Latest / The Capitalism and Freedom in the Twenty-First Century Podcast / Grover Norquist on Reagan-Bush-Trump Tax Reforms and America’s Fiscal Future | Hoover Institution

Transcript

Grover Norquist on Reagan-Bush-Trump Tax Reforms and America’s Fiscal Future | Hoover Institution · The Capitalism and Freedom in the Twenty-First Century Podcast

0:00
What you can do is take the income tax and take away it
0:03
and everybody can have a 401k or an IRA
0:07
or an educator or a universal savings account.
0:10
So here's what I make, here's the universal savings.
0:13
Everything I save, you don't tax.
0:14
What I spend is taxed, which is
0:17
the income minus the investment.
0:21
So you didn't create a new tapeform, you sliced
0:25
and made smaller the income that you do tax.
0:30
It's a consumption tax
0:32
because it's your income minus the stuff you saved.
0:43
This is the Capitalism and Freedom in the 21st Century
0:46
Podcast, an official podcast
0:47
of the Hoover Institution's Economic Policy Working Group,
0:50
where we talk about economics, markets, and public policy.
0:53
I'm John Hartley, your host.
0:54
Today, my guest is Grover Norquist, who is the founder
0:57
and president of Americans for Tax Reform.
0:59
For more than four decades, Grover's been one
1:02
of the most influential voices in the conservative movement
1:04
on tax policy and limited government.
1:07
Since founding Americans for Tax Reform in 1985,
1:10
he's led efforts to pose tax increases at the
1:13
federal and state levels.
1:14
He's helped to organize the taxpayer protection pledge
1:17
signed by hundreds of elected officials
1:19
and has played a critical role in nearly every major tax
1:23
reform debate from the Reagan era through today.
1:26
Grover, welcome to the podcast.
1:28
John, good to be with you.
1:30
Grover, I want to start at the beginning.
1:33
You grew up in Massachusetts.
1:35
How did you first become interested in
1:36
economics and tax policy?
1:38
Were there certain people or books
1:40
or experiences that convinced you that taxes
1:43
and fiscal policy were important, so much so
1:46
to pursue it as your life's work?
1:50
I went to the Western Library Book Fair
1:55
where they sell off all the old annoying books
1:57
that they don't want anymore.
1:59
Everything from the Cold War, every anti-college book
2:03
that existed, Whitaker Chambers, all
2:08
of that stuff for a quarter and a nickel.
2:14
And I read it
2:16
and became a fairly well-read anti-communist,
2:21
had a good grasp of the '40s, '50s, and '60s.
2:26
And Herb Filbrick, I led three lives.
2:30
I got his autobiography.
2:33
I lived on something called Liberal Hill in
2:36
Western Massachusetts, also known
2:38
as Red Hill to some people.
2:40
Herb Filbrick had cell meetings nearby
2:43
when he was a communist and inside the communist stock.
2:46
So I thought the Soviet Union was
2:50
evil and a threat.
2:53
And as I thought more about the dangers of state power,
2:57
I realized that our government, it's not evil,
3:00
but it had some problematic tendencies that any monopoly
3:04
with power has and how dangerous that is.
3:08
And so I was first an anti-statist of an anti-Soviet,
3:13
and then I realized that there are real problems
3:17
when a government puts too much power together against
3:20
individuals on all senses.
3:24
And from there, decided that the place
3:29
where the state and individuals interact most
3:34
historically is taxes and how they raise taxes
3:39
and the power that they raise taxes
3:40
and what they do with the taxes.
3:42
And just in my own mind decided that
3:46
that was the zone I wanted to work in.
3:49
And I mean, talking in high school,
3:53
I took a train into Boston
3:55
to work on the Nixon campaign in 68.
3:57
I was sixth, seventh grade, something like that.
4:02
And so I was active politically.
4:08
I never stopped being an anti-communist,
4:10
but my focus, since there wasn't a whole lot you can do
4:13
to fight the Soviet Union when you're 14, I began
4:18
to focus on the economics, on the power of taxes
4:23
to control people and to destroy things and to slow growth.
4:27
And I went to Harvard College
4:31
and studied economics, got a degree in economics,
4:36
was slated to go to Harvard Business School.
4:39
They were kind enough to accept me.
4:41
But then I ran into somebody who said, "Well, there's a
4:46
position as the number two person at the National Taxpayers
4:49
Union, somebody who was on the board of the National
4:51
Taxpayers Union up in Cambridge." And I said,
4:56
"I'd be interested in that." And so I talked to the head
4:59
of it and I took the job.
5:00
Then I had to go argue with Harvard Business School
5:03
to let me have a year off.
5:04
Usually they tell people who are whippersnappers
5:07
that haven't been out in the real world yet,
5:09
"Come year in, but come in two years.
5:11
Go do something useful
5:13
and learn something, then come back
5:14
to business school." In this case, I had to argue
5:16
with them to take a year off.
5:18
So they said, "Okay." I went down with the National
5:22
Taxpayers Union, which was the only taxpayer group,
5:25
national one in the country, just as Proposition 13
5:30
exploded in California.
5:33
I worked in passing convention calls
5:37
for a constitutional amendment for balanced budget in,
5:40
I think, 18 states in a year and a half.
5:43
I worked with initiatives in Arizona, California, Idaho
5:48
that followed on from Proposition
5:52
13 in California, also Proposition two
5:55
and a half in Massachusetts.
5:56
So in one year, year
5:58
and a half, I was in the center of the tax revolt,
6:02
which then turned into the Reagan Revolution, the tax part
6:05
of it, and got
6:09
to meet and set up.
6:10
I had a budget where I could go find activists
6:14
and help finance them to get things going in various.
6:18
I'm still working with some of the people.
6:20
I don't know that I recruited them, but I discovered them.
6:23
And so that was extremely helpful.
6:27
Then I went back to business school.
6:29
So I was with the National Taxpayers Union,
6:32
then went back to business school.
6:34
My father had an operation
6:37
and instead of staying away for two years, I stayed away
6:39
for one year so I could back up to Boston and be there.
6:43
Went to business school for two years.
6:45
That happened to be the Reagan election
6:48
and was very active in that campaign in Massachusetts,
6:52
which we won by 3,000 votes.
6:54
I helped organize the effort
6:56
with the Boston Areby who's the head Hasidic rabbi
6:59
in Newton area.
7:00
And his guy said
7:03
that he was worth about 3,000 votes in Massachusetts.
7:06
And we brought the president's daughter in to meet with him,
7:11
which was exciting and interesting
7:14
because she gave a speech about all the things she disagreed
7:17
with her father on, and the rabbi Rebbie was voting
7:20
for Reagan and wanted everybody else to
7:22
because of Reagan's positions on those.
7:25
So she seemed to think this was a time for her
7:27
to share her views on the world, daughter
7:30
of presidential candidate.
7:33
But we survived, it happened,
7:35
we got the endorsement, and it mattered.
7:37
It was also important in New York as well.
7:40
And then went back down to.
7:44
After graduating from business school, I wrote,
7:46
you're supposed to write a piece on how
7:47
to organize something or other.
7:48
And I did one on how to organize the modern Republican
7:51
Party, which was really how
7:52
to organize the modern conservative movement.
7:55
And a chunk of that is what I still work on,
7:57
which is kind of interesting.
7:59
And good news is it worked largely.
8:03
And so went to go work.
8:06
I helped elect somebody to be head
8:08
of the College Republicans.
8:09
Then I helped him for six months getting that going,
8:12
went over to Chamber of Commerce for two years
8:16
as a speech writer and an economist.
8:18
And then was just working generally in the modern
8:21
conservative movement, going to all the meetings,
8:24
not just my silo, but all the other structures.
