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I recently wrote about the failed 1990 budget deal. My big complaint was that President George H.W. Bush compounded the mistake of higher taxes by also allowing a big increase in the burden of government spending.

However, I didn’t blame the agreement for that year’s recession for the simple reason that the downturn began in July and the tax hike was signed in November (that would make me like Paul Krugman, who wanted people to think that Estonia’s 2008 recession was caused by spending cuts in 2009).

But maybe I’m not being sufficiently critical. After all, Bush announced he would abandon his no-tax pledge in June, and that was then followed by months of tax-hike negotiations. Isn’t it reasonable to think all that talk would have a negative effect, especially on investors and business owners?

The answer may be yes, at least in part. There’s a very interesting new study by Sandra García-Uribe at Spain’s central bank. She examines how the anticipation of tax changes affects economic performance.

Prior to the approval of laws, there is often widespread information about the progress of bills. This information may be valuable for the forecasts that agents make about the economic environment in the future. …This paper provides a way to account for the economic responses to anticipation of tax shocks… In this paper I introduce a new measure of mass media anticipations of tax bill approvals by exploiting the content of news in the US television during the period 1968-2007. …this is the first paper that exploits a dynamic factor model to account for fiscal policy effects on economic activity. The factor specification considers the dynamics of the factor and the potential effects of tax changes and their anticipation on it.

She’s definitely correct about there being a process for tax legislation, so people (“agents” in economic jargon) have ample warning.

The study includes data on how tax increases harm growth once they are adopted.

Figure 3 presents the implementation effects of exogenous tax liability changes on economic activity, in the period 1948 to 2007…The figure shows the cumulative effects in terms of an increase in tax liabilities of a one percent of QGDP together with the one-standard-error bands. The maximum effects are achieved 29 months after implementation of the tax changes when monthly economic activity growth drops by 99.56%. …the maximum implementation effect of a 1% of QGDP increase of tax liabilities is a reduction of monthly economic activity growth of 0,28%. …For the period that we dispose of television data, 1968 to 2007, immediate implementation effects are -6.6% for monthly economic activity growth. Two months after implementation the effects are -10.7%. Maximum effects are a -69.1% and happen 25 months after implementation.

Here’s a chart showing the negative impact of tax increases.

But does the discussion of tax changes also impact the economy?

According to the research, the answer is yes.

Anticipating tax increases reduces economic activity by 1,36% while anticipating tax cuts stimulates it by 3,04%. …Conditional on the media release of information about a potential tax approval, it is likely that people is aware of what is the net tax liability change associated to the potential approval since media also makes reference to terms like ”increase”, ”rise” or ”cut”. There are 20 episode approvals in the sample and learning how to predict the sign joint to the approval based on 10 approvals per sign resulted in something unfeasible. I construct an indicator variable that captures the mention of ”increase” or ”rise” within the tax news to approximate the possibility of a tax rise approval. …In columns (3) and (4) I control for this indicator and its interaction with media anticipation of tax approvals …A 10% probability of tax approvals conditional on the tax news at t not mentioning tax increases significantly stimulates current monthly economic activity growth by 3.04%. In the case of the media mentioning tax increases the effect is a reduction of monthly economic activity growth by 1.36%.

For economic junkies, here’s the relevant table from the study.

By the way, none of this changes my view that monetary policy is always the first place to look when assigning blame for economic downturns and volatility.

Simply stated, taxation is just one of many factors that determine economic performance. But the fact that it’s not the only thing that matters doesn’t change the fact that it’s a very bad idea to increase the tax burden.

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Less than 10 years ago, many European nations suffered fiscal crises because of a combination of excessive spending, punitive taxes, and crippling debt.

The crises have since abated, largely because of direct and indirect bailouts. But the underlying policy mistakes haven’t been fixed.

Indeed, the burden of government spending has increased in Europe and debt levels today are much higher than they were when the previous crisis began.

Unsurprisingly, these large fiscal burdens have resulted in anemic economic performance, which helps to explain why middle-class French taxpayers launched nationwide protests in response to a big increase in fuel taxes.

