- The Washington Times - Tuesday, December 8, 2009

THE NEW AMERICAN ECONOMY: THE FAILURE OF REAGANOMICS AND A NEW WAY FORWARD
By Bruce Bartlett
Palgrave Macmillan, $28, 266 pages
REVIEWED BY JAMES SRODES

Even when he was in the intellectual inner circles of the Republican Party during the 1980s and ‘90s, Bruce Bartlett was often the odd man out. Since having the temerity to denounce the most recent Republican president in a 2006 broadside titled “Imposter: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy,” he has had his party buttons stripped off his tunic and been driven from the ranks. In this book, Mr. Bartlett seeks to rescue the Republicans from themselves.

As anyone knows from reading Mr. Bartlett’s weekly column on the Forbes.com Web site or his frequent Op-Ed pieces in the Wall Street Journal and elsewhere, he is conservative intellectually, but unlike many adherents to the less-government-is-better philosophy, he also has a firm grasp on reality and acknowledges that changing times require flexible thinking.

Indeed, if one were to summarize Mr. Bartlett’s career in a word, that word would be flexible. Nimble even. He began his career life as a diplomatic historian but in 1976 became a staff aide to Rep. Ron Paul, Texas Republican, on the House Banking Committee. Later, he helped Rep. Jack Kemp, New York Republican, draft the Kemp-Roth tax-cut bill, which was the basis for President Reagan’s supply-side recovery effort. Since then, he has held important posts on the congressional Joint Economic Committee and at top-line think tanks such as the Heritage Foundation and Cato Institute while serving as a senior economic adviser to both the Bush presidencies.

Mr. Bartlett’s apostasy, which began in 2005, was to compare George W. Bush to Richard M. Nixon as “two superficially conservative presidents who enacted liberal programs to buy votes for reelection.” Ouch. For saying such an unthinkable thing, he got the sack from the Dallas-based free-market think tank where he had been since 1993. Worse, he has continued to micturate from outside the tent, including a piece in August in the Daily Beast that blamed Bush economic policies for the recession and also for failing to push forward meaningful health care reform, thereby leaving the issue by default to the Obama version. Double ouch.

Yet regardless of whether Rush Limbaugh, Sarah Palin, or whoever else is left on board that drifting hulk known as the Grand Old Party listen to Mr. Bartlett, the rest of us should at least take a close look at what he has to say. At least part of the fear that grips the nation during this time of economic gridlock stems from the uneasy feeling that while what the current powers in Washington are doing to revive prosperity is not working, there really is no credible alternative. If the huge government debts being run up scare you but you fear the crunch on pensions and health care costs even worse, then Mr. Bartlett does offer a plausible way out.

He sums up the present conundrum thus, “Even without the election of Obama and the Democratic gains in Congress in 2008, Republicans were going to have to reassess much of their philosophy on the key issues of taxing and spending. The financial crisis led to a vast expansion of spending, so the deficit would have gotten much worse even if John McCain had won the election. And the aging of the baby boom generation means there will be increasing demands for Social Security, Medicare, and other programs for the elderly in coming years.”

Yet what to do about the debt balloon being hoisted over future generations? Mr. Bartlett argues persuasively that raising income taxes during the kind of recession that grips America right now is political suicide. Nor is it feasible to really cut government spending to any great extent, least of all in the very social entitlement programs upon which so many Americans depend.

Mr. Bartlett advises his old party, “I think Republicans would do better to spend their diminished political capital figuring out how to finance the welfare state at the least cost to the economy and to individual liberty, rather than fighting a losing battle to slash popular spending programs. But this will require them to accept the necessity of higher revenues. It is simply unrealistic to think that tax cuts will continue to be a viable political strategy when the budget deficit exceeds $1 trillion. Nor is it realistic to think that taxes can be kept at 19 percent of gross domestic product (GDP) when spending is projected to grow by about 10 percent of GDP over the next generation, according to both the Congressional Budget Office and the General Accounting Office. And that was before the recent economic crisis caused spending to skyrocket.”

He adds, “If Republicans refuse to participate in the debate over how revenues will be raised, then Democrats will do it on their own, which will likely give us much higher tax rates and a tax system that is more harmful to growth than necessary to fund the government. Instead of opposing any tax hike, I think it makes more sense for Republicans to figure out how best to raise the additional revenue that will be raised in any event.

“In the end, the welfare state is not going away, and it will be paid for, one way or another. The sooner Republicans accept that fact, the sooner they will regain political power,” he concludes.

Mr. Bartlett’s proposed solution to this impasse is one that will set both orthodox conservative and doctrinaire liberal teeth on edge: a value-added tax (VAT), a sales tax that applies to the consumption at each stage of distribution. He suggests a VAT rate to range somewhere between 17.7 percent (the average among the Organization for Economic Co-operation and Development countries that have it) and the 20 percent level at which consumers start trying to evade it. If Republican molars aren’t grinding already, Mr. Bartlett musters an unlikely ally in the form of President Obama’s National Economic Council Director Lawrence H. Summers.

Mr. Summers suggested earlier this year that the reality of a global marketplace makes it hard for nations to tax income, so a tax on consumption is a viable alternative that the United States would do well to copy from its other major industrial competitors, if only to stay even. Mr. Summers also has quipped that American conservatives seek a VAT as a money machine while liberals see it as a tax on the poor; such a VAT will be enacted, he says, when the conservatives see it as a tax on the poor and the liberals realize it is a money machine. Funny but true.

Moreover, time is running out on his former party’s options, Mr. Bartlett argues. The Bush-era tax reductions all expire in 2010, and that will bring the old rates back into play and be an effective income tax rate increase that will stall, perhaps, ruin whatever nascent recovery is under way. Some way must be found to raise revenue, to keep the income tax levies where they are and yet provide meaningful funding for expanded health insurance. A VAT would do all that.

In this thoughtfully researched and accessibly written argument, Mr. Bartlett offers us a plausible way out of our current crisis. With this book, he lifts the flaps on the Republican tent and shows his old party how to think creatively about its future. One can lead an elephant to water, but will it think?

James Srodes has been a Washington financial journalist and author for more than 40 years. His e-mail address is: [email protected]


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