8:28
And then the White House wanted somebody to run Americans
8:31
for Tax Reform, which was the outside group, kind
8:33
of like Organizing for America that Obama set up.
8:37
Americans for Tax Reform was the same thing.
8:39
So I had a board given to me, a budget given to me,
8:43
and was then never spoken to again,
8:47
at least telling me what to do.
8:49
I mean, I worked with them and everything,
8:51
but we ran an outside campaign for that.
8:55
And in running the campaign, this is the 86 tax bill,
9:00
which took the tax rates down to 34
9:04
for a corporate down from 50, took it down to 15
9:08
and 27 for individual rates.
9:11
We had two rates, much lower than what we're at today,
9:14
and a corporate rate, which is 34,
9:15
but then now has come down to 21.
9:18
It was a great bill. It was bipartisan.
9:21
We had Democrat support for it.
9:23
Now, it basically was revenue neutral.
9:25
It dropped about $60 billion over five or 10 years,
9:30
but it was revenue neutral.
9:32
And there was a concern that when this came back from
9:38
the smoke-filled rooms, that it turned into a tax increase.
9:42
And what would we do? Because everybody, all the congressmen
9:45
and senators had said they were for it
9:48
before they did the moving things around bit.
9:51
So I created the Taxpayer Protection Pledge,
9:53
which was designed to help this bill pass.
9:57
Later, it turns out, to have redirected the modern
9:59
Republican Party, which is helpful,
10:01
and saved several trillions of dollars for taxpayers.
10:04
But at first, my goal was to get people to sign a pledge not
10:09
to support a net tax increase.
10:12
And we got a hundred congressmen, all Republicans
10:17
and 20 senators at the time, all Republicans.
10:20
Later, we got some Democrats on the House
10:22
and the Senate. Pardon?
10:25
This is all for the 86 Tax Act.
10:28
This is for the 1986 Tax Act.
10:31
And because we had enough votes to kill it,
10:34
if somebody tried to fiddle with it
10:36
and turn it into a hidden net tax increase,
10:40
and the White House was looking
10:42
to make sure it didn't happen, as were the House
10:44
and Senate Republicans.
10:47
So they didn't try
10:48
and turn it into a tax increase,
10:50
which had happened in other bills.
10:52
And then as we moved forward going into 86, a lot of people
10:55
who took the pledge used it as part of their campaign.
10:59
The president, when he would go
11:00
and campaign for people, said,
11:01
"This person has taken the pledge against raising taxes." So
11:05
the pledge became a deal in 86, which was helpful
11:09
and so much helpful that the
11:13
Democrat Congressional Campaign Committee sued Americans
11:18
for Tax Form and me and said,
11:19
"You have illegally contributed to a campaign." I said,
11:22
"What are you talking about?" "Well,
11:23
you have endorsed all these candidates and you're a C4.
11:26
You're supposed to do issues, not endorsements.
11:27
"I said," I didn't endorse anybody.
11:29
"Ah, you said this person's against tax increases.
11:32
Well, yes, that's true.
11:34
Well, everybody knows that's the right answer.
11:36
And I said," Could I get that in writing from you?
11:38
Because then I could retire if the Democratic Party would
11:41
put in writing that the right answer is
11:43
never to raise taxes.
11:45
That would be pretty cool. "Anyway -
11:47
That's terrific.
11:48
I just want to just back up just a little bit.
11:51
So you came out of business school
11:53
and you sort of was, I guess, the seeds for ATR in that
11:57
business school plan that you sort of had drawn up?
11:59
Is that fair to say?
12:02
No, it was a broader way
12:03
of organizing the broader movement,
12:05
but it would certainly include the taxpayer
12:07
movement at the time.
12:09
The American Tax Fund didn't exist, but Americans,
12:12
but National Taxpayers Union
12:14
and other structures did. It was -
12:18
And nothing like ATR really existed prior to then.
12:22
So you founded this in 1985,
12:25
and I guess I'm just sort of saying the stage here.
12:29
So prior to the Reagan Revolution,
12:32
we had Nixon, we had Ford.
12:35
Prior to that, we had Eisenhower.
12:37
Was there just not a huge, I mean,
12:40
interest in cutting taxes?
12:42
Obviously, you got Democratic legislatures for
12:44
basically half a century,
12:47
and JFK was the one who really sort
12:50
of cut rates to begin with.
12:53
And of course, you had to launch the Great Society
12:56
in those programs under LBJ.
12:59
But in terms of tax policy, there just wasn't a whole ton
13:03
of interest in it until the Reagan Revolution,
13:05
even though tax rates were pretty high in general.
13:08
Yeah, there was.
13:10
Before Reagan was the Steiger Amendment in 78,
13:13
that was cutting the capital gains tax almost in half.
13:17
The Carter inflation
13:19
and a high capital gains tax was killing investment.
13:23
And that one we got bipartisan support
13:25
for, which is very interesting.
13:28
Before the taxpayer movement became powerful
13:31
and successful, we were having Democrats vote with us on
13:36
the original 81 bill for Reagan.
13:39
If it hadn't had Democrat votes, wouldn't have passed.
13:41
We had Republican Senate, but a Democratic House.
13:44
We had to get enough Democrat House members who though,
13:47
"I'm going to lose this next election if this doesn't
13:49
happen." So this was a very interesting non.
13:54
It was partisan, but there were enough deeds to
13:58
come forward that it passed.
14:00
The Steiger Amendment had more democratic support.
14:03
That was cutting the capital gains tax roughly in half.
14:08
And then there was Prop 13, which was
14:10
by several hundred thousand
14:12
individuals in California doing it.
14:14
Howard Jarvis and Mr. Gann, Paul Gann put that together.
14:18
I worked with both of them. They were great guys.
14:22
And then they helped going out of 78 into other states
14:26
to do similar initiatives, getting things on the ballot
14:30
around legislatures that didn't want to limit taxes.
14:35
So then with Reagan, people recognized
14:39
that when the tax cut became effective, it was passed in 81.
14:43
There was a 5% cut, a 10% cut,
14:45
and a third cut, the 10% cut that made it to 25% cut.
14:50
That was in January 1st of 1983.
14:54
It was January 1st, I'm sorry, 81, 82,
15:00
going into 84.
15:02
And that.
15:07
Now you got me confused. Now I'm confusing myself.
15:09
But the year when it clicked in, either January 1st of 83
15:13
or 81, that must have been January of 84,
15:17
we created four million jobs that year in 84.
15:21
And then Reagan swept to elections, reelection
15:25
with the 49 states.
15:28
Absolutely amazing.
15:30
And people saw the power of lower marginal tax rates,
15:33
and the Democrats saw it too.
15:35
So then we came back in 85, 86, which was when I came in
15:39
to work with the Reagan people and the
15:41
Republicans in the House and Senate.
15:43
We had a Republican Senate
15:47
and a Democratic House, which was terrified
15:50
of being on the wrong side of a huge tax cut, which
15:55
they had seen be so successful.
15:57
So they were willing to cut the rates, the Democrats,
15:59
but they didn't want to lose revenue.
16:01
So we eliminated a lot of deductions
16:03
and credits, some of which you could have passed on, some
16:06
of which were useful.
16:08
And we got basically a revenue neutral
16:12
bill, but pro-growth.
16:14
And so you saw the growth continue.
16:18
And so Reagan's legacy was a series of seven years
16:21
of economic growth, strong economic growth.
16:25
Most recently in the last year, people go, "Oh, wow,
16:28
190,000 jobs created in a month.
16:31
Whoa. We averaged between 300
16:35
and 400 for a full year
16:39
when the Reagan tax cuts went through
16:41
with two-thirds the size of the workforce." I mean,
16:44
it was an explosion of job creation and wage increases
16:49
because the rates came down.
