Economics

Whatever Happened to Tax Cuts?

In the GOP, free markets are losing to Huckanomics.

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Mike Huckabee was supposed to be dead right now, politically speaking, and the Club for Growth was supposed to be standing over the corpse holding the knife. The Club—an eight-year-old coalition of supply-siders that helped elect such anti-tax politicians as Rep. Jeff Flake (R-Ariz.) and Sen. Tom Coburn (R-Okla.)—supports the GOP's anti-tax dogma. Huckabee, who repeatedly raised taxes while governor of Arkansas, does not.

Yet by the dawn of 2008, Huckabee was the driving force in the race for the Republican presidential nomination: on the cover of Newsweek, on top of the Iowa caucus results, campaigning cheek by jowl with Chuck Norris and the martial arts master's curiously taut skin. Huckabee's ability to beat establishment Republicans raises questions about how the party's current coalition thinks and who gets to be part of it. It also challenges a bit of conventional wisdom already undermined by the 2007 elections: the idea that economic conservatism drives the Grand Old Party.

The Club for Growth has a basic theory of politics: Republicans lock up elections when they credibly promise to cut taxes or never to raise them. This trend, the Club's leaders say, began with Howard Jarvis' California tax revolt in 1978 and continued as Ronald Reagan slashed the top income tax rates and won two landslide victories in the 1980s. Then the first President Bush broke his no new taxes pledge and got retired by Bill Clinton, and then Clinton raised taxes and got clotheslined by Newt Gingrich.

In 2004 the Club for Growth bought an ad in Iowa in which a middle-aged couple (of actors) declared they would never vote for the "government-expanding, latte-drinking, sushi-eating" candidate Howard Dean. (Most of the club's successful campaigns have relied on cultural conservatism as much as economic conservatism, a gaping hole in its taxes-matter-most theory.) The spot wasn't the only reason Dean finished a poor third in the Democratic caucuses, but it locked in his image as an unelectable liberal.

But the Club lost most of the elections it tried to influence in 2007, a letdown after a reasonably successful 2006. Its endorsed candidates lost, respectively, a primary and a party convention vote for open House seats in Ohio and Virginia. The group endorsed six candidates for the state Senate in Virginia. Just three won their primaries, and only one was elected. And now Huckabee has jumped from asterisk status in Iowa to winning the state decisively, humiliating the much better-financed Mitt Romney. In 2007 the Club for Growth spent $100,000 to run an ad on Iowa TV comparing Huckabee unfavorably to his predecessor in the Arkansas governor's mansion, Bill Clinton. It appeared before that state's Republican straw poll, the traditional kickoff of the caucus campaign. It had no effect: Huckabee finished a strong second in the poll, and his stock never stopped rising. The Club ran more ads before the Iowa caucuses; none of them stopped Huckabee's triumph.

Nor does Huckabee's Iowa boom seem to be a fluke. Paul Jost, head of the Virginia chapter of the Club for Growth, was the group's unsuccessful candidate for the GOP nomination for Virginia's 1st District House seat. In that state the party has lost ground in four consecutive state elections (2001, 2003, 2005, and 2007), finally losing control of the state Senate in 2007, even though conservatives defeated a tax hike referendum in 2002.

"Our brand is badly damaged," Jost admits. Like many economic conservatives, he attributes the damage to tax hikes earlier in the decade. Moderate Republicans broke with their party and supported the increases, giving Democrats the votes to pass them. That collaboration, Jost argues, gives Democrats room to blur the differences between the parties and run on competence. It also allows Democrats like Mark Warner and Tim Kaine—the former and current governors, respectively—to tell voters they won't raise taxes, to raise them anyway, and to feel no electoral backlash.

"The problem in this state is that people don't trust us on the tax message," Jost says. "Taxes went up under the Republicans. When the Democratic governors wanted to hike taxes, both houses—which were run by the Republicans, remember —caved in. So why should people believe us right now?" Many Republicans in Virginia tried to change the subject from taxes to immigration, hoping this was a "good government" argument they could win on. It wasn't.

It sounds a lot like the chorus of gripes coming out of the GOP's presidential race. Mitt Romney claims that "before we change Washington, we need to change the Republican Party"; John McCain grumbles that "Washington changed" his party; Ron Paul talks as though 12 years in the majority corrupted everyone but him. All of the candidates save Huckabee preach the gospel of lower domestic spending and deep tax cuts.

All of this is what the Club for Growth represents. It enthusiastically attacks incumbent Republicans when they take another course, whether inserting an earmark for a Heroes of Hog-Rendering Museum into the budget or voting to cancel part of a tax cut package. Yet in 2007 the Club couldn't win.

Joe Carter has an explanation for this. Carter, a Huckabee spokesman who left the Family Research Council to work for the campaign (and has since returned to the council), thinks the Club for Growth is being passed by because the Reaganites were successful. Because conservatives have been able to cut tax rates to acceptable levels, he says, the message no longer attracts voters. "I agree with their basic philosophy," he says. "I think all Republicans do. But if you're a CEO making $20 million, your biggest concern is marginal tax rates. If you're a real entrepreneur or a consumer you don't care as much about that. You want good schools, you want laws that make it easy to start a business, and you want economic growth."

It's a more radical explanation for the tax cutters' woes than the one the rest of the candidates are giving. The Club for Growth argues that a few terms of lean, clean Republican governance can convince voters to trust them on taxes again. But if Carter is right, the Club's argument simply won't work unless tax rates explode. Voters don't like taxes, he implies, but they can tolerate current rates as long as they're getting good services.

Huckabee complicates this argument by supporting the glib Fair Tax, a proposal to replace the income and payroll taxes with a national sales tax. It allows the tax-hiking governor to offer tax-cutting rhetoric too. He can say he wants to demolish the Internal Revenue Service even while demanding the tax system be rejiggered to punish the rich. (A national consumption tax wouldn't actually punish the rich, but the candidate's crowds gobble it up.)

"If Gov. Huckabee is the nominee, you'll see a shift from where the GOP is now," Carter says. "I see politics as more of a split between libertarians and conservatives than liberals and conservatives." In his opinion, full-bore libertarian philosophy sounds good on the surface, but it won't equalize opportunity the way Huckabee's tax and business reforms would. Libertarians would dismiss some of those reforms as statist, but Carter is willing to see those libertarians go. "If you let the libertarians go over to the Democratic Party while the Republicans win the votes of entrepreneurs," he says, "you're talking about a new majority party."

David Keating, the Club for Growth's executive director, laughs when Carter's theory is laid out for him. "The whole concept is ridiculous," he says. "The bad Republicans are retiring and being replaced by supply-siders. We're still winning the long game." This is the conversation the old Republican coalition is having as it enters 2008: The room is split into two crowds, each yelling at the other, and none of their arguments are sinking in.

David Weigel is an associate editor of Reason.