The French President, Emmanuel Macron, capitulated.

But some have suggested that Macron’s problem is that he wasn’t sufficiently bold.

I’m not joking. Led by Thomas Piketty, a few dozen European leftists have issued a Manifesto for bigger government.

We, European citizens, from different backgrounds and countries, are today launching this appeal for the in-depth transformation of the European institutions and policies. This Manifesto contains concrete proposals, in particular a project for a Democratization Treaty and a Budget Project… Our proposals are based on the creation of a Budget for democratization which would be debated and voted by a sovereign European Assembly. …This Budget, if the European Assembly so desires, will be financed by four major European taxes, the tangible markers of this European solidarity. These will apply to the profits of major firms, the top incomes (over 200,000 Euros per annum), the highest wealth owners (over 1 million Euros) and the carbon emissions (with a minimum price of 30 Euros per tonne).

Here are the taxes they propose as part of their plan to expand the burden of government spending.

I’m surprised they didn’t include a tax on financial transactions.

And here’s a video (in French, but with English subtitles) explaining their scheme.

To put it mildly, this plan is absurd. It would impose another layer of government and another layer of tax on a continent that already is suffocating because the public sector is too large.

I’m not the only one with concerns.

In a column for Bloomberg, Leonid Bershidsky points out why he is underwhelmed by Piketty’s proposal.

The reforms proposed by Piketty and a group of intellectuals and politicians — notably Pablo Iglesias, leader of Spain’s leftist Podemos party — include the creation of a European Assembly. It would have the power to shape a common budget and impose common taxes… Piketty advocates four measures that would collect a total equivalent to 4 percent of Europe’s GDP… What is being proposed is essentially a return to the fiscal policies of the 1970s, which provoked Astrid Lindgren to write her satirical essay “Pomperipossa in Monismania.” In 1976, the children’s author was confronted with a tax bill of 102 percent of her income. …Hit them with new taxes and watch them flee to the U.S. and Asia. They won’t stay like patriotic Lindgren, whose essay helped to topple the Swedish government in 1976. And no amount of government funding…will repair the damage that envy-based taxation can wreak on economies already finding it hard to innovate.

Let’s not forget, by the way, the many thousands of French households who also have suffered 100 percent-plus tax rates.

But let’s not digress.

Writing for CapX, John Ashmore explains why Piketty’s plan will make Europe’s problems even worse.

…a group of politicians, academics and policy wonks spearheaded by…French economist Thomas Piketty…have put their names to a new Manifesto for the Democratisation of Europe. …For the most part, the manifesto reads like a souped up version of the kind of policies we’ve heard time and again from leftwing politicians. …The details of today’s ‘manifesto’ make Labour’s Marxist Shadow Chancellor John McDonnell look like a moderate centrist. Where Labour advocate putting corporation tax back up to 26 per cent, Piketty and co want it hiked to 37 per cent. And while we Brits spent plenty of the Coalition years discussing whether income tax should be 45p or 50p in the pound, the Manifesto goes all guns blazing for a 65 per cent top rate… these measures are projected to raise 800bn euros, equivalent to four times the current EU budget. …that would be a huge transfer of power, not from the rich from the poor, but from taxpayers to politicians.

A 65-percent top tax rate? At the risk of understatement, that’s a recipe for less entrepreneurship and less innovation.

Moreover, based on America’s experience during the Reagan years, it’s safe to say that actual tax receipts would fall far, far short of the projection.

But the higher spending would be real, as would the inevitable increase in red ink. And it’s worth noting that the Manifesto proposes to subsidize the debt of bankrupt welfare states. Very much akin to the eurobond scheme, which I pointed out would be like cosigning a loan for an unemployed alcoholic with a gambling addiction.

P.S. During my recent trip to London, I repeatedly warned people that a real Brexit was the only sensible choice because the European Union at some point will fully morph into a transfer union (i.e., a European budget financed by European taxes). It was nice of Piketty to issue a Manifesto that confirms my concerns. Simply stated, the United Kingdom will be much better off in the long run if it escapes.

