- Let's start with The Daily Show.
(fanfare)
(audience applauding)
- You're here!
- Good to be with you.
- The evil Grover Norquist.
- Sweetie pie.
- There you go, "Debacle."
So listen, you've come up with the pledge.
Here's where you seem
to have stepped in it.
You came up with this pledge
that you don't want
people to raise taxes ever
and you got a bunch of
Republicans to sign it,
mostly Republicans to sign.
It strikes me as people can come up
with any pledge they want.
The people seem like at fault for this
if you don't feel like
this is a good thing
are the people who sign it.
I can come up with any pledge.
- There have been over time
quite a number of questionnaires
and pledges and things
that somebody says you should
make all these commitments.
The reason why the pledge
has been successful
is that it's simple.
They're not 12 moving parts.
Remember some group in Iowa
had like a 14 part pledge
including how you spent your evenings
and they wanted candidates to sign it.
- That's my group.
The how you spend your evenings pledge.
- They couldn't get a lot of signers.
The pledge is look,
as long as I'm a congressman,
or a senator, or president,
I'm not gonna raise taxes.
When I see a problem,
I'm gonna reform government,
I'm gonna spend less,
I'm not gonna raise taxes
in the pledge ever.
- Now, what about the idea though
that because it's so
simple and so absolutist,
that's it's almost impossible?
Like if I had a pledge that said
America can never go to war.
- Mm-hmm.
- And I got a bunch of people to sign it.
People would think,
well, that's unrealistic.
It's too simplistic
for this complex world.
Do you worry that your pledge?
I mean, Reagan raised taxes, I don't know,
seven times, eight times?
- Yeah, and George Washington
lost the Battle of New York.
That was not on purpose.
I mean, Reagan didn't want to raise taxes.
- Wait, Reagan didn't want to raise taxes?
- No.
- But he did it eight times?
- No.
- He had a congress.
He had a congress
with whom he raised
taxes a number of times.
When I talked to him about it,
he thought the big tax increase
was the '82 tax increase.
- I talked to him about it too, Grover.
You're not the only one who talked to him.
He told me that he did it eight times.
- The '82 tax increase
which was the large one,
he said was the biggest
mistake of his presidency
because, of course,
remember he was promised,
oh, if you raise taxes, we'll
give you $3 of spending cuts.
- But then he kept raising them.
'82, '83, '85.
I have a whole list here.
- Yeah.
- So would you have run
somebody against him?
- No.
The good news is here.
- Why not?
- Well one, he hadn't signed the pledge,
and we didn't have a base of support.
- So that's Grover Norquist
who turns out to be a pivotal
player in the class today.
We're gonna look at the anti-tax movement
and our agenda is gonna
be first to go back
and look at the history of it.
I think it is one of the two
most successful social
movements of the 20th century,
the other being the civil rights movement
in that it completely
transformed the political economy
and the landscape of politics
perhaps irreversibly
we'll see as we go along.
So our agenda is we're gonna go back
and look at the origins
of the anti-tax movement.
Then I'm gonna take a step
back to bringing a little,
again, some of the machinery
of political science
into our conversation
and talk a little bit
about referendum politics
because the origins of
the anti-tax movement
have a great deal to do
with that as we will see.
We'll then look at 1994 as a pivot point
in the anti-tax movement
and in the transformation
of American politics.
We'll then zero in on a case
study of the estate tax.
The estate tax is the most progressive tax
in the US tax code.
It was put there in
1916 to fund World War I
and it was repealed as part
of the Bush tax cut of 2001
which we'll talk about in some detail.
And it was repealled quite remarkably
with significant support from Democrats
in the House and the
Senate despite the fact
that all of it is paid by
the top 2% of income earners
and more than half of it is paid,
at that time, was paid
by the top half of 1%,
people with estates in
excess of 20 million dollars.
And so we'll do something of a whodunit
about how the estate tax was
actually repealed in 2001.
We'll then talk more about tax cuts
and the republican
coalition as it has evolved.
This intersects somewhat with
the lecture I gave a week ago
on the resurgence of conservative
parties across the West,
but it has a distinctive American flavor.
And then we'll end by considering
how far the goal posts
have actually shifted
as a result of this social movement.
But let's go back to the beginning
and the origins of the anti-tax movement
I think really go back to the early 1970s
and particularly after
the Nixon Administration
had collapsed as a result of Watergate,
there was a lot of soul
searching among conservatives.
The democrats had been in
charge of Congress for decades
and there were a number of
so-called activist think tanks
that either emerged or
grew very dramatically,
places like The Heritage Foundation,
the Cato Institute,
the American Enterprise Institute,
people, wealthy individuals
and organizations
put huge amounts of money
into these think tanks
and the idea was not to
come up with a strategy
for winning the next election.
The idea was rather to rethink
the republican agenda for the medium run.
And they put their money into think tanks
quite self-consciously,
people like Feulner and others,
the Coke family.
Their reasoning was
that they really needed
to change the ideological terrain.
So this was three categories
of interests, institutions, and ideas,
and they really felt
that the new deal great society consensus
had to be tackled at the realm
of the ideological justifications for it
out there in the American polity.
And they thought that trying to do this
in the universities was hopeless
because the universities
were massively dominated
by people to the left
of center, by liberals,
and so the thought was a much
more efficient way to do this
would be to do it through think tanks.
And so they invested a lot of money
into these activist think tanks
that would help design what
we're talking about today
and their general revival
of pro-market politics
that we were talking
about last week at home,
and then also the aggressive agenda abroad
that we're gonna be talking about later
when we see what happened after 9/11.
But they were really
concerned with taking head on
the consensus that had
informed the new deal,
the great society for decades.
And there was a lot of research
done in these think tanks
and a lot of activism that
came out of these think tanks.
They were frankly,
if you go to The Heritage
Foundation in Washington, DC,
and you look at the signs on the elevator,
it's very clear what it is
that their agenda is about.