16:51
And then I had all these taxpayer groups
16:54
that I'd helped set up at 78
16:57
and worked in politics
17:01
through Americans for Tax Reform.
17:03
But then it was in 93
17:08
that Clinton had won, wanted to do
17:12
healthcare nationalization, some government augmentation
17:16
of the government role in healthcare.
17:20
And a donor came to me
17:22
and said, "You should set up a meeting of all the people
17:25
who don't like this government-run healthcare thing." And I
17:27
said, "That's a good idea." And
17:31
so we put that together.
17:32
We had 20 people at the first meeting,
17:34
although I listened to people.
17:36
I was at the first meeting,
17:37
there were like two and a half of us.
17:38
And it was 20 to begin with.
17:42
And we had chiefs of staff of congressional offices
17:45
and Ralph Reed of the Christian Coalition.
17:47
So we were building a coalition that wasn't just
17:51
economics guys or businesses.
17:54
And we had state legislators in there.
17:56
And then that became a weekly meeting.
17:59
And within a couple weeks, couple months, we realized
18:03
if we're going to stop Clinton care, we need
18:07
to slow everything down, everything down.
18:11
So the gun people came in
18:13
and the guys who wanted
18:14
to fight other spending issues and so on.
18:17
So we had a meeting that grew to about 40 people.
18:20
The number two guy at the
18:22
Republican National Committee came every week
18:24
so we could coordinate with the Republican Party, coordinate
18:27
with business groups that were for tax reduction
18:30
and against government takeover of economic policy.
18:35
And in an hour
18:38
and a half, we would put together
18:44
15, 16 presentations where people would come in
18:48
and say, "I want everybody to know about this." And
18:51
what made that meeting work is I'd been to a lot
18:53
of meetings in Washington DC, and we had a meeting.
18:56
We had a conservative meeting in Massachusetts,
19:00
which was quite good.
19:01
But I said, "Okay, nobody talks
19:05
for more than three minutes,"
19:06
because I would see meetings that would kill you
19:09
because some guy would talk forever.
19:10
You're only allowed to talk about what you're doing, not
19:13
what your ridiculous hopes and aspirations are,
19:15
because people would get up.
19:16
"We should do this and we should do this.
19:18
"And the guy talking has no capacity to do it,
19:20
nor did anybody in the room.
19:21
So what are we wasting our time talking about
19:24
what we might have if we had it?
19:28
And by saying three-minute presentations, hand out paper,
19:31
and somebody said," Oh, that's mine.
19:33
It takes more than three minutes. Write it down.
19:35
Hand it out. Oh, I couldn't possibly write it down.
19:38
"Well, then we're not going to let you talk
19:39
for 10 minutes while you think it through.
19:41
If you can't write it down,
19:42
you haven't even thought it through.
19:45
And it was very interesting.
19:46
People didn't balk it,
19:49
balk at it except if you had never been there before.
19:51
We had to warn people, this is a three-minute presentation.
19:55
Congressmen, speak for three minutes. Understand this.
19:57
Do not come and say three minutes
19:59
is you're clearing your throat.
20:02
Three minutes, no arguing, no bickering.
20:06
You disagree with somebody on some tertiary issue,
20:09
you take it out of the room, you deal with it there.
20:11
We're not doing debates. We want to make sure.
20:13
And not everybody has to agree with everybody on everything.
20:18
Early on, we had people who said,
20:21
"The internet's so important.
20:23
We should never regulate it for anything." And people
20:25
who said that fighting pornography is so important,
20:28
we should regulate the internet.
20:29
And there were competing pieces of legislation
20:32
and worldviews and they each presented, done,
20:36
whichever one you wanted to work with, you could.
20:39
We weren't going to throw somebody out of the room
20:43
because they disagreed on an issue.
20:45
And later on, when the decisions came on gay marriage,
20:50
we had the gay Republicans
20:51
and the pro-traditional marriage people in the room each
20:56
presenting on projects they're working on.
20:58
And they each presented on their reaction
21:00
to the Supreme Court decision,
21:02
and then they went out of the room to talk about
21:03
where they might work together on their own time.
21:07
Or to argue, but I know they were working on
21:09
things where they could agree.
21:11
So this was something that helped bring the modern
21:15
conservative movement together in a productive way.
21:19
No whining, no complaining, no going on and on forever.
21:24
And then as that got organized from 93 on,
21:29
going into 96, we had 60 people in the meeting.
21:32
And again, the Republican Party
21:34
was there on a regular basis.
21:36
We actually had Elizabeth Drew, the very left of center
21:41
writer for the New Yorker, came to the meeting
21:45
because I had a theory that the House
21:47
and the Senate mattered and the
21:48
President Dole didn't matter.
21:50
Or rather, not that it didn't matter.
21:53
There was nothing I could think that we could do
21:54
to help Dole get elected.
21:56
Dole could do some things to elect Dole,
21:57
but the movement could not convince him to do anything.
22:00
So it's not that I didn't want him
22:02
to win, I did want him to win.
22:04
But I couldn't think of anything we could do positively.
22:06
I mean, I tried, I gave some suggestions,
22:08
but that wasn't going anywhere.
22:09
They had their own idea of how to run a campaign.
22:12
They did, they lost. We wanted to save the House,
22:14
save the Senate, because power is in Congress.
22:17
It's not in the president.
22:19
This is why Trump is always frustrated.
22:21
He didn't read the book. Or history.
22:25
Congress eventually controls everything.
22:27
They have the spending, they have the taxes.
22:29
Presidents can have scandals, start wars,
22:33
but they can't cut taxes or raise taxes
22:36
or spend money or not spend money.
22:37
They can't even put people on the Supreme Court.
22:39
Senate does that. So we focused on the House and Senate,
22:43
and she wrote a book on that, much
22:44
of which was about stuff that came from the meeting.
22:46
It was a very interesting approach there.
22:50
So that meeting grew, and then we had - And it still
22:55
Goes to this day. I mean, it's very
22:56
Famous.
22:57
It's been profiled in the movie Vice.
22:59
And I think it's become one of the most important, I'd say,
23:04
conservative gatherings, at least that meets weekly,
23:07
probably the most important in DC that's generally open
23:14
outside of Senate Syrian committee meetings and so forth.
23:17
It's really amazing how successful it's been
23:20
and just continuing to this day.
23:22
I also just want to talk about the Taxpayer Protection
23:24
Pledge because it's another huge,
23:27
hugely successful thing that you put together.
23:29
Just in part, if you could explain it, it's one
23:34
of these things where people actually commit, politicians
23:38
and many have committed to signing it,
23:39
and this is the idea that they won't raise
23:42
taxes in any form.
23:45
How did that idea originate?
23:46
You spent a little bit of time earlier speaking about that,
23:50
but I mean, did you envision it
23:51
to become such an influential institution
23:54
and sort of conservative economic politics?
23:57
And what do you think maybe explains the longevity of it?
24:00
And sometimes there's controversies over it too when people
24:04
don't sign it and so forth.
24:06
Sure. I assume
24:10
that one of the pieces to this puzzle was
24:14
that I grew up in Massachusetts
24:17
before immigrating to the United States,
24:19
and that's right next to New Hampshire.
24:22
And in New Hampshire, Mel Thompson, longtime governor
24:25
of New Hampshire, had the pledge.
24:29
And the pledge was,
24:31
"I will veto any income tax." They didn't have one on
24:34
wages in New Hampshire.
24:36
"And I will veto any broad-based sales tax.
24:41
So they have property taxes and business taxes,
24:43
but no individual income tax on wages.
24:46
Now not on wages or dividends and interest.
24:50
It's zero, no income tax at all,
24:53
and no broad-based sales tax.
