Fiscal conservatism
Fiscal conservatism is a political phrase term used in the United States to attack government spending and advocate instead lower spending and a lower federal debt; it may also include higher taxes in order to lower the debt. Both Republicans and Democrats are advocates, and in the last decade the Democrats have been more active supporters of fiscal conservatism (as the Bush budgets and deficits grow). There is a strong moral tone to the argument, with the underlying assumptions that high spending, high national debt, and high spending is dangerous or even immoral.
Fiscal conservatism in the United States
A major cause of the American Revolution was "No Taxation without Representation." The Americans insisted that their historic rights as Britons entitled them to a voice in setting tax policies, which Britain denied. The issue was not the tax itself or its size, but approval by elected representatives. The Continental Congress borrowed heavily and did not practice fiscal conservatism.
Early United States
The Democratic-Republican Party of Thomas Jefferson supported a weak central government and a low-tax approach than that of Hamilton's rival party, the Federalists. They opposed Hamilton's plan to pay off the debts owed by the states for the expense of the American Revolution, because some of the debt was held by financiers and speculators (who did not deserve payment) rather than the original holders. Hamilton passed his legislation and set up taxes to pay the debts. Jefferson in particular strongly opposed having any national debt although he relented when the opportunity came in 1803 of purchasing Louisiana.
James Madison, James Monroe, John Quincy Adams were elected as Republicans, but after the fiscal disasters of the War of 1812, they came to support most of the Federalist position, realizing the nation needed a central bank and a steady income flow from tariffs.
Republican Era
In 1854 a new fiscal liberal political party emerged, the Republican Party, which borrowed heavily to finance the Civil War, raised taxes and tariffs, and promoted heavy spending in aid to railroads, colleges, farmers, and schools. The Democrats demanded fiscal conservatism, as represented by Grover Cleveland and his cadre of Bourbon Democrats.
Early 20th century
During the 1920s, President Calvin Coolidge and his Treasury Secretary Andrew Mellon cut taxes and spending, and reduced the national debt. Their pro-business economic policy were credited for the successful period of economic growth known as the "Roaring Twenties." After the great crash of 1929, however, Coolidge's successor Herbert Hoover took the blame. Hoover increased spending and increased taxes, but because of falling revenues the nagtional debt mushroomed relative to GDP.
New Deal
During the 1930s Franklin Roosevelt's New Deal was opposed by many conservatives because it expanded the scope of the federal government, and regulated the economy. In general Roosevelt did not raise taxes above the high levels Hoover had set; the national debt changed little from 1933 to 1940.
Roosevelt's Treasury Secretary, Henry Morgenthau, Jr. believed in balanced budgets, stable currency, reduction of the national debt, and the need for more private investment. Morgenthau accepted Roosevelt’s double budget as legitimate–that is a balanced regular budget, and an “emergency” budget for agencies, like the WPA, PWA and CCC, that would be temporary until full recovery was at hand. He fought against the veterans’ bonus until Congress finally overrode Roosevelt’s veto and gave out $2.2 billion in 1936. Morgenthau's most notable achievement was the new Social Security program; he managed to reverse the proposals to fund it from general revenue and insisted it be funded by new taxes on employees. Morgenthau insisted on excluding farm workers and domestic servants from Social Security because workers outside industry would not be paying their way.[1]
In World War Two there was broad agreement for heavy taxes, with conservatives insisting that the income tax base be broadened to include the great majority, rather than the 10% who before 1942 paid all income taxes.
After 1945 fiscal conservatism was most prevalent in the Conservative coalition, including Midestern Republicans and most southern Democrats, especially Senators Harry F. Byrd, and Walter F. George.
The Reagan Era
Fiscal Conservatism was rhetorically promoted during the presidency of Ronald Reagan (1981-1989). During his tenure, Reagan touted economic policies that became known as Reaganomics. Based on the theory of supply-side economics, Reagan cut income taxes, raised social security taxes, deregulated the economy, and instituted a tight monetary policy to stop inflation. Reagan favored reducing the size and scope of government (see limited government), proposing a balanced federal budget.
However, by the end of Reagan's second term the national debt held by the public rose from 26% of Gross Domestic Product in 1980 to 41% in 1989, the highest level since 1963. By 1988, the debt totaled $2.6 trillion, due in part to both increased military spending at the end of the Cold War and increased domestic spending approved by the 99th and 100th Congress. The country owed more to foreigners than it was owed, and the United States moved from being the world's largest international creditor to the world's largest debtor nation. [1] Under Democart Bill Clinton the federal government had a budget surplus and the debt went down. The George W. Bush policy was to return the surplus to taxpayers by lowering federal income taxes, even as spending increased, especially for the Iraq war. Democrats attacked the Bush policy as a violation of fiscal conservatism.
Bibliography
- Barber, William J. From New Era to New Deal: Herbert Hoover, the economists, and American economic policy. Cambridge University Press. (1985)
- Beito, David. Taxpayers in revolt: Tax resistance during the Great Depression. University of North Carolina Press. (1989)
- Brownlee, W. Elliot. Federal taxation in America: A short history. Cambridge University Press. 1996.
- Kimmel, Lewis. Federal budget and fiscal policy, 1789-1958. Brookings Institution Press. 1959.
- Leff, Mark. 1983. Taxing the "forgotten man": The politics of Social Security finance in the New Deal. Journal of American History 70 (September): 359-81. online in JSTOR
- Lind, Michael. Hamilton's Republic: Readings in the American Democratic Nationalist Tradition (1997)
- Morgan, Iwan W. Deficit government: Taxing and spending in modern America. Ivan Dee. 1995.
- Sargent, James E. "Roosevelt's Economy Act: Fiscal conservatism and the early New Deal." Congressional Studies 7 (winter 1980): 33-51.
- Savage, James D. Balanced budgets & American politics. Cornell University Press. 1988.
- Stein, Herbert. Presidential Economics, 3rd Edition: The Making of Economic Policy From Roosevelt to Clinton (1994)
- Zelizer, Julian E. "The Forgotten Legacy of the New Deal: Fiscal Conservatism and the Roosevelt Administration, 1933-1938." Presidential Studies Quarterly. 30#2. (2000). pp 331+. online
Notes
- ↑ Zelizer 2000