Small government, shrinking
the welfare state,
and fundamentally
strengthening market forces.
So that was one piece of it.
In my book with Michael Graetz
that I have on the syllabus,
we have several chapters
that go through that history.
But then secondly,
the other more specific source
of the anti-tax movement
goes back to Proposition 13 in California.
Many people, this is again,
be taking some people down memory lane
and introducing others to some history
about which they may
not be fully informed.
So let's go back to June
of 1978 in California.
(fanfare)
- Good evening.
Here in California in
the primary tomorrow,
people have the rare and no
doubt pleasing opportunity
to vote their taxes down,
to tell the politicians
that they will pay this much and no more.
Proposition 13, it's called,
and it's an absolute flat ban
on how much property tax
they can charge homeowners.
It is thought to be about
as much a vote against
big, expensive, wasteful government
as it is against the property tax.
And it seems that nobody
loves government anymore.
Here's Don Harris.
- By far the most controversial
of the tax reform measures
is Proposition 13.
Simply put, this amendment would roll back
the assessments on all property
to the 1975, '76 levels.
It will allow assessments to increase
at the rate of only 2% per year
and it would limit property taxes
to 1% of that assessed value.
In terms of taxes paid,
that means the owner of a
$60,000 home in Los Angeles
would find his taxes reduced
from about $1,400 a year
to about $600 a year.
Proposition 13 applies to all property,
businesses as well as homes.
Big companies would
get big tax reductions.
Pacific Telephone, for example,
will receive a tax cut of
about 130 million dollars
if Proposition 13 passes.
- So Proposition 13 promises huge tax cuts
to all California tax payers.
This is a so called ballot initiative
which we think of as
something like a referendum.
You vote only on this question
and the result was indeed, a landslide.
Here is Governor Jerry Brown.
Those of you who are younger here
and remember Governor Jerry Brown,
you don't know perhaps
that he had an earlier tour as governor
when he looked a little different
than the Jerry Brown you might know.
So here he is.
- [Jerry] Over four million
of our fellow citizens
have sent a message to city hall,
to Sacramento, and to all of us.
The message is that the property tax
must be sharply curtailed
and that government
spending, wherever it is,
must be held in check.
We must look forward to
lean and frugal budgets.
It's a great challenge
and we will meet it.
We must do everything possible
to minimize the human hardship
and maximize the total
number of state jobs
created in our economy.
Proposition 13 takes place on July 1st.
We have only three weeks to act,
three weeks to decide
multi-billion dollars of fiscal questions,
to set a new direction for
the 5,000 units of government
throughout our state.
It's time to put aside
partisan differences,
the vote represented
democrats or republicans,
people from the north and the south,
old and young, and all parts
of our wonderful state.
We must follow three basic principles.
No new state taxes.
Voters have told us they want a tax cut.
They don't want a shell gain.
Number two, the state
must share the burden.
We must adopt a
thoughtful, austere budget.
Already, I have imposed a hiring freeze.
There will be no new hiring
and when someone leaves the state service,
he or she will not be replaced.
I will propose budget cuts
of at least 300 million dollars.
I appeal to you to rise above
the partisan temptations
to work together as a body
to fashion a bill that keeps
faith with our fiscal realities
and with the mood
and the philosophy of the
people which we serve.
As for business,
business will reap savings
on the order of three billion dollars.
Many individual businesses
will save tens of millions of dollars.
These people, these corporate presidents,
have a moral obligation to
invest that money in California.
We have a very monumental task.
There is not much time.
The people are waiting for us to act.
- So there it was,
actually the legislature
had tried to head this off
when they saw how
powerful the movement was.
They came up with an
alternative called Proposition 8
which would have cut taxes
somewhat more modestly,
but the victory was overwhelming.
It was a 2/3 vote and Jerry Brown,
although he was a democrat,
felt as you can see,
compelled to go with the result
and so it wasn't challenged in court
or anything like that.
They went forward.
So the entrepreneur for this cause
was actually an Orange County businessman
by the name of Howard Jarvis
whose picture you saw up there.
And just to get a flavor of his worldview,
here was an interview with him
that was done the following day.
- (mumbles) is filled
with moochers and loafers
right up to their ears.
And they have a great idea.
The object of the lot of them
is to get the job and sit there
until they get a paycheck.
And in the meantime, they
don't move in any direction.
And if you think that isn't so,
just go over there this morning
to city council's office
and you walk through 15
city councilmen's office.
You'll see more people
asleep and reading Playboy
than you do in a hotel.
You've got so many consumer
protection agency in this state,
and city, and county,
that they're like a bunch
of rabbits in a field
and they multiply about as fast
and they all go into different directions
and the whole thing, it's a whole flop.
They know about as much
about consumer protection
as I do about swimming.
This is gonna be introduced
pretty soon in Michigan,
Oklahoma, New Hampshire,
Connecticut, Massachusetts,
and Pennsylvania that I know about.
I might say that I get calls from the BBC.
I might say that I got an
invitation to go to Canada.
They want to start it there.
And the thing is, it's
just sweeping the country
and it's beyond my capacity
to really comprehend it
if you want to know the truth about it.
- So there he was
and he encapsulates this idea
that Ronald Reagan would later articulate
that government is the problem
and we have to wage a
frontal assault on it.
And as he intimated with the
invitations he was getting
and the notion
that this was being
picked up in other states,
this was indeed really the starting point
of this anti-tax crusade
that played itself out over
the next several decades
and in which we're still in the midst of.
But I want to take a little step back now
and think a little bit more analytically
about the logic of what
we call these initiatives,
referendums, or voter
initiatives on single issues.
And just to go somewhere
else for a minute,
let's talk a little bit about Brexit
because I think Brexit,
there's a dimension of Brexit
that really encapsulates the
nature of referendum politics.
So here's a paradox about Brexit.
Britain had an election in 2015
and elected two parties to
the House of Parliament,
two of the two major parties.