P.P.S. Let’s not forget that Piketty’s core argument for class warfare has been thoroughly and repeatedly debunked. Indeed, only 3 percent of economists agree with his theory.

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Since I’m a proponent of tax reform, I don’t like special favors in the tax code.

Deductions, exemptions, credits, exclusions, and other preferences are back-door forms of cronyism and government intervention.

Indeed, they basically exist to lure people into making decisions that otherwise aren’t economically rational.

These distortionary provisions help to explain why we have a hopelessly convoluted and deeply corrupt tax code of more than 75,000 pages.

And they also encourage higher tax rates as greedy politicians seek alternative sources of revenue.

This current debate over “tax extenders” is a sad illustration of why the system is such a mess.

Writing for Reason, Veronique de Rugy explains how special interests work the system.

Tax extenders are temporary and narrowly targeted tax provisions for individuals and businesses. Examples include the deductibility of mortgage-insurance premiums and tax credits for coal produced from reserves owned by Native American tribes. …These tax provisions were last authorized as part of the Bipartisan Budget Act of 2018, which retroactively extended them through the end of 2017, after which they have thus far been left to remain expired. If Congress indeed takes up extenders during the current lame-duck session, any extended provisions are likely to once again apply retroactively through the end of 2018, or perhaps longer. There are several problems with this approach to tax policy. Frequently allowing tax provisions to expire before retroactively reauthorizing them creates uncertainty that undermines any potential benefits from incentivizing particular behaviors.

To make matters more complicated, a few of the extenders are good policy because they seek to limit double taxation (a pervasive problem in the U.S. tax system).

…not all tax extenders are a problem. Some are meant to avoid or limit the double taxation of income that’s common in our tax code. Those extenders should be preserved. Yet others are straightforward giveaways to special interests. Those should be eliminated.

Veronique suggests a sensible approach.

It’s time for a new approach under which tax extenders are evaluated and debated on their individual merits. The emphasis should be on eliminating special-interest handouts or provisions that otherwise represent bad policy. Conversely, any and all worthy provisions should be made permanent features of the tax code. …The dire need to fix the federal budget, along with the dysfunctional effects from extenders, should provide the additional motivation needed to end this practice once and for all.

Needless to say, Washington is very resistant to sensible policies.

In part, that’s for the typical “public choice” reasons (i.e., special interests getting into bed with politicians to manipulate the system).

But the debate over extenders is even sleazier than that.

As Howard Gleckman explained for Forbes, lobbyists, politicians, and other insiders relish temporary provisions because they offer more than one bite at the shakedown apple.

If you are a lobbyist, this history represents scalps on your belt (and client fees in your pocket). If you are a member of Congress, it is the gift that keeps on giving—countless Washington reps and their clients attending endless fundraisers, all filling your campaign coffers, election after election. An indelible image: It is pre-dawn in September, 1986. House and Senate tax writers have just completed their work on the Tax Reform Act.  A lobbyist friend sits forlornly in the corner of the majestic Ways & Means Committee hearing room. “What’s wrong,” I naively ask, “Did you lose some stuff?” Oh no, he replies, he got three client amendments in the bill. And that was the problem. After years of billable hours, his gravy train had abruptly derailed. The client got what it wanted. Permanently. And it no longer needed him. Few make that mistake now. Lawmakers, staffs, and lobbyists have figured out how to keep milking the cash cow. There are now five dozen temporary provisions, all of which need to be renewed every few years. To add to the drama, Congress often lets them expire so it can step in at the last minute to retroactively resurrect the seemingly lifeless subsidies.

In other words, the temporary nature of extenders is a feature, not a bug.

This is a perfect (albeit depressing) example of how the federal government is largely a racket. It enriches insiders (as I noted a few days ago) and the rest of us bear the cost.