24:55
So the pledge has been ringing in my ears as a kid
25:00
and recognizing that Massachusetts had it.
25:04
Massachusetts didn't have it, New Hampshire had it,
25:07
the other states didn't.
25:08
And New Hampshire won elections and governorships
25:11
because people could or could not be elected governor based
25:14
on whether they made the pledge.
25:15
And if you kept the pledge, the government was never going
25:17
to get so big that it became problematic
25:20
and hired too many Democratic precinct workers.
25:23
So I think that had to have been part
25:26
of the thinking that.
25:29
But this was not just the governor or the president.
25:33
And they never used the pledge at the
25:34
state legislative level.
25:36
That I don't understand. We now do that in New Hampshire.
25:40
So we took that to Congress and the House and the Senate.
25:44
And by 86, it was powerful.
25:47
By 88, every Republican running for president except Dole
25:53
signed the pledge.
25:54
I went up to New Hampshire
25:55
and got my picture taken with DuPont, Pete DuPont,
26:00
signing a blow up of the pledge four feet
26:03
by five feet in front of the Capitol, cover front page
26:06
of the newspaper there.
26:08
All the candidates got pressed for it.
26:10
Dole wouldn't take it.
26:11
They did a debate two or three days
26:14
before the New Hampshire primary.
26:16
And it was Pete DuPont, former governor of Delaware,
26:21
who handed the pledge, kind of tossed it at him to Dole,
26:25
and asked, "We've all signed the pledge
26:27
never to raise taxes.
26:28
What about you?" And Dole's comment was,
26:33
"Why I never signed things I haven't read.
26:36
The pledge is a sentence long.
26:39
I won't know net tax increase." And so
26:43
that was kind of embarrassing.
26:44
But when he handed it to him, it landed in his lap
26:47
and he acted, reacted as if he was a vampire
26:52
and somebody tossed a crucifix in his lap.
26:55
This is on TV. This is on TV.
26:57
All us Republicans, we're never raising taxes.
26:59
What about you? Oh, no, not me. I'm not in.
27:03
Dole loses to Bush and goes on.
27:07
He was running ahead. He won in Iowa.
27:09
He was supposed to win. He lost.
27:11
And Bush ran on the pledge.
27:16
He was losing by 14 points to Bill Clinton
27:21
when he stood up
27:22
and gave his speech where he said,
27:27
"The Democrats will come
27:28
and ask," this is the Republican Convention.
27:30
"The Democrats will come and ask me to raise taxes.
27:33
I will say no. They'll ask me to come again
27:36
and I will say no.
27:38
And a third time they will come
27:40
and I will say, Read my lips.
27:44
No new taxes. He was 14 points down.
27:48
He went on to win as the candidate
27:50
who would never raise your taxes.
27:52
And - In the 92 primary.
27:56
Won the Republican primary, but then he won the general.
27:59
And remember, he was losing by 14 points to
28:04
this guy from Arkansas,
28:06
which wasn't even technically a state at the
28:08
time for crying out loud.
28:10
How do you lose to Arkansas?
28:13
Bill Clinton, nobody's ever heard of. He did. He broke his.
28:18
And I'm sorry, I'm sorry.
28:21
He won against Dukakis.
28:23
When he broke his word, he lost to Arkansas.
28:27
I'm confusing my dates here.
28:29
The first election, he was down 14 points.
28:32
Because he said, "I'm never raising
28:33
taxes." He went on to win.
28:35
Then he broke the pledge in 90, lost in 92. Okay.
28:40
And so in each of these cases,
28:42
the pledge played a very significant role in the races,
28:46
primary and general.
28:47
And then the state legislators took.
28:51
We went out to states and state legislators
28:54
and governors took the pledge.
28:55
Today, two-thirds
28:56
of all Republicans governors have signed the pledge.
28:59
About 85% of all the House
29:01
and Senate guys have taken the pledge,
29:02
everybody was elected,
29:04
and thousand plus state legislative leaders as well
29:08
as state-elected officials.
29:12
So the pledge became a bigger
29:15
and bigger part of the modern Republican Party.
29:22
Almost every Republican running has made the pledge.
29:24
Sometimes they say it out loud.
29:26
We always want them to put it in writing.
29:27
But just about everybody running says,
29:30
"I'm never raising taxes." And
29:31
most of them put it in writing.
29:33
And just I guess for our listeners who don't understand,
29:36
I mean, the statement is a strong statement in the sense
29:39
that even
29:42
what the taxpayer protection pledge says in a sense is that
29:47
it's certainly opposed to even instances where
29:52
there are reductions in spending that come with
29:57
some amount of tax increases, say, to Paid
30:01
down fiscal debt.
30:03
For example, there have been instances like in the 2010s,
30:07
I think about this, I think back to the Simpson Bowles
30:10
fiscal cliff, Jeb Bush's 2016 tax proposal.
30:15
I think he refused to sign the taxpayers protection pledge
30:19
in 15, I think 2015 when he was putting on his tax plan.
30:22
And part of it was he still wanted to sort
30:24
of keep on the table this idea that you could
30:28
still maybe raise taxes in a minor way to
30:32
secure a big reduction in spending.
30:35
It feels like that was a long time ago now.
30:38
And of course, none of these things came to pass either,
30:41
or a few of these deals came to pass.
30:43
I mean, fiscal cliff was another thing
30:44
because of expiring tax law,
30:47
but even that was,
30:49
even Obama still continued the Bush tax cuts then.
30:52
But just segueing into debt
30:57
and public debt, which has been rising
31:00
over the past few decades, I mean,
31:02
you've consistently argued,
31:03
and I'm sympathetic to this,
31:04
that America's a spending problem
31:06
rather than a revenue problem. And
31:08
Obviously, Entitlements are a huge part of that.
31:12
How do you think about the fiscal situation today
31:16
where federal debt's risen to
31:19
basically World War II levels, economic growth?
31:22
I mean, maybe we'll get a lot out of AI,
31:24
but there's a lot of, I think, increasing fiscal worries.
31:29
Now these fiscal challenges
31:30
and rising debt started a long time ago,
31:32
but I'm curious, how do you think about it?
31:35
Sure. There was an effort by the Democrats to say,
31:40
"Well, we're worried about the deficit." No,
31:42
they've never been worried about the deficit.
31:43
What are you talking about? What
31:45
they want is a tax increase.
31:46
And they would say the deficit is a reason to raise taxes.
31:50
I point out that raising taxes is what politicians do
31:54
if they're not capable of governing.
31:59
What politicians do instead of governing is raise taxes
32:02
to pay for all the mistakes of the past and of the future
32:05
and just paper it over with cash
32:07
and make the problem go away.
32:10
And the problem is just that things aren't working
32:13
and you pass a law to spend money
32:15
that says now things will work.
32:17
They don't work, but that's yesterday's news
32:19
and you keep moving forward.
32:22
So the left uses the deficit as an excuse to raise taxes.
32:26
And the Republicans pre - 1994
32:33
used to, "Okay, you've spent all this money.
32:36
We will be the responsible people
32:38
and raise taxes to pay for your destructive policies."
32:44
Of all the money spent in the
32:48
great society, they've had net negative effects on
32:51
everything they are supposed to have fixed, from education
32:54
to healthcare, to employment, to poverty.
32:59
They're 17, $20 trillion for no benefits.
33:03
And if somebody can find one, good luck.
33:07
So the answer is we're not getting tricked again
33:11
into raising taxes.
33:14
And remember when they went to Reagan, the Democrats,
33:17
and Bob Dole, and Bob Doyle,
33:19
and said, "Why don't we have $1
33:25
of tax increases for $3
33:29
of spending cuts?" And
33:34
the President didn't want to do it.