They were overwhelmingly pro-remain.
2/3 of both the Labor
party elected in 2015
and the Conservative party,
maybe not quite 2/3,
but a very comfortable majority
of the Conservative party
were pro remaining in the European Union.
David Cameron had made this promise
to have a referendum
because he was worried about UKIP,
but nobody really believed
that the referendum was gonna come out
as it ultimately did.
2016, we had this referendum
and the British public votes by 52 to 48
to leave the European Union
and the Brexit process begins.
But here's the more puzzling question.
In 2017, exactly a year
off the referendum,
Britain had another general election
and it elected a parliament
that was actually more pro-remain
than the 2015 parliament.
And not only that, Theresa May,
who by then had replaced David
Cameron as prime minister
who had voted for remain
but was now tasked with negotiating
Britain's departure
from the European Union,
her cabinet of 24 people,
17 of them were pro-remainers.
So how can it be,
how can it be that the British electorate
on one year before this referendum
and one year after this referendum
elect a parliament and a government
that's overwhelmingly pro-remain,
but nonetheless, in the
referendum, they vote to leave.
Any thoughts about that?
Are they schizophrenic?
Anyone got a?
We need the microphone.
I've been seeing the
videos of these lectures
and nobody can hear the
questioners, so yeah.
Yes, sir.
Take the microphone and talk.
- [Male Speaker] They vote
against their own self interest.
- Well, but how does that explain?
I'm not asking
whether it was in their
interest to leave or stay.
Why would they vote one way in 2015,
a different way in 2016,
and a third way in 2017?
Yeah?
- [Male Speaker] I think when
you look at a referendum--
- Take the microphone, yeah.
- [Male Speaker] When we're
looking at a referendum,
it's always a single issue.
It's easier to vote in a single issue
and not look at the total
ramifications of that decision,
whereas in an electoral campaign,
there are tons of issues that
are affecting one another
and that are on the ballot.
Whereas here, I also compare
to what happened in Quebec
with the sovereignty issue.
It's much easier to put on
an easy one liner question
and not think of the
ramifications of that decision.
- Why is it easier?
- [Male Speaker] Because you're only
taking into account facts
that are directly linked
to that one question
and you're not taking into account
the possible larger consequences
of the yes or the no answer.
- Okay, I think you've nailed it.
So that's exactly what goes on
in that when you think
about what parties do
when they're putting together platforms,
they have to bundle lots of issues, right?
And they have to bundle them in ways
that will try and appeal
to a broad swath of voters.
And so in doing that,
they will discount everything they propose
by everything else they propose
to try and create
what they think is the
best overall bundle.
If you're only voting on one issue,
you don't have to do
that discounting, right?
So just to give another example
which I think will help us get
back to the tax issue today.
If you ask American voters in any poll
would you like to get rid of a tax?
2/3 will say yes.
Even the estate tax
that almost nobody pays.
At least 2/3 will say yes.
But if you say,
and some of the subsequent polling
on the estate tax confirms this,
would you like to get
rid of the estate tax
if doing that also meant getting rid
of prescription drug
benefits for senior citizens?
Then they say no.
Why?
Because in the second case,
they're discounting their
preference for a tax cut
by their preference
for losing prescription drug
benefits for seniors, right?
And so what referendums with
single issue politics does
is it enables people to vote on questions
without doing that discounting.
So it's a little bit like having a child
eat as much candy as they want
without thinking about the stomach aches
and the doctors bills coming later.
So referendum politics,
single issue voting,
it sounds terrifically democratic,
let the people decide every issue,
but in fact,
it's an invitation to people
to engage in choosing things
without considering the costs.
So in the case of California,
there would be downstream
costs on local government.
That actually when we talk about next time
there were gonna be downstream costs
on the California school
systems and so on.
Now, you might say, well, the activists,
people like Jarvis don't care about that
because their idea is starve
the beast, starve the beast,
but most of the people who are voting
are instead thinking
about one issue at a time.
This is what I mentioned
Kahneman and Tvwersky
in connection with loss
aversion last time.
Another one of their great contributions
is the idea of framing effects,
that how you frame an issue
has a lot to do with what
people will say about it.
So if you frame an issue saying
would you like a tax cut?
Should we get rid of the estate tax?
Should we get rid of the death tax?
And everybody says,
69% say yes.
You can go and say 69%
of the American people
want to get rid of the death tax.
But if you ask a question with
prescription drug benefits,
then a majority says no.
So what public opinion actually is,
it's not that clear, right?
It depends how you frame the choices.
It depends how you frame the issue.
And so when you turn tax cutting
into single issue politics,
you're gonna be able to pick
up the ball and run with it
in a way that the anti-tax
movement subsequently did.
And as you saw in the Norquist interview,
this would become the test
for republican politicians
that he created this group
called Americans For Tax Reform
that we're gonna hear more
about in a few minutes
that became enormously
powerful in Washington
and had meetings every Wednesday morning
and everyone who was anyone
in the lobbying world in Washington
had to go to those meetings.
And among the things that he did
was create this pledge
that he was,
you could see him ambivalent
about not wanting to be seen
to criticize Ronald
Reagan on The Daily Show,
but in the years subsequent to Reagan,
it became non-negotiable
for republicans to support tax cuts.
And so you can see here.
- And I'm the one who
will not raise taxes.
My opponent now says he'll
raise them as a last resort
or a third resort,
but when a politician talks like that,
you know that's one resort
he'll be checking into.
(audience applauding)
My opponent,
my opponent won't rule out raising taxes.
But I will and the congress
will push me to raise taxes
and I'll say no.
And they'll push and I'll say no.
And they'll push again
and I'll say to them,
"Read my lips, no new taxes."
(audience applauding)
- And that became the instrument
of his undoing in 1991
when off the Gulf War,
he was at the 99% popularity rating.
The country was in a pretty
significant fiscal crisis
and he did indeed raise taxes.
