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Read Their Lips

The long election season should, if anything, bring clarity to what we can expect starting in 2017. The next year will give us a lot of information as the campaigns coalesce. The candidates should at least give us the boundaries of what we can expect in terms of policy regardless of who is elected.

There are many things that are well known already, such as the retirement of Baby Boomers and a lot of reasons to believe that this will be a relatively good time economically. Add to that list a lot of reason to believe that taxes will rise. Why? Because the pressure is completely off the Republican Party to hold the line.

Rep Dave Camp.  The serious ones have been the first to go.

Rep Dave Camp. The serious ones have been the first to go.

Just a year ago we could never have made this same pronouncement. Rep Dave Camp (R-MI), chair of the House Ways and Means Committee, took his job seriously. He authored a comprehensive tax reform package that dramatically simplified corporate taxes and made enforcement much easier. But the package was dead on arrival – it never really saw the light of day in Congress.  Camp quietly retired the next election.

Tax reform, even much needed and obvious reform, almost certainly means that some people will pay higher taxes. And that went against the party platform.

Oh, it's not this bad.  It just feels like it.

Oh, it’s not this bad. It just feels like it.

Holding the line on taxes has been a staple of the Republican Party ever since they “learned the lesson” of George HW Bush in 1992. It was generally believed that after running on a platform of “Read my lips, no new taxes!” Bush’s backtracking in office cost him re-election. It’s a position that is not supported by any clear data, but the Republican Party felt it was obvious enough. Ever since then they have not supported any tax increases of any kind – regardless of the state of the budget.

Until now, that is. 2015 has seen a major change in this thinking and, more importantly, it has not been punished.

It’s started out as a small change done for all the right reasons. Rigid anti-tax ideology put Kansas into a terrible mess that could only be corrected by a large increase in tax revenue, which the Republican controlled Senate duly passed in June. Since everyone knew it was OK it went by without a lot of fuss.

Low gas prices make people happy.

Low gas prices make people happy.

Then, in July, Rep Tom Rice (R-SC) proposed a gas tax increase of 10 cents per gallon to properly fund transportation programs that have been languishing for a long time. It hasn’t gone anywhere yet as a long-term transporation bill eludes the House, like nearly all legislation does. But there was almost no outcry against this tax increase, which may wind up in the final bill should one ever actually pass.

A bill is desperately needed and the lack of money is making it impossible to fund a lot of good projects. In an election season the lack of good pork more of a problem than a small rise in the otherwise plummeting price of gasoline.

More recently the call for increased taxes has heated up, or more accurately been proposed with hardly any real backlash. Trump has said that his taxes could go up and has even proposed higher taxes on companies that offshore jobs. Joining that chorus is notable rich person Jamie Dimon of JP Morgan who made it clear that his taxes could go up without any concern on his part. As a known Democrat Dimon’s opinion may not seem important, but he has never spoken up like this before. It certainly adds fuel to the discussion that maybe, just maybe, taxes may go up.

A balanced budget is a happy budget. And we see problems coming if we don't act soon.

A balanced budget is a happy budget. And we see problems coming if we don’t act soon.

We can’t reasonably expect any party stalwarts to come out in favor of tax increases before the nomination is clinched. Trump’s proposals, which have never been fleshed out or written down, are still nebulous. But with all this talk it seems reasonable that a Republican nominee who secures the endorsement might have a lot of wiggle room to distance himself from the more radical part of the party by proposing at least reform, if not actual tax increases all around.

Given that the nominee is still likely to be Jeb Bush we can easily see this happening.

Nothing is for sure yet, but the 23 year prohibition against any hint of raising taxes has been broken. We have yet to see exactly how it will develop but it seems reasonable that the momentum can only continue the way it has. A tax increase, probably as part of a major reform package, is likely to be a real possibility in 2017 no matter who is elected.

That can only be a good thing, too.

10 thoughts on “Read Their Lips

  1. Erik,

    I’m not sure that I fully agree with your premise that Jeb Bush will be the candidate, or that the Republican Party will realize that taxes can and must increase. While we are both sophisticated enough to understand that the two debates thus far consisted mainly of appealing to a percentage of the Republican base. That percentage represent the party’s most ardent voters in turning out to vote, yet it also represents the least economically informed of potential voters. For the most part, they are swayed by what are euphemistically called the “social issues” and so are swayed by positions against abortion, homosexuality, immigration and those “brown people coming to power.” They want assurances that “THEIR” candidate is a person of religious faith.

    However, I spend summers in a community that has a good representation of people of means, who are also staunch Republican voters. To give you an idea, one of my friends had me to a son’s wedding two years ago, where Eric Cantor was a guest. These “conservatives” are all quite “liberal” on social issues and assume that the “anti” rhetoric is merely throwing red meat to the peasants in the base. Invariably, they deem taxes as the most important issue and will vote for the candidate that they feel will not raise their taxes. They are for the most parts professionals, in the medical/legal/financial fields. While they are in the “1%”, they are not in the Jamie Dimon strata, merely financially very well off. This group, to my mind, represents the larger Republican base and while they too are immersed in a mythological view of how government should work, their views are quite in line with Grover Norquist.

    For me the question has always been not taxes per se, but tax fairness. Rep. Tom Rice’s proposal to raise the SC gas tax is typical of the taxation trends of the last 35 years, which is to lower progressive tax rates, while trying to make up the difference in user tax fees. These fees (taxes to me) fall most heavily on the shrinking middle class and the poor. For instance, my summer bungalow is in upstate New York, about 100 miles from NYC. We travel into the City at least once a week and the tolls run to about $30 per trip. The RFK bridge in NYC, a main artery between The Bronx and Queens costs $8.00 each way. That would be $16 per day, for a resident of either borough, to go to work in the other. Remember these boroughs are in the same City. These are just a few examples of how the “anti-tax” meme has led to “creative” ways to raise money.

    Taxes need to be raised, but it is necessary that those average Americans who have been most burdened since “The Age of Reagan” began, not again be the ones who are forced to bear the burden. While one might say that Jeb is the most reasonable of that crop of candidates, his recent tax plan puts the burden squarely on the backs of those whose income has been stagnant, while offering relief to those who’ve prospered.

    I really wish that it is your rosier view that prevails Erik, but I must admit that it is hard for me not to be skeptical. As usual though, a thought provoking piece.

    • I agree that the more regressive taxes (sales, consumption) are always the first to be suggested for raising by the Republicans. That is what mostly happened in Kansas. But they have gone a bit beyond that recently and are indeed starting to stand for a general tax rise. I really hate Trump, but he brought up the subject and now we are all talking about it – and the sky is not falling.

  2. Our tax code is so far beyond ridiculous it’s no wonder that the rich don’t pay. It’s totally set up for those who can take the special exemptions and find the credits that match what they would do anyway. It makes no sense at all. Anyone who can’t see this is not “holding the line on taxes” or any thing else they call it they were paid for period.

    • That is what I think will beat out the desire to hold the line on taxes. It’s far too obvious that the exemptions for special interests are an albatross. It’s really up to the Democrats to make them one, however.

  3. Pingback: Runnin’ on Empty | Barataria - The work of Erik Hare

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