33:35
He later said that was the biggest mistake
33:37
of his presidency, but he agreed to it because Bob Dole
33:41
and enough Republicans were
33:43
not going to let you have a budget.
33:44
And you couldn't do the defense budget without this.
33:47
So he got blackmailed into that deal.
33:50
At the end of the day, they raised taxes that was real
33:54
and permanent, and there was no spending reduction.
33:59
Not a little, none.
34:01
Spending went up faster than before the deal.
34:05
Now, Reagan learned, this is stupid,
34:09
and most Republicans learned, boy, did we get taken.
34:13
But Bush didn't. It makes me wonder, was he paying attention
34:17
during the eight years of Reagan?
34:18
Did he learn nothing? He sort of learned nothing
34:20
during eight years of Reagan.
34:23
And so he comes into the presidency and they come
34:26
and say, "Hello, you are a cheaper date.
34:30
We will give you two imaginary dollars of spending reduction
34:34
for every one real permanent tax increase." Okay?
34:38
Now, that's just insulting. You're a cheap date.
34:42
We cheated Reagan three to one.
34:43
We promised him three to one. I mean, if you're dealing
34:45
with Confederate currency, why not make a 10 to one?
34:48
You have no intention of paying off,
34:50
but they just did it to humiliate him.
34:52
And he took it, and he did the deal,
34:56
and you got the tax increases,
34:58
and a lot of Republicans wouldn't vote for the tax hike.
35:01
So there's Democrats vote mostly,
35:03
but there were Republican fingerprints.
35:06
Every Republican who voted for that is dead
35:08
or out of office now.
35:10
So they're not part of the party anymore.
35:14
And then when that happened,
35:17
the Republicans took a shrillacking in 92
35:21
and lost to the nobody, Bill Clinton.
35:23
At that time, nobody. From Arkansas, not a state.
35:28
So how does the guy.
35:31
Oh, by the way, during this,
35:33
Bush managed the collapse of the Soviet Union.
35:36
You think he's Winston Cherchill for crying out loud.
35:39
And he gets thrown out of office by a nobody.
35:44
Well, the tax issue's powerful. Okay.
35:47
And what people learned was take the pledge,
35:50
win the election, keep the pledge.
35:54
I'm sorry, take the pledge, win the primary.
35:56
Take the pledge, win the general,
35:58
keep the pledge, get reelected.
36:00
And that's when we went in 1994 to 96%
36:04
of all the Republican candidates signed the
36:06
pledge never to raise taxes.
36:07
And they've kept it since.
36:09
If you look at the 62 years from
36:14
FDRs 1932 until 1994,
36:19
when Republicans swept the House
36:20
and Senate all taking the pledge, 62 years,
36:23
there were two times that Republicans won Congress.
36:27
Twice in 62 years. Once under Eisenhower, once under Truman.
36:32
This was a Democrat one-party control
36:37
of the country for 62 years.
36:40
Well, they're Republican presidents. Yes.
36:41
And they could veto bills.
36:44
And when they left, Democrats passed everything they wanted.
36:47
And that's what happened after Eisenhower,
36:49
after Nixon, after Reagan.
36:53
The Democrats had the House and Senate.
36:54
They did what they wanted to. One-party rule.
36:57
The pre in Mexico never had
36:59
that long a period of that much control.
37:02
94 on, what happened?
37:04
Republicans became the party
37:06
that would not raise your taxes.
37:08
We may invade small countries we can't pronounce.
37:12
That could be a bad thing, but we will not raise your taxes.
37:15
Republicans won control of the House and Senate 18 years.
37:20
Democrats, six. 18 to six. And then six years it was split.
37:25
The Republican Party has run the country more often than not
37:30
since 1994 by good margin.
37:34
Before that, they weren't players.
37:38
They were the Washington generals up against
37:42
the Harlem Globetrotters.
37:43
They were on the field, but they didn't get to really play.
37:46
They didn't get to score. Now the Republican Party is a
37:50
competitive party in Washington, DC.
37:53
And again, wins more often than not, for crying out loud,
37:56
but not the domination they had when you have the
37:59
solid Democratic South.
38:01
And Democrats had 80% of the House
38:03
and Senate when they did the New Deal.
38:05
And 70% of the House
38:07
and Senate when they did the Great Society.
38:09
Republican margins are four to 20.
38:13
This is a closer run.
38:17
So that's how the tax issue flipped things.
38:20
The Republican Party became competitive.
38:22
When you look at the states, when Ohio became the state
38:26
that wouldn't raise your taxes, they went
38:27
to two-thirds super majorities.
38:29
When Florida went from neck and neck, Florida went from neck
38:32
and neck, blue state, purple state, to bright red,
38:36
two-thirds both houses, when it became the party
38:39
that would never raise your taxes.
38:42
And Bush, Jeb Bush was very good on not raising taxes.
38:47
He wouldn't sign the pledge
38:48
because he thought it implied some
38:50
failure on his father's part.
38:53
And that everyone would look at Jeb Bush taking the pledge
38:56
and say, "Oh, he's dissing dad." Okay?
38:59
That's not what happened. What happened was the first
39:01
several weeks of his announced campaign when he ran
39:03
for president in 2016 was all about why are you the only guy
39:07
not taking the pledge not to raise taxes.
39:09
It's not what he planned to do, but
39:10
that's what he did to himself.
39:13
When his brother ran later,
39:15
and when his brother ran for office,
39:18
he just took the pledge like that.
39:21
Told me he was going to do it before we started running,
39:24
and we did it, and it was done.
39:25
And nobody compared him to dad.
39:28
They said, "He's the guy I'm not going to
39:29
raise taxes." Good.
39:30
Okay, done. But Jeb had the problem with it,
39:33
and he made it a bigger problem by talking about it
39:37
and moving that forward.
39:39
So as the Republican Party, they won't raise taxes.
39:44
Not only have we done better nationally,
39:46
but if you look at the 50 states,
39:48
and this is why I think the Republicans will win,
39:51
and we will deal with the deficit and the spending issue.
39:54
And the deficit is only a spending issue.
39:56
There's no point in raising taxes.
39:58
You raise the top marginal rates
40:00
and so on, you lose revenue because you lose growth.
40:02
That doesn't help. That doesn't even get you where you want
40:05
to be by any stretch of the imagination.
40:09
But what we do have in the 50 states
40:13
is eight states with no income tax.
40:16
Now, there used to be just six, but Tennessee
40:19
and New Hampshire had no income tax on dividends
40:22
and interest, but they did taxes on dividends
40:26
and interest, not wages.
40:27
Both of them abolished the tax on dividends and interest.
40:31
So there are eight no-income tax state.
40:33
There used to be, and up until six, seven years ago,
40:36
eight states with a flat rate,
40:38
a single rate other than zero.
40:40
We've doubled the number of single rate taxes.
40:43
There are now 16 states that have brought their rates down
40:46
to single rates, not graduated like Carl Marks recommended
40:50
in the communist manifesto, but a single rate.
40:53
Treat everybody the same.
40:54
Everybody's at 3%, at 4%, whatever it is, same rate.
40:58
Treat everybody the same way.
41:00
So the country's moving to reject, at least in red states,
41:04
the idea of graduated income taxes, of taxing them,
41:09
not us kind of rhetoric.
41:12
Envy, hate, all that unpleasant stuff, the politicians.
41:17
Envy is a sin. It's a deadly sin.
41:19
It's not a political program, at least not for Republicans.
41:22
And so at the state level,
41:24
the Republicans have strengthened.
41:25
We now have also five states
41:30
that have passed a law that will trigger their income
41:32
tax all the way to zero.
41:34
As revenue comes in from growth, they put a cap on spending,
41:39
money comes in, teachers union gets to steal some of it.
41:42
The rest, a certain amount goes
41:44
to permanently reducing the income tax rate.
