David Frum

11.27.12

How Will the GOP Respond to Economic Growth, Ctd?

In a Monday column, I asked: what happens to the GOP message if economic growth accelerates in the Obama second term?

At the AEI blog, James Pethokoukis offers an answer.

So message #1 would be “We can do a lot better” with specific pro-growth ideas from taxes to immigration to basic research. A focus on competitiveness and productivity with a goal of returning to 3-4% growth.

Message #2 would be “We care about middle-class families” with pro-parent policy tilt. One example: A great expanded child credit. And a specific healthcare reform plan would be helpful.

As prediction, yes, Pethokoukis' answer is probably accurate. That is likely what the GOP will do. The question is, will it suffice? Yes, Republicans will argue that lower taxes would have meant faster growth. But will anybody believe it?

After 2013, Democrats will be able to tell the following story:

"The Bush tax cuts were in place from 2002 through 2012, ten years. In the first half of the decade, we experienced the weakest economic expansion since the war. In the second half of the decade, we suffered the worst economic crisis since the Great Depression.

"Then the tax cuts expired. And since 2013, we've seen accelerating economic growth and rapidly decreasing unemployment.

"Tax cuts didn't help. Tax increases didn't hurt."

Republicans will need a better answer to that claim than the pure assertion that tax cuts will lead to 4% growth. Looking back through the IMF charts, I see that US growth exceeded 4% in nine of the past 30 years.

2000
1999
1998
1997
1994
1988
1985
1984
1983

In every one of those years except 1988, the top marginal rate of income tax exceeded the present 35%.

Meanwhile, the years of lowest marginal tax rates are the five years from 1988 through 1993, and the ten years since 2002. Over those 15 years, growth averaged less than 2%.

I agree with Jim that taxes matter. I too would like to hold the top rate of tax at the present 35%, if possible. But it's not credible to treat tax rates as the only - or even the most important - policy lever.