And that caused the anti-tax
movement to turn on him
led by Newt Gingrich who was at that time,
the leader of the republican
minority in congress.
But it was Gingrich on
this anti-tax platform
who was to orchestrate
the republican take over
of the House of Representatives in 1994.
And Gingrich declared open war
on George Herbert Walker Bush
as a traitor to the anti-tax cause
and is widely believed by consultants
to have been a major factor
in his defeat by Bill Clinton in 1992,
that he was so badly damaged.
And Gingrich who would then
become the house speaker
had something called a
contract with America
which was essentially the manifesto
of the anti new deal coalition on taxes.
It was going to require 2/3 votes
in both houses to raise taxes.
Every republican was now required
to sign the anti-tax pledge,
pledging that you wouldn't raise taxes.
And it really was quite stunning
when you think about the
sweep of American history
that from 1932 until 1994,
congress had been controlled by,
the house had been controlled by democrats
for all but four of those 62 years,
58 years,
and the senate had been
controlled by democrats
for all but 10 of those 62 years.
So the democrats believed they were
the natural party of government
and seemed to be the
natural party of government.
You see the presidents
are in the middle there.
So you can see from time to time,
there were republican presidents,
but they basically had to govern
with democratic congresses.
Now, if you look at what 1994 ushers in,
it's a completely different world.
The republicans control the
house for much of that time,
all but six years from then until now
and they control the senate also
for the bulk of the time.
So this really is,
1994 is a pivot point.
It is a sea change.
And the glue that held
this crusade together
was the anti-tax movement.
And I want to now zero in
on the repeal of the estate tax
because as I said at the beginning,
this is a tax that almost nobody paid.
It was the most
progressive tax in the code
and yet it was repealed with
substantial bipartisan support.
So here's candidate Bush
running for election
and listen to him on the estate tax.
- I will use this moment of opportunity
to bring common sense and
fairness to the tax code
and I will act on principle,
on principle,
every family, every farmer
and small business person
should be free to pass on
their life's work to those they love,
so we will abolish the death tax.
(audience applauding)
- And interestingly,
when you interview the
people who ran that campaign,
they said they were actually surprised
that he got these vast applause lines
for saying he'll abolish the death tax.
Now, calling it the death tax,
that was one of Frank
Luntz's ideas actually.
It's sometimes attributed to Norquist,
but the truth is calling it the death tax
increases the support from mid 60's
to around 70% saying yes, get rid of it.
It's not that big of a difference,
but obviously,
they decided that it
had a certain ring to it
and that why should you
stop off at the tax man
on the way to the undertaker?
And much of the argument
was arguments about small businesses,
the vast majority of which
didn't pay estate taxes.
We'll come back to that.
And then there were other arguments made
like it's double taxation.
People have already earned the money
and paid taxes on it.
Why should they pay taxes on it again?
But of course, the tax
code is filled with double,
triple, quadruple, and quintuple taxation.
Sales taxes are taxes on,
you're paying taxes again on money
that you paid taxes on before.
So no more double taxation
than many other taxes in the code,
but they were surprised
at how much resonance this got.
Indeed, if you look at the
contract form with America,
at that time, the threshold below which
you didn't have to pay
estate taxes was $675,000.
And all they proposed was
putting it up a little bit,
putting the threshold up a little bit.
They didn't think that they
could really get rid of this tax
because they thought
how would you get the coalition to do it?
Nonetheless, in June of 2001,
George W. Bush signed the Economic Growth
and Tax Relief Reconciliation Act.
I'm gonna talk a little bit
about why it was called
reconciliation in a little while.
And it was one of the principle
components of that act
that it was gonna get
rid of the estate tax.
And just to give a sense
of proportionality here,
this was a bill that was gonna
cost 1.3 trillion dollars
over the next decade in
terms of lost revenues.
And as you can see,
the bulk of it came
from almost half of a billion
dollars of income taxes,
but then the other major pieces
were a big increase in child tax credits
and the estate tax
and getting rid of the
so-called marriage penalty.
So it's gonna cost the federal government.
It's not chump change in 2001 dollars.
It was gonna cost the federal government
138 billion dollars over 10
years to repeal this tax.
And a couple of other things
worth pointing out about the repeal.
In the American system,
in order to pass a bill in the senate,
you need 60 votes
because the minority can filibuster
with 100 senators
but the minority can filibuster a bill
and you can only end a
filibuster if you have 60 votes.
And the republicans didn't
have 60 votes in the senate.
And although they had some democrats
who were willing to support this,
in the end,
they had eight senate democrats
ended up supporting this,
they didn't have 60 votes
and they knew they weren't
gonna have 60 votes.
And so the way that you got around this,
this is why it was called
the word reconciliation
appears in the title,
was the so-called procedure
of budget reconciliation
which President Trump used again in 2017
to get his tax bill through.
And the good news about reconciliation
if you're trying to pass a bill
is you only need a majority.
So you only need 50 votes
because the vice president
breaks ties in the senate.
So you get 50 votes,
you've got 51 out of 100.
That's the good news.
The bad news is that if you do something
through the budget reconciliation process,
it has to balance over a 10 year period.
And so the problem was how
to do a massive tax cut
and have the budget balance over 10 years.
And in those days,
the congressional budget office
that scores this legislation,
it was as it still is,
it's manned by career professionals
who use their own methods
for scoring bills.
And there was a big fight
which has since been lost by the CBO
as to whether or not to use
so-called dynamic scoring of bills.
So dynamic scoring of bills
is informed by the idea,
well, what effect will these
tax cuts have on the economy?
Because it's a standard
belief among republicans
that if you cut taxes,
you'll get more growth,
you'll get more revenue,
and so there will be a dynamic effect.
And these theories are
always controversial
and we'll see the predictions of the 2017,
the dynamic predictions
behind the 2017 act
have gone the way of
other dynamic predictions.
But in any event, the
CBO refused to do this.