41:47
Step, step, step, step, step, step.
41:48
So five are on their way to zero.
41:50
Another seven have announced, "We're going to zero."
41:54
And I look at the House, the Senate, the governor,
41:57
they're taking real steps to get to zero.
41:59
They've moved to two and a half already in Arizona.
42:02
They've cut theirs in half in North Carolina.
42:05
Georgia's gone to a flat rate,
42:07
and the newly governor candidate for the Republicans, when
42:12
he just won the primary said, "In the first four years
42:16
as governor, I'm cutting the income tax in half.
42:19
And in the second four years, I'm going to zero."
42:22
In Missouri, the moderate of three candidates won.
42:26
And he announced when he won,
42:29
and they've got the vote coming up this fall,
42:31
when he announced when he won, full school choice
42:33
for every child in the state.
42:35
And second, income tax goes to zero.
42:40
I want to be in the Republican Party
42:42
where the moderate Republicans position is full school
42:45
choice, taking on the biggest
42:47
and most powerful monopoly in the country, maybe the world,
42:50
and income tax to zero at the state level.
42:54
You bring those income taxes down, not
42:55
by raising some other tax.
42:57
This is all by spending less, by having the growth
43:00
of spending fall to less than
43:05
inflation plus population.
43:07
And then revenue grows as the economy grows,
43:11
but it takes less
43:13
and less out of people's pockets as a percentage.
43:16
So we are moving to a situation where we're going
43:19
to have more flat rate tax states and more zero tax states.
43:25
And the blue states are moving the other direction
43:27
to taxes on life savings, wealth,
43:31
taxes on higher income people
43:33
to drive those people out of the state.
43:35
And it's that federalism.
43:37
Every 10 years, 10 or 11,
43:40
congressional districts move from blue states
43:42
that raise taxes to red states that won't, to red states
43:46
that are either have no income tax
43:48
or are getting rid of their income tax.
43:50
And in 2032,
43:54
another 11 states will move.
43:56
And whatever the margin is now, if it was dead even,
43:59
it'll then be 22 votes Republican majority.
44:04
And 10 years after that, it'll be 42
44:07
because we keep moving more Republican, more districts out
44:11
of blue states into red states,
44:14
which gives you more Republican congressmen
44:17
and more electoral college votes.
44:20
In the next 15 years, the presidency
44:23
and the Congress is not within the grasp
44:27
of the modern Democratic Party
44:29
if the Republicans maintain their position
44:32
of we're never raising taxes
44:34
and we're going to take the state income taxes to zero
44:38
to have growth at the state level
44:40
because that sucks investment and talent and Elon Musk
44:45
and Peter Thiel out of blue states into red states.
44:52
The whole divide between red states
44:55
and blue states is amazing.
44:56
I mean, just seeing all the responses
44:59
to the California law tax, Washington raising their
45:04
income tax rate considerably from
45:05
no income tax states being a pretty high one.
45:08
And yeah, it's amazing.
45:11
It's such a stark contrast, not one
45:14
that I could ever remember in my lifetime and probably ever.
45:19
You know more than me the exact history.
45:20
But just in terms of thinking about the Reagan legacy
45:24
and tax reforms or the past federal tax reforms
45:28
and going forward, you've been
45:30
involved in basically every major tax debate
45:32
since the Reagan administration.
45:33
I mean, are there ones
45:34
that you think were more impactful than others
45:37
or better than others from a growth standpoint?
45:40
I think a lot of people herald the Reagan tax reforms in the
45:44
'80s, 81, 86.
45:46
The top marginal income tax rate was very
45:49
high going into that.
45:50
And it was sort of brought down to, I think in 28
45:54
or so from, I think was above 50%
45:58
before Reagan came into office.
46:00
And JFK, of course, began this period
46:02
of tax cutting previously.
46:07
And also a big focus on that was corporate taxes too.
46:09
And corporate taxes were coming down.
46:12
The US then basically in the Bush era
46:16
lowered individual rates, but didn't change corporate rates.
46:19
And the US started to lag behind the Tax Cuts
46:22
and Jobs Act, the Trump era tax cuts sort of made up for
46:26
that and cutting the corporate rates
46:27
and passing full expensing.
46:29
I think the business tax cuts are probably the most
46:32
pro-growth, but obviously individual tax cuts are very
46:35
important politically too.
46:38
So one, I guess my question is looking ahead,
46:43
what do you think the biggest priorities
46:44
for tax reform in the next decade are?
46:48
There's obviously some things that are going
46:49
to come up like in some of the things now
46:52
with the one big beautiful bill being passed.
46:54
There's some things that will expire in about four years
46:57
or so, or I guess closer to three years now,
46:59
like permanent expensing for structures.
47:04
Or sorry, full expensing for structures
47:05
but not made permanent, but it'll expire in four years.
47:08
And so that's a tax battle that's coming up.
47:10
I know for a long time you talked about
47:12
indexing capital gains to inflation.
47:15
That's been a huge battle. One that hasn't been resolved
47:19
yet, but I know many, including yourself, Senator Tecruz,
47:23
many others have been fighting for it for quite some time.
47:26
But obviously the Democrats seem very intent on
47:30
raising income tax rates to very high levels, as high as
47:34
north of 50% on the top marginal rate, maybe
47:38
creating new tax brackets for millionaires or billionaires.
47:42
Obviously, there's the wealth tax discussion on California.
47:46
You also have Republicans too who are trying
47:48
to abolish property taxes in states too.
47:51
So I think Florida or Texas.
47:54
I'm curious, what do you see sort of the future
47:56
of the big tax debates coming up in the decades to come?
48:00
Yeah, that's a very good question.
48:02
Let me start with the last one you mentioned,
48:03
property taxes.
48:06
Property taxes are very visible, very painful.
48:09
People understand them.
48:11
And that's why in California,
48:13
they had a property tax revolt,
48:15
not an income tax revolt back in 1978,
48:18
because the property tax can jump up so quickly
48:21
with inflation and property rights
48:23
and property values increasing.
48:28
What also passed in 80 was in Arizona.
48:33
Not a big cut, but a cap on the rate, a cap
48:38
on how assessments, how much they can go up a year,
48:42
and a cap on total spending.
48:44
45 years later, Arizona is now the third
48:48
lowest property taxes in the country.
48:53
And I am very big on incremental changes
48:58
where people can see the process.
49:00
They don't get scared by making some big decision in one day
49:04
that may go wrong or may not,
49:08
but if we know, we can keep an eye on it.
49:11
What you're seeing now, Texas is basically
49:15
strengthening the Arizona model.
49:17
The governor of Texas is running for reelection, says,
49:21
"I want this, and I will campaign against any Republican
49:24
who isn't with me on the property tax limitations
49:27
that we're putting forward." Because he did
49:30
that the last time around and took out 10
49:32
or 12 Republicans who didn't like school choice,
49:35
and then they passed school choice.
49:37
So this time he's saying, "Just for the record,
49:39
so everybody understands, this is yes or no here.
49:43
We are going to limit property taxes." And there are 14
49:47
states that have okay sort of-ish property taxes.
49:51
39 have some sort of thing that they're trying.
49:55
What you're seeing sweep the states now is the
49:58
Arizona, Texas model.
50:00
Florida's working on this.
50:02
A number of other states, Missouri.
50:05
We are working with every state
50:07
that's looking on their income tax to also say,
50:10
have a conversation at the same time
50:13
as the income taxes going down, on capping property taxes,
50:18
ending state subsidies to local governments,
50:21
because then the state government is co-responsible
50:25
for all the stupid stuff that your mayor does.
50:28
And you don't want to do that because the mayors are
50:29
blue and the governors are red.
