we need just 51 votes to cut spending,