They refused to do at
that time dynamic scoring.
This is now changed.
It tells you something
about how far the goal posts have shifted.
CBO will do dynamic scoring of bills.
So the numbers,
you couldn't do fuzzy math
as George W. Bush used to call it.
The CBO did the math
and it had to balance.
And so the way they got around this
as you can see from here
is that they phased it in.
So they phased it in over 10 years
and so what they did
was they gradually raised the exemption.
As I said, it had been $675,000
to a million dollars in 2002.
You have to double all these
numbers for a married couple,
so two million for a married couple.
And they gradually increased the exemption
to 2009 to 3,500.
They had to repeal.
They repealed the bill,
the tax completely in 2010,
and then worse if it was not extended,
it was gonna come back in 2011
as it would have gone back to 675,000.
So some people call this bill
the push granny off the bus in 2010 bill
because if you died in 2010
as George Steinbrenner
who was the owner of the New York Yankees
had the good fortune to die in 2010,
or his children had the good
fortune that he died in 2010.
There was no estate tax.
But if you died in 2011,
there was gonna be an estate tax again
at a 56% rate with a $675,000 threshold.
So you don't have to worry
about the rest of it,
but so you can see they gradually
brought the tax rate down
but it would have gone back up.
So it's a kind of bizarre
piece of legislation
because nevermind throwing
granny off the bus,
people don't know when they're gonna die
so how do you prepare?
How do you do tax planning?
Should you be buying insurance
with respect to covering
what you may or may not have
to pay out of your estate?
So they were basically banking on the idea
that these tax cuts would be extended.
And by the way, this was true.
The whole bill.
I'm just focusing now on
the estate tax piece of it,
but the whole bill would
have to be extended
because if it had been
(mumbles) by reconciliation.
So essentially, it was a tax cut
with a sunset clause
where the default of doing nothing
would be to repeal the cuts
in 10 years down the road.
In politics, one year is 1,000 lifetimes.
10 years, who knows what's gonna
be going on 10 years later?
So that was the estate tax repeal
and they felt they had
to get a full repeal
because that was part
of their rallying cry.
Get rid of the death tax
even if it was only guaranteed
initially for the year 2010.
So how was it done?
As I said, almost nobody paid this tax.
How did they put together
a coalition to do it?
And it had to be a diverse coalition.
So let's just listen again
to our friend Grover.
- [Grover] When Reagan came to Washington,
he was almost the only Reaganite in town.
When George W. Bush came in,
there was a town full of Reaganites
at the airport greeting him.
And when he says, "I
think we oughta do X,"
there are institutions and newsletters,
and magazines, and think tanks,
and whole trade associations that go,
"Boy, yes," and we have that written up.
- [Host] The people at Grover Norquist's
Wednesday meetings all
have different interests,
but the glue that holds this
coalition together is tax cuts.
Norquist has been toiling away
for tax cuts for a long time.
He invented the no new taxes pledge
that's now considered
a political requirement
for candidates in many
parts of the country.
He helped mastermind Newt
Gingrich's contract with America
and he helped popularize
the republican's new
name for the estate tax,
the death tax.
- [Stephen] When you think
about Grover's influence
on the conservative movement,
you would really have to say
that Grover Norquist is the
Ralph Nader of the right.
- [Host] Stephen Moore is the President
of the Club for Growth
which supports conservative
republican candidates
in primary challenges
against other republicans
it considers too moderate.
- [Stephen] Right often fails
because we tend to find ourselves
in circular firing squads.
And what Grover says quite
correctly is look folks,
at least if we're gonna be
in a circular firing squad,
let's put Dick Gephardt in the middle.
And that's the kind of
tactician that he is.
- [Grover] One of the signs
of maturity on the right
is that you don't ask a
president to win votes
that's not there.
My job is to get the death
tax ready for repeal,
to have the votes in the
house and senate for repeal,
and to make the world safe
for a president to cheerfully sign it
so that he's proud and happy to sign it.
It's a political winner
for him to sign it.
The central question in American politics
is the size of government.
It's gonna get bigger or smaller.
Of the resources that you
and your family put together,
more of it go to the state
or more of it stay with you.
- [Host] When the tax cut is enacted,
Grover Norquist says,
there will be much less money
available to the government,
fewer resources that the state can use
to bother the members
of what Norquist calls
the leave us alone coalition.
Grover Norquist's long term
goal is simple and very radical.
He wants to cut the size
of government in half
over the next 25 years.
That's a serious and
reasonable goal, he says,
and one he's willing to advance
with as blunt a metaphor as possible.
- [Grover] I don't want
to abolish government.
I simply want to reduce it to the size
where I could drag it into the bathroom
and drown it in the bathtub.
- Shrink government to the size
where you can drown it in the bathtub,
and this became a famous phrase of his.
So he saw it as his job to
work with the groups outside
and put together the coalition to do this.
And one of the things you can
do with single issue politics
is you can get all kinds of people
who wouldn't agree on anything else,
but will agree on this.
And so this is what was done
to create the coalition
to get rid of the estate tax.
Just to talk about a few people
who were important players.
This is Frank Blethen,
the owner of The Seattle Times,
a political liberal,
and he poured a huge amount of effort
and energy into this campaign
to get rid of the estate tax.
Why?
Because he saw that the
family owned newspapers
were being gobbled up by the
big corporate conglomerates,
Gannett, and so forth.
And he thought that if
family owned newspapers
couldn't be passed on
to his next generation,
it was gonna accelerate this process
of getting rid of family owned newspapers.
Bob Johnson, founder of Black
Entertainment Television.
He was on the liberal democrat.
Gave a lot of money to liberal democrats
and interestingly when
the momentum was building
to repeal the estate tax,
Bill Gates and a few other millionaires
published a letter in The New York Times
and The Wall Street Journal
and The Washington Post
saying, "No, we should
keep the estate tax."
And they had about 20 or
30 wealthy individuals
who signed up for this.