All of which reinforces my wish that we could rip up the tax code and replace it with a simple and fair flat tax. Not only would we get more growth, we would eliminate a major avenue for D.C. corruption.

P.S. I focused today on the perverse process, but I can’t help but single out the special tax break for electric vehicles, which unquestionably is one of the most egregious tax extenders.

EV tax credits…subsidize the wealthy at the expense of the lower and middle classes. Recent research by Dr. Wayne Winegarden of the Pacific Research Institute shows that 79 percent of EV tax credits were claimed by households with adjusted gross incomes greater than $100,000. Asking struggling Americans to subsidize the lifestyles of America’s wealthiest is perverse… Voters also shouldn’t be fooled by the promise of large environmental benefits. Modern internal combustion engines emit very little pollution compared to older models. Electric vehicles are also only as clean as the electricity that powers them, which in the United States primarily comes from fossil fuels.

I was hoping that provisions such as the EV tax credit would get wiped out as part of tax reform. Alas, it survived.

I don’t like when politicians mistreat rich people, but I get far more upset when they do things that impose disproportionate costs on poor people. This is one of the reasons I especially dislike government flood insuranceSocial Security, government-run lotteries, the Export-Import Bank, the mortgage interest deduction, or the National Endowment for the Arts. Let’s add the EV tax credit to this shameful list.

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I’m not a fan of President Bush. The first one or the second one.

Both adopted policies that, on net, reduced economic liberty.

Today, let’s focus on the recently deceased George H.W. Bush (a.k.a., Bush 41). By all accounts, he was a very good man, but that doesn’t mean he was a very good president. Or even a mildly good one.

Steve Moore’s column in the Washington Times is a damning indictment of his infamous read-my-lips tax betrayal.

Liberals love George H.W. Bush for the very tax increase betrayal that destroyed his presidency. …This was not just the political blunder of the half-century, it was a fiscal policy catastrophe. …What the history books are writing is that Mr. Bush showed political “courage” in breaking his “Read my lips: No new taxes” pledge, and he was thrown out of office for doing the right thing. Wrong. The quick story is that the Reagan expansion — in no small part due to the reduction of the highest tax rates from 70 percent to 28 percent — was shrinking deficit spending dramatically by the end of Ronald Reagan’s presidency. The budget deficit had fallen in half down to 2.9 percent of GDP by 1988. It was headed to below 2 percent if Mr. Bush simply had did nothing. …the 1990 budget deal became a license for Democrats to spend and spend. …Government expenditures accelerated at a faster pace than at any time in 30 years. In two years time, the domestic budget grew by almost 20 percent above inflation. …The tax increases either caused the recession or exacerbated it — ending the Reagan expansion. The economy lost 100,000 jobs and the unemployment rate rose and the unemployment rate rose from 5.5 percent to 7.4 percent. Real disposable income fell from 1990 to the eve of the 1992 election. If this tax hike was a success, so was the Hindenburg.

There’s a lot of good analysis in Steve’s column.

But I want to emphasize the part about the budget deficit being on a downward trajectory when Reagan left the White House. That’s absolutely accurate, as confirmed by both OMB and CBO projections.

All Bush needed to do was maintain the Gipper’s pro-market policies.

Unfortunately, he decided that “kinder and gentler” meant putting Washington first and giving politicians and bureaucrats more power over the economy.

And not just on fiscal policy.

Jim Bovard points out in USA Today that Bush 41 also had some very unseemly bouts of protectionism.

Bush was the most protectionist president since Herbert Hoover. Like Trump, he spoke of the need for level playing fields and fair trade. But Bush-style fairness gave federal bureaucrats practically endless vetoes over Americans’ freedom to choose foreign goods. Bush’s Commerce Department ravaged importers with one bureaucratic scam after another, using the dumping law to convict 97 percent of imports investigated, claiming that their prices were unfairly low to American producers (not consumers). Bush also ordered the U.S. International Trade Commission to investigate after ice cream imports threatened to exceed one percent of the U.S. market. And he perpetuated import quotas on steel and machine tools. …he slapped new textile import quotas on Nigeria, Indonesia, Egypt, the Philippines, Burma (now Myanmar), Costa Rica, Panama, Pakistan and many other nations. Mexico was allowed to sell Americans only 35,292 bras in 1989 — part of a byzantine regime that also restricted imports of tampons, typing ribbons, tarps, twine, table linen, tapestries, ties and thousands of other products.