50:31
So don't give blue mayors money to waste
50:33
and then go, "Oh, I have to raise property taxes
50:37
because the governor forgot
50:38
to give me my check this week." No, no, no checks for you.
50:41
You want it, you steal it.
50:42
You want to spend it, you steal it yourself.
50:44
And make every tub on its own bottom.
50:48
Separating the state
50:50
and the local governments from their funding.
50:52
You raise your money, we'll raise our money.
50:55
And limiting both what the state spends
50:57
and what the local government spends.
50:58
That's the model over time
51:00
to having a pro-growth limited government, red states.
51:05
Now, blue states have their own challenge.
51:08
I believe over time they will react to
51:12
the success of the red states,
51:14
the people leaving of the red states.
51:16
Eventually, the Berlin wall does fall
51:18
because the government is better outside of that.
51:23
But it won't fall overnight.
51:25
It'll open up
51:28
and people will begin to stay in Massachusetts, in New York,
51:32
in California, and hopefully grow and thrive.
51:35
'Cause we want the whole country to survive.
51:37
It's just you can't do it out of Washington
51:39
because you can't show them this works
51:42
compared to something else.
51:44
You can with federalism.
51:46
Vermont, New Hampshire, right next to each other.
51:48
Vermont spends twice as much per capita
51:52
for a lousier government.
51:53
Twice as much per capita as New Hampshire.
51:56
New York versus Florida.
51:58
There are more people in Florida than New York.
52:00
Who knew that? When I was a kid, Florida was full of cows.
52:04
It's like the fourth biggest cow state in the nation.
52:08
And now it's more people than New York State.
52:12
And New York spends twice as much money as Florida does
52:16
for its state government for the same number of people.
52:19
So they spend twice as much per capita.
52:21
That's why Florida has no income tax.
52:23
There's $113 billion
52:26
they don't take that New York takes.
52:29
So they don't need $113 billion income tax. Gone.
52:32
They just have the taxes they do have.
52:34
The way you get rid of the income tax is to
52:37
have spending not grow so rapidly over time,
52:41
you need a sustainable budget.
52:42
That's happening in the red states.
52:44
We're seeing the beginning in the last year
52:47
and a half, more competent, structured
52:53
limitations on property taxes as well.
52:56
Between those two, the red states should redouble
53:01
their advantages over the blue states who have blue cities
53:04
and blue mayors.
53:07
And blue cities
53:08
and blue states, mayors
53:10
that are completely blue driving the costs up
53:13
for blue governors.
53:15
So I think we're in very good shape there.
53:17
At the federal level, the biggest deal,
53:19
I was just reading today, great quotations
53:23
for the late Alan Greenspan.
53:25
"We must debolish the capital gains tax.
53:28
If we can't do that right away, index it for inflation.
53:32
"I didn't know he'd said that.
53:33
Newt Gingrich told me that he thought that he had it.
53:36
So we went and searched it
53:37
and found these great quotations where he walks
53:40
through exactly why.
53:44
If growth is your goal, take the capital gains tax to zero
53:48
because that's a complete tax on investment
53:51
that creates jobs and opportunities and better wages
53:53
and more of everything.
53:55
Second best, or get at the starter kit,
53:58
is end the taxation on the part of capital gains
54:01
that is inflation.
54:03
And that is one where I've talked
54:05
to the president about this.
54:07
He says he wants to do it.
54:08
Bessent, I've talked to,
54:09
he says not only does he have the right to do it, the power
54:11
to do it, but he wants to do it as well.
54:14
Ted Cruz is a leader in the Senate.
54:15
The Speaker's good on the House Side Leadership House
54:18
and Senate are both good on this.
54:21
And a lot of businesses, anybody
54:23
who builds houses thinks this is the most
54:25
important thing you could ever do.
54:28
One of the Republicans who focused on the deductibility
54:32
of SALT taxes because he lives in a high-income area
54:36
and didn't want to get rid of the deductibility
54:39
of state and local taxes.
54:41
He said as important as that was,
54:43
indexing capital gains is a bigger deal
54:46
for his voters than SALT was, which is a lot of screaming
54:50
and yelling went on about state and local tax deductibility.
54:53
So that's the biggest pro-growth thing,
54:56
but expanding expensing
55:00
to all investment buildings permanently
55:03
and all buildings structures would be
55:06
very, very helpful as well.
55:08
And then just keep taking the rates down.
55:11
Well, there's, I guess, this famous adage
55:15
that all taxes are bad, some are worse than others.
55:19
And I'm curious, this has been, I think,
55:22
at least on the part of academic economists,
55:27
the fantasy or the dream is to somehow move to
55:32
a system that is maybe just taxing consumption rather than
55:37
taxing income.
55:38
And there's a few different versions of this.
55:41
And the idea is, one,
55:44
you could make it progressive
55:45
if people weren't very happy about it.
55:47
But the idea is that taxing income is bad
55:49
because you're disincentivizing work.
55:52
And whether it's corporate income,
55:53
whether it's individual income, taxing corporations,
55:57
especially in taxing investors and taxing individuals
56:02
and labor income, that these things are distortionary
56:07
and it would be better just to tax consumption.
56:09
So I think in this sort of economist dream,
56:14
a lot of accounts would prefer switching
56:17
from an income tax-based system
56:18
to a consumption-based tax system.
56:21
Now, in places like Europe
56:24
or Canada that have VAT taxes, form of consumption tax,
56:29
of course, they still have the income taxes too.
56:31
So there is this, I guess, political economy problem,
56:34
which I'm sure you're extremely familiar with, which is
56:36
that policy substitutes are just, which is
56:39
what this would be, swapping consumption
56:42
taxes for income taxes.
56:44
It's just a politically sort of infeasible sort of thing.
56:47
But I know for a long time, people have talked about this
56:49
for many decades, many, many scholars, many economists,
56:52
many think tank folks.
56:54
I'm curious, this is also somewhat related to some
56:58
of the international tax debates over the past 15 years
57:03
or so about should we have
57:07
a cashflow tax?
57:11
There's a big debate in the Tax Cuts
57:13
and Jobs Act era between Paul Ryan, who is pushing this
57:17
for a period of time during that debate.
57:20
And folks, my understanding is folks like
57:25
Charles Koch fought against it,
57:27
even though it would arguably hurt his own business.
57:31
And ultimately, they killed
57:34
the so-called border adjustment tax
57:35
or the consumption-based cashflow tax.
57:39
I'm just curious, what are your thoughts on some
57:42
of these sort of, I guess, more radical tax ideas?
57:44
There have been some people that say we should only tax land
57:46
values rather than property,
57:47
and that goes back even further.
57:51
But I'm curious, what do you think about these other ideas
57:54
shifting toward less disortionary forms of taxation?
57:58
Is it something that just politically will never happen?
58:01
Or do you think that, you know, maybe if anything,
58:04
it would be worse in the sense
58:05
that we get a consumption tax layered
58:07
on top of an income tax?
58:11
Economists are fairly good at pointing out
58:15
that this tax is less destructive than this
58:18
tax per dollar raised.
58:20
They should never be allowed anywhere near political
58:22
decisions because they don't get that if you
58:28
add a value-added tax in order to eliminate the income tax,
58:33
you end up where Europe is, a value-added tax
58:36
and an income tax and capital gains taxes and death taxes.
58:41
But that's why you talk to the political people.
58:45
The present income tax can be turned into a consumption tax.
58:49
Don't tax capital gains.
58:52
Don't tax investment.
58:55
And you subtract all of the things
58:57
that aren't consumption from your income base.
59:00
And without changing the law on income tax,
59:03
without adding another tax, okay, if you, if you have
59:09
a tapeworm that's bothering you,
59:15
the income tax, you don't swallow a second, second tapeworm
59:19
to that in order to discipline the first one,
59:21
because you'll find you have two tapeworms
59:23
and they're both growing at their own rate.