And Johnson was so angry
that he ran a counter ad
and he got a counter ad
calling for the repeal of the estate tax.
And I went and interviewed him about that
and I said, "Why did you do that?"
And he said, "Well, doesn't matter to me.
"I'm gonna be dead,
"but for the first time
in American history,
"we have African American millionaires
"and some African American billionaires.
"If they have to sell their businesses
"to pay the estate tax,
"do you think that money
"is gonna be reinvested
in the Black community?
"I don't."
Then he said, you know,
if you could exempt African Americans
from paying the tax for 50 years,
I might think differently,
but when we finally get some
wealthy African Americans,
this is the time when we're
gonna get rid of the estate tax?
I don't think so.
And then he said, "And besides,
"Gates didn't call me.
"He didn't call Oprah.
"Who does he think he is?"
So part of it was personal.
But basically, he had a
story that he told himself
about why this was actually
bad for African Americans.
Congressman Albert Wynn,
one of the strange things about this
was the White House,
not the White House,
the democratic leadership on the hill
were stunned that the
Congressional Black Caucus
came out in favor of getting
rid of the estate tax.
And when I interviewed Albert Wynn
about why did you get,
he was Maryland's fourth district,
somewhat centrist,
but certainly not a conservative democrat.
Why did you support it?
He said, "Well, we have lots
of small business in Maryland.
"My district has got
the 10th largest number
"of small businesses in America
"and I was getting a lot of pressure
"from small business
constituents to support this."
He didn't see any cost.
And I think the interview with him
was very revealing on
this point about bundling
because what the coalition
to get this done would do
is they would run all of
these single issue polls,
getting polls to get people to say
they want to repeal the death tax,
and then they would go into
congress congressional offices
and say to the congressmen,
or the congresswomen, or the senator,
"Look, this huge support for this.
"You're not gonna lose
your seat over this.
"This is not a voting issue
"for most people in a general election,
"so it's a free vote.
"It's a free vote to vote for it,
"but it might not be a free
vote to vote against it
"because if you vote against it,
"we could make your life difficult."
So for instance, Senator
Blanche Lincoln of Arkansas,
a centrist democrat,
she voted for this repeal
and you interview her staff basically.
They said she hated this,
but here it is, it's a
free vote if you do it.
If you don't, who lives in Arkansas?
Well, the Walton family
live in Arkansas of Walmart.
And the Walton family can
make any sitting senator
from Arkansas' life very
difficult if they want to.
And so why infuriate one of the most,
the wealthiest,
probably the wealthiest
family in your state
over a vote that's not gonna
cost you anything electorally
if you go the other way.
So a lot of these people
felt that sort of pressure
on the one side
and didn't see any cost on the other.
Neil Abercrombie,
the only congressman
from Hawaii at that time.
He's since been a three term governor.
A liberal democrat, he supported it.
A great puzzle to me.
A very, very liberal democrat he was,
at least at that time.
When I went to interview him,
I got a big part of the answer
which was that his office
was right next door to the office
of the principle supporter of the bill
and her name was Jennifer Dunn,
a very smart republican
congresswoman also from the west
and since deceased,
but her office was next door to his
and she went to work on him
and found out what he
needed in his district.
And so it did things for
him and it was personal.
He didn't see why he
shouldn't support her.
Again, there was not gonna
be any electoral cost.
So there were these kind of people
and then there were arguments like
we didn't have gay marriage
at that time, as you know.
This is 2001.
And so gay groups came out
in support of the repeal
on the grounds
that the estate tax
discriminates against gay people
because if you're a
heterosexual married couple,
you could double the exemption,
but gay people couldn't
double the exemption.
So that's unfair to gay people.
So gay groups came out in support of it.
So it's a very cleverly
orchestrated coalition
of very strange bedfellows
that nonetheless could be
brought either to support this
or not to oppose it.
And then when you think
about the opposition,
the opposition to this bill.
First of all,
one thing to say about it is
that they really didn't take it seriously
until it was a long way toward happening.
They didn't take it seriously
because they thought it would
be electorally unpopular
and the republicans had been
voting this up in the house
in the last years of the
Clinton Administration
and the senate
and there was always the security
that President Clinton would
veto it anyway if it passed,
but they didn't take it that
seriously until it was done.
But where was the opposition?
Where was organized labor?
Well, we know from the last lecture,
organized labor by this point
is so far back on its heels
that they don't really
care about tax issues.
I interviewed the lobbyist
for the AFL-CIO in Washington
and basically what he said was,
"We have four lobbyists in Washington now.
"One of them spends a quarter of his time
"on all tax issues."
He couldn't even remember
what had been at stake.
So it's a kind of thing that
three or four decades earlier,
organized labor would have
been very active against,
but they were much more involved
in other issues at this time
like getting the NLRB to be more friendly
to card check and systems of organizing
that might help reverse their decline.
This just was not an issue for them.
Non-profit groups,
non-profit groups,
Yale gets hundreds of
millions of dollars every year
partly because people want
to avoid estate taxes.
They don't want to give
it to the government,
so they give it to Yale.
But the difficulty is it's
very difficult to say,
well, we should have a tax
so that you'll have an
incentive to avoid the tax
in order to give it to us.
It's not an easy argument to make.
Insurance industry.
There were at least four
big insurance companies
that stood to lose a huge amount from this
because there are people who buy
tax planning insurance from them.
I interviewed one of their lobbyists
and they said, "Well,
"we're a very republican industry.
"It's very difficult for
us to oppose any tax cut,
"and besides, we knew President
Clinton would veto this."
And I said, "Well, but there
was an election coming up,"
and they said, "Well, we
thought Gore would win."
And I said, "And you sell insurance?"
(audience laughing)
So the insurance industry
was largely mute.
And then what about liberal democrats?
At best, they were split.
So you had this campaign which
was extremely well organized,
well resourced.
It was funded by a tax planner
called Patricia Saldarno.
