IF SUPPLY-SIDERS EVER HAD REASON to be optimistic, they do now. Tax cuts are easier to pass with a budget surplus in Washington, and congressional Republicans have embraced a supply-side article of faith: across-the-board reductions in income tax rates. Besides, the GOP has dropped two decidedly non-supply-side ideas: using the surplus to pay down the debt and trying to pass constituency-driven tax reforms, such as the family tax credit. So what do the supply-siders think of the GOP proposals? “It’s the least they could do,” grouses Bruce Bartlett of the National Center for Policy Analysis.
Bartlett’s pessimism reflects a longstanding distrust between the Republican party and the noisy squad of supply-side economists, writers, and activists. Ever since the early Reagan years when the supply-siders rose to prominence, party leaders have held them at arm’s length. Before he was reborn as a tax cutter in the 1996 presidential campaign, Bob Dole used to wisecrack: “The good news is that a bus of supply-siders went off a cliff. The bad news is that three seats were empty.” The feeling is mutual. Dole’s fumbling of the tax issue in 1996 intensified supply-side irritation with Republicans, and the gulf has only widened as Congress has failed to pass sweeping tax-rate reductions.
This year could be different, but the supply-siders aren’t ready to applaud. Their chief concern is that the leading GOP tax-cut bills, introduced by John Kasich in the House and Rod Grams in the Senate, propose reducing marginal tax rates by just 10 percent (the Reagan cuts, by contrast, totaled 25 percent). Bartlett points out that even if this were approved, it would offset less than one-third of all the Clinton tax increases. And there’s no guarantee the 10 percent reduction won’t be slashed to 5 percent or less in negotiations with the White House. “Republicans seem to be leading with their compromise position,” complains Steve Moore, director of fiscal policy studies at the libertarian Cato Institute. He’d like to see someone in Congress propose a 30 percent rate cut along the lines Dan Quayle is advocating.
The second source of supply-side discontent is a personnel squabble. There’s an obscure agency in Washington called the Congressional Budget Office, and one of its mandates is to predict the rate at which the economy will grow. This figure is then used by the Joint Committee on Taxation to analyze how a tax cut would affect revenues and the economy.
For the past two decades, supply-side economists and many of Congress’s tax-cutting Republicans have charged that the CBO is dominated by Keynesians whose pessimistic economic forecasts have undermined tax-cut proposals. Upon winning a congressional majority four years ago, the Republicans installed a new CBO director, June O’Neill. But her failure to provide the intellectual ammunition for rate reductions so disappointed the GOP that Newt Gingrich considered having her sacked last year. Instead, the Republicans let her finish her four-year term, and she wisely opted not to seek another.
The CBO vacancy had supply-siders drooling at the prospect of installing one of their own. There was just one problem. Responsibility for selecting the new CBO director fell to the chairman of the Senate Budget Committee, Pete Domenici, who has been so hostile to tax cuts the editorial page of the Wall Street Journal once called him “John Maynard Domenici.” Wanting nevertheless to appear impartial, Domenici agreed to interview two candidates favored by the supply-siders: J. D. Foster of the Tax Foundation and David Malpass of Bear Stearns. But Steve Bell, an influential Domenici aide, made it clear to supply-siders at a breakfast late last year that neither Foster nor Malpass would be selected. Bell also signaled his favored candidate was Dan Crippen, a former aide to Howard Baker and to the Reagan White House.
The supply-siders pretty well know each other, and Crippen clearly isn’t part of the club. Indeed, his tenure with Baker made him suspect (and his alliance with the blunt-speaking Bell didn’t help). Supply-siders remember Baker as an obstacle to the Reagan tax cuts — he called them a “riverboat gamble” — and they feared Crippen would bring the same skepticism to the CBO. Supply-siders were doubly worried about having a tax-cut skeptic as CBO director because the influential senior staffers of the Senate Budget Committee and the Joint Committee on Taxation have records of opposing income-tax reductions.
Thus, when Crippen’s name began circulating late last year, the supply-siders mobilized. In December, 28 of them, including Steve Forbes and Jack Kemp, went public with the qualifications they believed the next CBO director should have. They wanted a “practicing economist with considerable hands-on experience in applied economic analysis,” someone with a “substantial publication record,” and someone free of perceived conflicts of interest “arising from his or her previous business relationships.” That pretty much ruled out Crippen, who’s done little economic analysis, has no publication record to speak of, and has countless “business relationships” by virtue of having been a lobbyist for the past ten years.
The supply-siders have no shortage of allies in Congress, but their appeal fell on deaf ears. When no Senate Republican was willing to lift a finger to block Crippen, Kemp called Trent Lott, a friend from their days in the House, and pleaded with him to act. Lott put a hold on Crippen’s appointment and forced him to go through another round of interviews, but this was primarily intended to appease Kemp. Lott wasn’t going to be the only Republican to tangle with Domenici over Crippen, and according to a source in Lott’s office, Crippen’s appointment — made official on February 3 — was never in jeopardy.
This has supply-siders like Bartlett predicting four more years of the status quo. Crippen, though, may prove a pleasant surprise. He’s no supply-sider, but people who know him say he appreciates supply-side thinking in a way that O’Neill never did. His considerable Washington experience also equips him to cope with the political wrangling that is a huge part of the director’s job. And the current overwhelming Republican support for tax cuts (even Domenici has come around) will ease the first-year headaches that have plagued CBO directors in the past.
With the GOP’s unpopularity reconfirmed by every new poll, the grim joke circulating in Washington is that there are only two sure things in the Republican party these days. One of them is taxes. The other is death. Supply-siders like Cato’s Moore say if the Republicans want to avert the latter, they’d better do something about the former. Now more than ever.
Matthew Rees is a staff writer at THE WEEKLY STANDARD.
