WASHINGTON (UPI) — The economy has been slow to recover from the recession that began in the final months of the Clinton administration. According to some economists the downturn, by most estimates made worse by the affects of the terror attacks of Sept. 11, 2001, may be ending, though not along the lines of a traditional recovery.
The latest forecasts suggest economic growth for the second half of 2003 may be the strongest since 1999.
The gross domestic product — the measure of total output of domestic goods and service and a leading economic indicator — is expected to increase at a seasonally adjusted rate of 4.7 percent during the current quarter and by 4.0 percent in the fourth quarter, according to a survey of 53 leading economists conducted each month by The Wall Street Journal Online.
Some analysts say that much of the increased economic activity is at least in part a result of the tax relief President George W. Bush pushed through Congress.
Politically, it should pay big dividends. The anti-tax increase position embraced by the Republicans has become of a bulwark of their political strength, giving voters a clear choice on a major issue.
Tax cuts are, as a general rule, popular with voters. It is true that support, as measured in survey data, falls when they are positioned against popular programs like education. Likewise, voters usually say they are willing to forego tax relief if the money will be used to pay down government debt.
In most cases, however, the promised spending restraint or debt relief never materializes, as in the case of 1982’s Tax Equity and Fairness Restoration Act. The Congress or state Legislature simply spends the money.
This truth is not lost on the voters who, when given the chance, will reject tax hikes no matter how reasonable they appear to be or how noble the cause they are intended to fund. Virginia voters rejected a 2002 referendum giving local governments the option of raising sales taxes to increase transportation funding. Even though Northern Virginia is a commuter’s daily nightmare, the voters said “no” by a resounding margin.
Last Tuesday, voters in Alabama rejected Gov. Bob Riley’s proposed tax increase-and-restructuring initiative designed to close a one-year $675 million projected spending deficit by raising $4.8 billion in new taxes over the next four years.
The final vote was 866,623 against, 416,310 in favor — a 68-percent-to-32-percent split — spread out across the state, with a majority in 54 of the state’s 67 counties and in most demographics groups voting against it.
As part of the campaign for the tax hike, Riley and his supporters claimed that, without it, there would be insufficient revenue to fund state services. Cuts in healthcare, education, police protection and other critical functions would necessarily follow, a common argument in any effort to persuade voters of the need for a tax increase.
Speaking to a group of state-funded community college employees in Birmingham during his campaign to win approval of the tax hike, Riley warned that its defeat would force the early release of felons from prisons, state police officers would be laid off and the elderly would be kicked out of their nursing homes onto the streets.
In reality, there is still plenty of money. According to Americans for Tax Reform, a political group that opposed Riley on the tax increase, state spending in Alabama increased annually by 6.5 percent from 1994 forward. As a percentage of the state’s total economy, it is 16 percent higher than the national average.
If enacted, the Riley plan would have forced 19 different changes to the state tax code and would have made future tax increases easier and, given the nature of politics, more likely.
In the political equation, tax increases are almost always easier to achieve then spending cuts. This sounds counter-intuitive but it isn’t. A tax increase typically hits everyone. Spending cuts tend to have an impact on specific constituencies, which can be mobilized to fight them or punish the politicians at the polls.
Former House Majority Leader Dick Armey, the Texas Republican who now runs Citizens for A Sound Economy, a non-partisan lobbying group, was one of the leaders in the fight against the Alabama tax hike. He told The Wall Street Journal’s John Fund that Riley was “putting growing government first over growing the economy.”
The loss may prove very costly, politically, to Riley. Among the groups that opposed his effort to raise taxes was the Alabama Republican Party whose chairman, Marty Connors, was a vocal critic of the governor’s proposal.
The groups that helped defeat the proposal, including Grover Norquist’s Americans for Tax Reform and Armey’s CSE, fear other Republican governors may try a similar tactic, pushing ahead with support from labor unions, government employees, teachers and the major media rather than traditional conservative allies. They are nevertheless prepared.
“This is a shot across the bow for next year’s decision-making,” Norquist told ”’The Washington Post”’ after the plan was defeated. “Every Republican governor who thinks of raising taxes next year will walk past Traitor’s Gate and see Bob Riley’s head on a pike. The voters of Alabama have saved taxpayers from California to Maine billions of dollars.”