She was a tax planner
who worked for very wealthy individuals
and she came to Washington once a month
and spent a week meeting
with the coalition groups.
It had very smart strategy and leadership.
And particularly in managing
conflicts within the coalition
because there were conflicts of interest.
You can tell that there
must have been conflicts
from the divided dollar game
that we have talked about already.
For example, the rates
versus the threshold.
Huge conflict because if
you're a small business,
you're gonna have an estate worth seven
or eight million dollars,
whether the threshold
is two million dollars
or four million dollars is huge, right,
because if you're married,
the four million dollar threshold
is gonna be eight million dollars.
You might not pay anything at all.
So for small businesses,
it's all about the threshold.
If you're a billionaire,
whether the threshold is two million
or four million is chump change.
What matters to you is the rate, right?
If it's 56% or 40%,
there's hundreds of millions
of dollars at stake for you,
right?
So there are plenty of sources
of potential conflict
within the coalition.
Another one is farmers
versus small businesses.
So they needed the small businesses
to get it through the house
and they needed to farmers
to get it through the senate
because the senate,
farm states are massively
overrepresented in the senate.
And of course, when the
democrats finally realized,
when the democrats finally
realized that this was serious,
they tried to split the coalition.
They tried to do exactly what you would do
if you understand the divided dollar game.
They came and offered the farmers
an immediate permanent exemption
which is better than they
were gonna get in the bill
'cause the bill,
we saw there's a phase in
and then it sunsets in 2010
and who knows what's gonna
be the case after that?
So the democrats offered
the farmers a better deal.
You have a permanent
exemption from the estate tax.
Now, they were trying to
split them off the coalition
and some of the most difficult meetings
of the coalition were over
these sorts of fights.
I interviewed a number of
the members of this coalition
and they gave two answers
as to how they held it together
and it was very interesting.
One was they said,
I must have interviewed
maybe 15 or 20 people
who had been in this coalition
over a period of three or four months.
And so at least five or six of them said,
well, there were all these possibilities,
but we realized that
if we got off the idea
of total repeal for at least one year,
total repeal,
which would then generate all the math
to squash in the rates
and the thresholds to get to total repeal
within the 10 year window
and meet the budget reconciliation target,
if we got off the idea of total repeal,
we wouldn't know what we could agree on.
We knew we wouldn't be able
to agree on anything else.
And so it was as if they intuited
the logic of the divided dollar game
and that total repeal,
we can all get behind.
We can rally it.
We've gotta repeal the death tax.
We've gotta repeal the death tax.
Once we get into other kinds
of formulations of the problem,
they sensed the whole
thing would fall apart.
So the rallying cry of total
repeal was hugely important.
But it wasn't just that,
but it was also that they had
a kind of moral narrative.
So we're now in the realm of ideas,
ideologies, right?
Not just interests, ideologies.
They had this idea
that this is a morally repugnant tax.
You're taxing people for dying
and they've been taxed
before and it's wrong.
And multiple people I interviewed
including I interviewed
some of these farmers
who were in the coalition.
I said here, you were actually
being offered a better deal,
a predictable immediate
exemption from the estate tax,
permanent.
Why wouldn't you take it?
And they said things
like this is a crusade.
This is a moral cause.
How could I look at myself in the mirror
and know I had been bought off?
How could I tell my children
that I had sold out on this movement
because we had been offered a better deal?
And so there was this moral narrative
that they used as a kind
of way of heading off
the splintering potential
of divide a dollar.
And this narrative, by the way,
was not just used in the coalition.
They used it in congress.
They brought people to testify
with horrific stories about how
a family that had died
and had had to pay the estate
tax had had to sell things.
And they brought famously
a tree farmer from Mississippi
called Chester Thigpen to testify
before the House Ways and Means Committee.
And Chester, you can
read his testimony there.
He says, "It took us half a century,
"but Rosett and I have
managed to turn our land
"into a working tree farm
"that has been a source of pride
"and income for my entire family.
"Our tree farm made it possible
"to put our five children through college.
"It made us possible to leave a legacy
"that makes me very proud
"because forests and ponds
"that can live on for many, many years
"after my wife and I pass on.
"We also want to leave the
tree farm in our family.
"Right now, people tell me my tree farm
"could be worth more
than a million dollars.
"All that value's tied
up in land or trees.
"We're not rich people.
"My son and I do almost all
the work on our land ourselves,
"but my children might have
to break up the tree farm
"or sell off timber to pay
the estate taxes when I die."
He actually, he died the next year
and he didn't owe any estate tax,
but Chester Thigpen, there
was Chester, you know?
And so this was the
moral face of the repeal
and the ideas were important
in sustaining this coalition
as I said of heading off
the impulse to break it.
So let's just now zoom out a little bit
and talk about tax cuts and
the republican coalition
and why this social movement
as I'm saying is so important.
And it's one of the recurring phrases
you hear from consultants
and academics alike
is that tax cuts are the one issue
that unites the entire republican party.
And if you think about this,
I'm gonna just put a little flesh on this.
I said that when we think
about the median voter
and so forth,
one reason why people don't vote
as the median voter says they should
could be that there's a
second dimension like race,
right?
Remember when I put the,
I had the second dimension up.
So the tax cutting,
it might seem not to be about money,
but listen to Lee Atwater
on this topic of tax cuts.
Lee Atwater was a republican strategist
who worked in the Reagan White House.
(static buzzing)
- [Lee] Here's how I
would approach that issue
as a statistician for political science,
or no, as a psychologist, which I'm not,
is how abstract you handle the race thing.
In other words, you start out
and now y'all are gonna quote me on this.
All right, I won't do it.
You start out in 1954,
by saying, "Nigger, nigger, nigger."
By 1968, you can't say nigger.
That hurts you.
It backfires, so you say
stuff like forced busing,
state's rights and all that stuff.