To be fair, George H.W. Bush played a key role in moving forward NAFTA and the WTO/GATT, so his record on trade is mixed rather than bad.

Let’s return to the tax issue. Alan Reynolds explains that the Bush 41 tax hike was a painful example of the Laffer Curve in action.

The late President G.H.W. Bush famously reneged on his “no new taxes” pledge… The new law was intended to raise more revenue from high-income households and unincorporated businesses.  It was supposed to raise revenue partly by raising the top tax rate from 28% to 31% but more importantly by phasing-out deductions and personal exemptions… Treasury estimates expected revenues after the 1990 budget deal to be higher by a half-percent of GDP.  What happened instead is that revenues fell from 17.8% of GDP in 1989 to 17.3% in 1991, and then to 17% in 1992 and 1993.  Instead of rising from 17.8% of GDP to 18.3% as initial estimates assumed, revenues fell to 17%. …A recession began in October 1990, just as the intended tax increase was being enacted.  To blame the weak revenues of 1991-93 entirely on that brief recession begs the obvious question: To what extent was a recession that began with a tax increase caused or at least worsened by that tax increase?  …When discussing tax increases (or tax cuts), journalists and economists must take care to distinguish between intended effects on revenue and actual effects.

We’ll never know, of course, how the 1990 tax increase impacted the economy. As a general rule, I think monetary policy is the first place to look when assigning blame for downturns.

But there’s no question that the tax increase wasn’t helpful.

That being said, my biggest complaint about Bush 41 was not his tax increase. It was all the new spending.

Not just new spending in general. What’s especially galling is that he allowed domestic spending to skyrocket. Almost twice as fast as it increased under Obama and more than twice the rate of increase we endured under Clinton and Carter.

The opposite of Reaganomics, to put it mildly.

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Maybe there’s hope for France. When Greeks, Belgians, and the Brits riot, it’s because they want more handouts.

The French, by contrast, have taken to the streets to protest higher taxes. And they have plenty of reasons to be upset, as the Wall Street Journal reports.

France became the most heavily taxed of the world’s rich countries in 2017… The Organization for Economic Cooperation and Development’s annual review of taxes in its 36 members published on Wednesday showed the French government’s tax revenues were the equivalent of 46.2% of economic output, up from 45.5% in 2016 and 43.4% in 2000. The Danish government’s tax take, which was the highest among OECD members between 2002 and 2016, fell to 46% of gross domestic product from 46.2% in the previous year and 46.9% in 2000. …The rise in French tax revenues was in line with a longstanding trend… The average tax take across the organization’s members edged up to 34.2% of GDP in 2017 from 34% in 2016 and 33.8% in 2000.

I suppose we should applaud Denmark for no longer being at the top of this list.

The tax burden on Danes is still absurdly high, but at least there is a small bit of progress (presumably because of a modest amount of long-overdue spending restraint).

Shifting back to France, the WSJ story mentions that the French president had to retreat on his plan for higher fuel taxes.

President Emmanuel Macron backed off a fuel-tax increase that enraged much of the nation and sparked a grass-roots protest movement against his government. …Before Tuesday’s climb down, Mr. Macron’s government had planned to raise fuel taxes in an effort to cut automobile pollution. …But the planned move sparked the worst riots to hit Paris in decades on Saturday, leaving the city’s shopping and tourist center dotted with burning cars and damaged storefronts. Protesters vandalized the Arc de Triomphe, rattling Mr. Macron’s administration and the country.

For what it’s worth, I’m glad Macron backed down. He actually has some good proposals to liberalize the French economy. That’s where he should be focused, not on concocting new ways to fleece citizens.

