Tax and Spend: Lowering the Boom?


As you sit down to figure out your income taxes this April, brace yourself. Because the campaign to soften you up for yet another whopping tax increase is shifting into high gear.

Everywhere, you hear denunciations of the "mindless havoc" being wrought by the Gramm-Rudman attempt at controlling federal spending. "Spending has been cut to the bone," they bleat, echoing the rhetoric of the most profligate Congress in 200 years. Yet after all the alleged cutting, we taxpayers are still footing the bill for a $23-billion-per-year program of farm subsidies, a massive new pork-barrel water projects bill, a bloated and untouchable Social Security system, and scores of special-interest subsidies.

So since Congress will not cut spending in any meaningful way, the push is on for new taxes. The most popular proposals are a new tax on oil or gasoline and/or a consumption tax. Proponents of the former argue that, with oil prices dropping, an extra few dollars a barrel in taxes (or 25–50 cents a gallon at the pump) will never be noticed, making this an "ideal" way to raise revenue.

Proponents of consumption taxes have the same end in mind but are not so straightforward in admitting it. Under the name of VAT (value added tax) or its newest nom de plume, business transfer tax (BTT), a flat percentage would be assessed on the increase in value of goods at each stage of production. From the tax-and-spend crowd's standpoint, such a scheme makes it easy to increase revenues ever further, since the tax remains hidden in product prices.

One need look no further than Europe to see what politicians will do when handed such perfect implements. During the past two decades, the tax take in Europe has soared to unheard-of proportions of GNP. At the same time, Europe's economies have stagnated, with net new job creation at virtually zero over the past three decades, while America was creating 42 million new jobs.

What the advocates of new taxes are overlooking is the coming of age of the Baby Boom generation. By now, the grim fortunes of the Baby Boomers (despite a small group of affluent Yuppies) have begun to be acknowledged. Today's typical young family, in which both adults work, takes home two percent less after taxes than the typical young family of 1961 in which just the husband worked.

The biggest single reason for the declining fortunes of the Baby Boomers is taxes. For households in the 25–34 age group, the tax take in 1960 was just 10 percent. By 1982 it had soared to 23 percent.

Our tax-and-spend politicos obviously have not yet felt the political implications. There is, after all, no Boomer-PAC making campaign contributions to those who vote to cut farm subsidies and Social Security—at least, not yet. But do not underestimate the potential clout of this generation. Some 75 million people were born between 1946 and 1964. By the next presidential election, they will constitute a majority of the electorate. Once they begin to see how they've been screwed by the politics of tax-and-spend, there could be some very rude awakenings in Washington.

And there are alternatives to balancing the budget on the back of the taxpayer. The Heritage Foundation recently released a program-by-program analysis of the federal budget, showing how to cut $122 billion in fiscal 1987 alone—more than three times what's called for by Gramm-Rudman. And a Reason Foundation study suggests a feasible way to package an even larger first-year cut of $147 billion. The key is to invert the normal log-rolling process, by which an urban member of Congress votes for farm subsidies in exchange for the rural member's vote for urban subsidies. By packaging cuts in generic groups—say $29 billion in rural subsidies balanced against $27.5 billion in urban and middle-class subsidies—each representative can tell his aggrieved constituents that the other guys lost their places at the trough, too.

The Baby Boom generation, with its distrust of big government and cynicism about politics, might just go for it. Especially when the only alternative is still more of the tax increases that have already cost this generation much of its place in the sun. Seventy-five million of us will be watching to see if the old men in Washington figure this out in time.