And you're getting so abstract now,
you're talking about cutting taxes
and all of these things
you're talking about
are totally economic things.
And the byproduct driving the media
is blacks get hurt worse than whites.
And subconsciously,
maybe that is part of it.
I'm not saying that,
but I'm saying that if it
is getting that abstract
and that coded
that we're doing away
with the racial problem
one way for the other.
You following me?
'Cause obviously sitting around
saying we want to cut taxes,
we want to cut this,
is much more abstract
than even the busing thing
and a hell of a lot more
abstract than nigger, nigger,
you know?
So any way you look at it,
race is coming on the back burner.
- So that's a pretty candid
admission of the proposition
which the Edsel and Edsel
book on the syllabus
which became actually a
kind of almost a manifesto
for the 1992 Clinton
campaign makes explicitly,
namely that the tax cutting agenda
is linked to the racial agenda
because the notion that's pushed
as in Ronald Reagan's
welfare queens speech,
the notion that is pushed
is that most of this money is
spent on the undeserving poor
and probably undeserving
poor who are not white.
And we'll come back to this later
when we talk about the kind of resentment
that people like (mumbles)
found in Louisiana
when she spent a lot of time
with poor white voters there.
So the tax cutting agenda
is not an alternative to
the southern strategy,
but actually becomes an expression of it.
And then the second thing
about the tax cutting agenda
is that it heads off
the divide a dollar game
by giving something to everybody.
So what's interesting about the
Bush tax cut as you can see,
you can look through these at your leisure
when I post the slides,
but the take away point is
that everybody got a tax cut.
Every rate was cut.
So that is quite remarkable.
It's a way of saying
we don't have to worry
about who's gonna split the coalition.
Everybody's getting a tax cut, right?
When you framed the issue that way,
it tends to take the
divided dollar problem away.
So how far have the goal posts shifted?
Well, in 2010,
President Obama was now president
and the country was still in recession
after the financial crisis
and the democrats controlled
the whole of congress at that time,
but it was very, very broad consensus
that if you put in a tax increase
in the middle of this recession,
it was gonna be bad.
So they extended the tax
cuts for two years to 2012,
by which time, of course,
the democrats had lost the midterms
and so there was republican
control of Capitol Hill
and there was a long negotiation,
the result of which,
basically you can see that it turns out
to being a pretty good
bet way back in 2001
because the bill that Obama signed in 2012
kept 82% of the Bush tax cuts
that they're now permanent.
And if you dig into the legislation,
all of the income tax cut rates
were kept except that
the incomes above 400,000
go back up to the 39.6% rate
that had prevailed before 2001.
So the vast majority of
the Bush tax cuts were kept
and if you look at the estate tax,
you can see that here
in 2010, it's repealed.
In 2011 and '12,
it's put back at around five million.
And then in the new legislation,
it increases rapidly.
So now, in other words, today,
the exemption is 22.8
million for a married couple
and their rate is a 40% rate
as opposed to 55% rate
which they got rid of in the 2001 bill.
So it turned out not
to have been a bad bet
to do this wonky legislation
through the budget reconciliation process.
We might end by asking
how effective has it been
with respect to Grover Norquist's agenda
of shrinking the size of government.
The answer is not very.
If you measure government
by the number of employees,
it looks like federal
employees have remained flat.
They've actually fallen some,
but that's misleading for two reasons.
One is that if you look at
state and local government,
there's been a lot of
devolution of government
to stay at the local levels.
By employees, the government has grown.
Not only that.
As we will be talking
about in the next lecture,
a lot of what used to be
done by the government
has now been privatized and contracted out
and doesn't show up as federal workers.
But if you look at federal
spending per capita,
you can see comparing receipts to spending
that the tax cuts have not
starved the beast in any form
that has led to a shrinking
of government spending.
Here, you can look at government spending.
That's from 1969 to 2029,
not 1069,
but you can see that
what you're seeing here
is the trillion dollar deficits
that are projected by the
CBO for the next year.
So what's happening is
the republican's context,
they're continuing to increase spending
because that's what their
constituents want them to do
and that's the cost of unbundling.
These pictures,
you can look at at your
leisure as I post them,
but they basically tell the same story
that whether you look at deficits or debt,
there's a secular increases now going on
and it's not partisan.
So you can see here
and in the Reagan years,
the deficits go up,
and in the Clinton years, they come down.
In the Bush years,
this is the Iraq War and
so forth, they go up.
And then this is the financial crisis.
They've been coming down
since the financial crisis,
but now, Trump's agenda
is driving them back up.
These is just either
pictures of the same thing
with some details.
that you can peruse at your leisure.
And again, here you can see
there's no partisan story.
If you take the long look
over American history
since World War II
which was a very high
point of public debt,
it came down under democratic control
and then it's bounced around
and it's now going up substantially
under republican control.
And it's not just that
republicans spend money on guns
and democrats spend money on butter.
If you look at Medicare Part
D which is prescription drugs,
when republicans controlled
all three branches of government in 2003,
they put in Medicare Part D
and it's a program which
had not cost as much
as the CBO projected at the time,
but it's now costing a billion
to a 100 billion dollars a year
and will cost therefore a
trillion over the next 10,
over the next decade.
And as for the Trump
tax cut, as you can see,
Steve Mnuchin predicted it would
reduce the deficit by a trillion dollars,
when in fact because of growth,
it had a they reckon about a 0.07% effect
on growth for a year
and now it's gonna add
1.9 trillion dollars
to the deficit over the next decade.
And much of that in the red on the slides
which again you can see
is basically Trump's
additional new spending
which is approaching half a
trillion dollars per year.
So the idea
that cutting off the supply
of money to the government
would be a way of shrinking
government has not played out
even though it's politically so potent.
Instead, we've moved from a world
of funding government through taxes
to funding government through debt
that will be paid by people
who have yet to be born
but they don't vote now.
Okay, next we will start talking
about privatizing
government on next Tuesday.
(calm electronic music)