59:25
What you can do is take the income tax and take away it
59:30
and have a, everybody can have a 401k or an IRA
59:33
or an educate or a universal savings account.
59:36
So here's, here's what I make,
59:37
here's the, you know, universal savings.
59:39
Everything I save, you don't tax.
59:40
What I spend is taxed, which is
59:43
the income minus the investment.
59:46
Okay? So you didn't create a new tapeworm.
59:50
You sliced and,
59:52
and made smaller the income that you do tax.
59:56
It's a consumption tax
59:58
because it's your income minus the stuff Have you saved?
1:00:01
So you can get there,
1:00:02
but if you do it that way, which is what we're doing,
1:00:05
don't tell anybody our secrets, over time, then you have a
1:00:10
tax that's a consumption tax simply
1:00:13
because it's income tax minus the parts
1:00:15
that aren't consumed.
1:00:18
If you add a consumption tax to the income tax
1:00:21
because they promised you, Mr.
1:00:23
Reagan, Mr.
1:00:24
Bush, that will make the other one go away, they fib.
1:00:30
The number one goal of the modern Democratic Party is
1:00:32
to add a VAT to the income tax
1:00:36
and the personal and corporate.
1:00:38
Then we're Europe. Then we're Europe and it's over.
1:00:41
So the value-added tax.
1:00:44
I understand why this is why Paul Ryan is
1:00:47
not a politician anymore.
1:00:49
He's a very good theorist on economics.
1:00:53
He's right on many, many things.
1:00:54
But the idea of creating a that by another name,
1:00:58
while the income tax lives without a stake in its heart,
1:01:03
and I won't believe any stake in its heart,
1:01:05
so I really just think you take the income tax
1:01:07
and file it down to where it's just a tax on the consumed
1:01:10
income, call it a consumed income tax.
1:01:13
That's a good word for it. Then you don't have the
1:01:17
problem that Paul.
1:01:18
The reason why people like me went nuts over the idea
1:01:23
of a VAT by another name is that then you're Europe
1:01:26
and they just keep moving the VAT up.
1:01:27
And the reason why the Europeans like high tax rates is
1:01:30
because what the real cash is coming in on the VAT.
1:01:34
But they go, "Oh, we're taxing rich people.
1:01:36
Oh, you should be happy. VAT, VAT, VAT, VAT, VAT.
1:01:38
Oh, we're taxing rich people." They have a very not
1:01:41
progressive income tax structure, a tax structure in Europe,
1:01:44
because that's where you get the money.
1:01:46
You can't get enough money from rich people
1:01:48
because to get serious quantities
1:01:50
of money from rich people, you shut them down.
1:01:52
They quit producing. They'll consume rather than produce.
1:01:56
But you can go to the middle class and get more money
1:01:59
and not have it blow up on the government.
1:02:03
So we need to protect middle income people from the VAT
1:02:06
being added to the income tax.
1:02:08
And I believe we have successfully done so.
1:02:11
So far with all the smart people,
1:02:13
Hillary Clinton very much wanted a VAT.
1:02:16
And these are things that as long
1:02:19
as we keep at bay, we'll be fine.
1:02:22
Yeah. Well, I remember Brian Malrooney,
1:02:24
who was the prime minister of Canada in the '80s
1:02:27
into the early '90s, he introduced you,
1:02:29
and Canada didn't have a VAT tax before,
1:02:32
and he introduced one with these sort of ideas in mind.
1:02:35
And what ended up happening was he ended up getting voted
1:02:38
out of office pretty decisively,
1:02:40
and it sort of, I'd argue,
1:02:41
put conservatives back for quite a while.
1:02:43
Just my final sort of question for you is just any advice
1:02:47
that you have for younger people.
1:02:49
A lot of people who listen to this podcast are young,
1:02:54
I think, policy types, young policy staffers,
1:02:59
young, a lot of research economists, a lot of
1:03:03
policy economists, people who are working at think tanks.
1:03:05
I mean, you've been in a lot of debates
1:03:07
and have had a lot of influence for a very long time.
1:03:11
And I'm just curious, for those who, I guess, are trying
1:03:14
to learn how to, I guess, influence policy more greatly,
1:03:19
what is the advice that you have for those people?
1:03:21
I like what you said earlier about making sure you have
1:03:24
something that's at least written down for those who come
1:03:27
to the Wednesday meeting to sell their
1:03:29
ideas or whatever they're selling.
1:03:32
I'm just curious what advice you have
1:03:33
for young people In terms of getting their ideas
1:03:37
and voices heard in a world where they can be very noisy
1:03:41
in Washington DC or other state capitals around the US
1:03:45
or in capitals around the world.
1:03:48
In Washington, DC, there's a center right meeting.
1:03:51
Send me a note. If you're a person with ideas
1:03:54
and projects, no matter how young
1:03:57
or how early you are in your career.
1:03:59
I started going to one of these when I was in college in
1:04:02
Massachusetts, and I could see everything.
1:04:05
What I saw was much that needed to be done
1:04:07
and could be done better, but that was
1:04:09
where I learned everything I knew about what was going on.
1:04:12
And you met with elected officials and you saw them
1:04:15
and you saw them interact
1:04:16
and you saw the other think tank people talk to each other.
1:04:19
And I was a kid, but I was with college Republicans
1:04:22
and the various conservative groups at Harvard.
1:04:26
And so that was important.
1:04:28
They're also, in the 45 of the 50 states,
1:04:31
have center right meetings.
1:04:32
A number have multiples.
1:04:34
It's not just the capital, it's other states as well.
1:04:37
So 45 states have center right meetings.
1:04:39
I think it may be 46 actually, but 45, 46 have the meetings.
1:04:43
They tend to be monthly, the one in DC's weekly.
1:04:46
24 countries overseas have center right meetings.
1:04:50
And so wherever you are, talk to the conservative activists,
1:04:55
elected officials, find out
1:04:56
where the center right meeting is and offer to come.
1:04:59
These things are off the record.
1:05:00
They're not to be talked about,
1:05:01
but you can learn a great deal there
1:05:04
and share what you are working with,
1:05:06
but also see things that work and things that.
1:05:10
When people make ideas come to life,
1:05:13
you watch other people do, even if it's the completely
1:05:15
different issue than you work on.
1:05:16
I watched a guy at our Wednesday meeting come in every
1:05:18
several months talking about the campaign to legalize hemp.
1:05:22
I didn't know it was a thing, but it was, and he won.
1:05:24
And every few months he'd go, "Here's where we are.
1:05:26
Here's what's going on. Here's what we need."
1:05:29
He had his hemp tie in his hemp briefcase.
1:05:31
It was really ridiculous, but he passed it
1:05:35
nationally and state by state.
1:05:38
Wow. Well, that's really amazing advice to
1:05:42
academics, policymakers,
1:05:44
or staffers of all ages in all stripes.
1:05:48
Really, wanna thank you
1:05:49
so much for joining us today. It's really
1:05:50
Fascinating To discuss your career,
1:05:53
how you've been in the tax reform fight since,
1:05:57
and prior to the Reagan era.
1:05:59
The future of tax policy in the US, future
1:06:02
of fiscal policy in the US,
1:06:04
and the during debate over the
1:06:05
proper role and size of government.
1:06:07
A real honor to have you on.
1:06:09
Thank you very, very much. Appreciate it.
1:06:11
This is the Capitalism and Freedom in the 21st Century
1:06:13
Podcast, an official podcast
1:06:15
of the Hoover Institution Economic Policy Working Group,
1:06:17
where we talk about economics, markets, and public policy.
1:06:20
I'm John Heather, your host. Thank you so much
1:06:21
for joining us.