To be sure, over-taxation is not limited to France. Here are the most heavily taxed nations according to the OECD report.

Income taxes and payroll taxes generate most of the revenue, as you can see. But keep in mind that all of these countries also have onerous (and ever-increasing) value-added taxes, as well as other levies.

If I was in France (or any of these nations), the first thing I would point out is that people are getting ripped off.

A huge chunk of their income is seized by tax collectors, yet they’re not getting better services in exchange.

Are schools, roads, and healthcare in France better than they are in Switzerland or New Zealand, where the burden of government is much lower?

Or are they better in France than they are in Hong Kong and Singapore, where the fiscal burden is much, much lower?

The European Central Bank confirms that the answer is no.

Here is the data on taxes and spending for OECD member nations. For some reason, not all countries in the OECD’s tax database are included in the OECD’s spending database. Regardless, the obvious takeaway is that big welfare states require confiscatory tax regimes (with the middle class getting pillaged).

A few closing observations on this data.

  • Governments also have non-tax revenues, so red ink is only a partial explanation for the gap between spending and taxes in various nations.
  • Because of somewhat distorted GDP data, the actual tax burden in Ireland and Luxembourg is worse than shown in these numbers.
  • From 1965-present, the tax burden has increased the most in Greece. Needless to say, that has not been a recipe for economic or fiscal success.
  • The U.S. has a modest fiscal burden compared to other industrialized nations, which helps to explain why living standards are higher in America.
  • Mexico is not a low-tax nation. Like many developing economies, its government is simply too incompetent and corrupt to enforce onerous tax laws.

Circling back to our main topic, I joked years ago that the French national sport is taxation. It’s so bad that thousand of taxpayers have faced effective tax rates of more than 100 percent. Indeed, taxes are so onerous that even EU bureaucrats have warned taxes are excessive.

P.S. I guess we shouldn’t be surprised that more than half the population would flee to America if they had the opportunity.

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Steve Moore and Art Laffer are the authors of Trumponomics, a largely favorable book about the President’s economic policy.

I have a more jaundiced view about Trump.

I’m happy to praise his good policies (taxes and regulation), but I also condemn his bad policies (spending and trade).

And as you might expect, some people are completely on the opposite side from Moore and Laffer.

Writing for New York, Jonathan Chait offers a very unfriendly review of the book. He starts by categorizing Steve and Art (as well as Larry Kudlow, who wrote the foreword) as being fixated on tax rates.

The authors of Trumponomics are Larry Kudlow (who left in the middle of its writing to accept a job as director of the National Economic Council), Stephen Moore, and Arthur Laffer. The three fervently propound supply-side economics, a doctrine that holds that economic performance hinges largely on maintaining low tax rates on the rich. …Kudlow, Moore, and Laffer are unusually fixated on tax cuts, but they are merely extreme examples of the entire Republican Establishment, which shared their broad priorities.

For what it’s worth, I think low tax rates are good policy. And I suspect that the vast majority of economists will agree with the notion that lower tax rates are better for growth than high tax rates.

But Chait presumably thinks that Larry, Steve, and Art overstate the importance of low rates (hence, the qualification about “economic performance hinges largely”).

To bolster his case, he claims advocates of low tax rates were wrong about the 1990s and the 2000s.

In the 1990s, the supply-siders insisted Bill Clinton’s increase in the top tax rate would create a recession and cause revenue to plummet. The following decade, they heralded the Bush tax cuts as the elixir that had brought in a glorious new era of prosperity. …The supply-siders have maintained absolute faith in their dogma in the face of repeated failure by banishing all doubt. …they have confined their failed predictions to the memory hole.

If Chait’s point is simply that some supply-siders have been too exuberant at times, I won’t argue. Exaggeration, overstatement, and tunnel vision are pervasive on all sides in Washington.

Heck, I sometimes fall victim to the same temptation, though I try to atone for my bouts of puffery by bending over backwards to point out that taxation is just one piece of the big policy puzzle.

