Americans Forget Disaster of Big Government 1970sAmity Shlaes
Nov. 7 (Bloomberg) -- Do Americans suddenly like tax increases and bigger government? Or did they simply forget what happens when you raise taxes and make government larger?
These are questions to ask as we analyze the yesterday’s election results to discern the fiscal consequences. Advocates of higher taxes prevailed in the presidential and legislative races, and resoundingly. Yet the outcomes for the many propositions and initiatives on ballots across the country also require review. These votes suggest Americans are indeed looking at government and taxation differently.
The conventional wisdom before election night was that ballot initiatives were separate. Voters may not mind voting for a man or woman who might permit higher taxes down the road. But the same citizens, we told ourselves, would hesitate to vote yes when confronted directly with the prospect of a precise rate increase on the page before them.
Tax rebellions tend to start at the state level -- think of Proposition 13 in California a generation ago. Evidence of this aversion to taxes was provided recently by the National Taxpayers Union. Looking at a sample year, 2011, the NTU found that voters favored 60 percent of state initiatives that would reduce the burden of government, while backing only 44 percent of measures that would expand government. The NTU also found that of 648 measures to raise taxes or expand budgets, 330 passed, slightly more than the number that failed -- not a decisive outcome. But interestingly, 37 out of 46 local measures to limit government or reduce taxes passed.
This “hesitation theory” suggested that voters this year might reject big tax initiatives and endorse initiatives that rejected taxes, such as the effort to amend the state constitution of New Hampshire to ban an income tax in perpetuity.
That’s not what happened. In New Hampshire, for example, voters not only chose Democrats in the congressional and governor’s races but also failed to muster the two-thirds majority necessary to support the income tax ban.
In California, two siblings from the powerful Munger clan were testing the contention that voters tend to vote no on tax increases. Philanthropist Molly Munger, daughter of billionaire Charles Munger, bet tens of millions on a tax-increase initiative, Proposition 38, that would have raised rates to finance K-12 education. Her brother, Charles T. Munger Jr., for his part, poured millions into defeating another version of a tax increase, Governor Jerry Brown’s Proposition 30.
Molly Munger’s Proposition 38 was indeed defeated and soundly. Yet voters backed Brown’s increase, which raises the already high top marginal rate on the income tax three percentage points.
My own analysis is that this is a sea change, though not quite the kind Democrats will advertise. It has been a long time since Californians exploded with rage over property taxes and since the economy struggled under the egregious interventions of the Nixon, Ford and Carter administrations. Voters don’t really recall the 1970s, or what a mess price controls and strange tax regimes yielded.
So they aren’t really aware of the strong possibility that the new mandate for tax increases and bigger government is likely to yield similar economic challenges. It looks as if we have to repeat history if we are going to remember it.
(Amity Shlaes, a Bloomberg View columnist, is author of the forthcoming “Coolidge” and director of the Four Percent Growth Project at the Bush Institute.)
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