Taxes and For…

 

English: Grover Norquist at a political confer...

English: Grover Norquist at a political conference in Orlando, Florida. (Photo credit: Wikipedia)

 

Taxes and Foreign Policy

 

On August 14th, one of America’s top government reform activists argued that reforming tax policy would allow for greater growth and is key to maintaining America’s international leadership. Unfortunately, U.S. leaders have allowed foreign policy to distract them from the country’s economic problems. Grover Norquist, President of Americans for Tax Reform, spoke at length about this interconnection between wealth and power in a discussion moderated by Robert Merry, Editor of The National Interest. Norquist suggested that the best way to increase American power is through economic growth, as a prosperous nation can spend more on defense while reducing the government’s overall burden on the economy.

 

Reform and the Deficit

 

Norquist stated that it was important to focus less on reducing deficits and more on reforming entitlement spending and limiting government waste. Presidents Reagan and Bush both accepted deals that promised cuts for any increase in government spending, but this did not keep the government from growing. The Simpson-Bowles commission’s recommendations, according to Norquist, were just another iteration of these earlier deals. He stated that fiscal conservatism is not about balancing budgets, but about limiting waste and increasing efficiency; it is possible to accept deficit spending while stimulating growth through lower taxes.

 

Recent reforms in the states reflect this approach. The legislative and executive branches of many states are in the hands of one party and Norquist pointed out that these had become a kind of laboratory for the parties’ policy agendas. He said that many of the Democratic states are effectively choosing to be like “Greece and Portugal,” while Republican states have been launching major tax, pension, and other reforms to cut government spending and stimulate growth. He said that this has already led to migration from blue states to red states, and that the ultimate result would be a new geopolitical division in America.

 

American Power

 

Norquist stated that America’s longstanding preeminence in global affairs is a product of its historically open economy. This economy, he said, made America a world power long before its military grew to its post-WWII size. America’s prosperity is so great that it can spend more on its defense than the next thirteen countries combined. However, he noted that “empires are expensive” —while the American colonies had effective tax rates of 1- 2%, British citizens were taxed at 20%. When the colonists pushed back against British efforts to make them pay for the costs of empire, the result was a revolution.

 

Norquist argued that American hard and soft power is now limited by the tax code. There are presently between three and four million Americans living and working overseas,

 

serving as de facto ambassadors for America, its lifestyle, and its values. Because of them, said Norquist, the world sees a side of America that is “better than watching us blow things up on Al Jazeera.” However, unlike most other countries in the world, Norquist noted, the U.S. does not have a territorial tax system and taxes income earned abroad. Thus, foreign companies must pay more to hire Americans and Americans have less incentive to work abroad. American companies are also hurt as they have to choose between accepting a tax rate of 35% and keeping their profits overseas. Dropping the tax rate for both individuals and companies to 25%, reducing regulation, and switching to a territorial tax system could potentially lead to more jobs for Americans and the repatriation of $500-800 billion to the United States. These changes are part of the budget plan drafted by Rep. Paul Ryan, the Republican Vice Presidential nominee.

 

Norquist resisted efforts to link defense spending to deficits. Defense spending can be increased while still shrinking the government – it would simply have to take up a larger share of a shrinking government’s budget. Norquist suggested that this was an acceptable and prudent way for America to deal with serious threats, and noted that Truman went to war in Korea while reducing taxes. Still, Norquist was open to some cuts as part of a reexamination of defense needs. He recounted talks with certain Congressional Republicans who had argued that even tax increases might be acceptable if they save the defense budget. When he asked them whether they had cost-cutting measures that he could highlight to shift the focus of the debate, they requested that he instead emphasize the necessity of sustaining defense expenditures at current levels. Norquist stated that this showed a lack of seriousness among those resisting cuts, who want to raise taxes to avoid working out clear priorities for defense – “They are saying it’s not a tax increase. It is, it is, it is.”

 

Foreign vs. Domestic Policy

 

Norquist stated that the more important issue is not between “guns and butter”, but U.S. leaders’ divided attention between their foreign and domestic priorities. Presidents have only so much “bandwidth” in dealing with a broad range of challenges and must focus their efforts in order to be effective. Norquist argued that the Bush Administration, having run on domestic issues, became ensnared by foreign policy concerns – in effect, Bush became the Mayor of Baghdad rather than the President of the United States. This had direct costs as the administration was unable to reform Fannie Mae and Freddie Mac even as signs of trouble emerged. The administration also lost momentum on free trade – instead of “doing Doha,” America “did Kabul.” Other nations criticized America’s foreign policy agenda rather than joining it in support of a freer world economy.

 

This problem is partly due to the President’s extraordinary flexibility in conducting foreign policy, said Norquist. Ordinary Americans are not focused on issues beyond America’s borders and while there are a range of powerful lobbies like the National Rifle Association on domestic issues, there are no equivalents for international policy. Norquist also noted that foreign policy has been conducted in a partisan and “unserious” manner— as an example, he noted that Republican opposition to nation-building had led to the rise of George W. Bush, yet when Bush began engaging in nation-building in Iraq and Afghanistan, he enjoyed sustained Republican support; the reverse occurred with

 

Democrats, who backed the Balkan interventions yet opposed the war in Iraq. Nonetheless, foreign policy only moves votes, said Norquist, when interventions last for extended periods and voters grow weary of the human and financial cost.

 

Norquist and Merry suggested that the Reagan Administration was a model in the way it balanced America’s foreign and domestic priorities. Reagan was able to manage the collapse of the Soviet Union as well as implement domestic reforms that increased employment and growth. Reagan took a range of actions to “keep the bear at the door,” said Norquist, leaving him free to pursue the economic reforms that left the Soviets unable to compete. A similar approach today would focus on strengthening the economy in order to maintain America’s global leadership.

 

 

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