Which is why I want to focus on this next excerpt from Chait’s article. He is very agitated that the book praises the economic performance of the Clinton years and criticizes the economic performance of the Bush years.

A brief economic history in Trumponomics touts the gains made from 1982 to 1999, and laments “those gains stalled out after 2000 under Presidents George W. Bush and Barack Obama.” Notice, in addition to starting the Reagan era in 1982, thus absolving him for any blame for the recession that began a year into his presidency, they have retroactively moved the hated leftist Bill Clinton into the right-wing hero camp and the beloved conservative hero George W. Bush into the failed left-wing statist camp.

Well, there’s a reason Clinton is in the good camp and Bush is in the bad camp.

As you can see from Economic Freedom of the World (I added some numbers and commentary), the U.S. enjoyed increasing economic liberty during the 1990s and suffered decreasing economic liberty during the 2000s.

For what it’s worth, I’m not claiming that Bill Clinton wanted more economic liberty or that George W. Bush wanted more statism. Maybe the credit/blame belongs to Congress. Or maybe presidents get swept up in events that happen to occur when they’re in office.

All I’m saying is that Steve and Art are correct when they point out that the nation got better overall policy under Clinton and worse overall policy under Bush.

In other words, Clinton’s 1993 tax increase was bad, but it was more than offset by pro-market reforms in other areas. Likewise, Bush’s tax cuts were good, but they were more than offset by anti-market policies in other areas.

P.S. Chait complained about Moore and Laffer “starting the Reagan era in 1982, thus absolving him for any blame for the recession that began a year into his presidency”.

Since I’m a fan of Reaganomics, I feel compelled to offer three comments.

  • First, the recession began in July 1981. That’s six months into Reagan’s presidency rather than one year.
  • Second, does Chait really want to claim that the downturn was Reagan’s fault? If so, I’m curious to get his explanation for how a tax cut that was signed in August caused a recession that began the previous month.
  • Third, the recession almost certainly should be blamed on bad monetary policy, and even Robert Samuelson points out that Reagan deserves immense praise for his handling of that issue.

P.P.S. Bill Clinton’s 1993 tax hike didn’t produce the budget surpluses of the late 1990s. If you don’t believe me, check out the numbers from Bill Clinton’s FY1996 budget.

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With the exception of 2010-2014, when the Tea Party briefly had a grip on the Republican Party, the burden of government spending has been increasing in the United States.

This unfortunate trend can’t continue indefinitely, so sooner or later we’ll reach a point where politicians will feel pressured to address growing fiscal imbalances.

The crowd in Washington will want some sort of “budget summit,” which – if history is any guide – means that the senior lawmakers who created the problem go behind closed doors to craft a deal involving real tax increases and fake spending cuts.

Unsurprisingly, that approach doesn’t work. At best, the tax hike is a substitute for much-needed spending restraint. And in many cases, politicians treat the expectation of higher revenues as an excuse to increase outlays.

This isn’t just the pattern in the United States. Politicians all over the world have been raising taxes, yet debt levels continue to climb.

The right solution, indeed the only solution, is spending restraint. Which is the lesson Steve Davies expounds upon in this video for Learn Liberty.

Every single example Steve cites is supported by strong evidence.

Indeed, I’ve written about each and every nation he mentions.

What makes this debate so frustrating is that all the evidence is on the side of spending restraint.

It’s not just academic scholars who have shown that fiscal consolidations based on spending restraint are far more successful. Even left-leaning bureaucracies have admitted that spending control is the only approach that produces good results.

I’ve shown how limiting the growth of spending is the sensible way to reduce the fiscal burden of government and control red ink. And when I share this table during debates, I always ask my friends on the left to show their collection of nations that got good results with tax increases.

They’ve never answered my challenge.

Not once.

The bottom line is that we know that the Golden Rule of spending restraint is good for growth, and we know spending restraint is the way to reduce red ink.

That’s the good news. The bad news is that politicians have a “public choice” incentive to instead raise taxes. That game doesn’t end well.

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