The Independent Institute
(II is an independent public policy research organization whose goal is to transcend the political and partisan interests that influence debate about public policy. II aims to redefine the debate over public issues, and foster new and effective directions for government reform, by adhering to the highest standards of independent scholarly inquiry, without regard to political or social biases.)
OAKLAND, Calif. -- The conservative case against tax cuts
I favor a much smaller government but I do not favor President Bush's tax cut. Or, to be more precise, I would support a tax cut if one had been proposed. But so far President Bush has neither proposed nor implemented a tax cut -- only a tax shift.
To grasp the difference between a tax cut and a tax shift, we must first understand that what ultimately drives taxes is spending. If spending increases, as it has under the current administration, then sooner or later taxes must increase (or inflation, a type of tax, will go up).
Milton Friedman, the libertarian-leaning Nobel prize-winning economist, has long reminded us to be suspicious of any tax cut not matched by a spending cut. If spending isn't cut, then less taxes today means more taxes tomorrow. Thus, the Bush tax cut plan is really a plan for future tax increases.
Whether taxes go up today or tomorrow would be a small matter but for the fact that future taxes are already scheduled to rise because of demographic changes. The aging of the baby-boomers means that Social Security and Medicare spending will rise tremendously in the next several decades. To finance these jumps in spending, it's been estimated that taxes will have to rise 50 percent on a lifetime basis (assuming we don't cut benefits severely).
Thus, Bush is shifting taxes to precisely a time when future taxes will be increasing for other reasons. Sound tax policy aims to smooth taxes over time, not to concentrate them so that we take our hits in one staggering blow.
Against these considerable negatives are some small positives. First, a tax cut has a small short-term stimulative effect, but the key word is small. Conservatives have long argued, correctly, that "fine-tuning" the economy is a chimera, but that argument seems to have disappeared from the conservative handbook. (Perhaps it is hiding alongside the arguments against "nation building" and "federalizing education.")
Second, although Bush's tax proposal does shift taxes away from capital (which, other things equal, would promote long-run economic growth), the mismatch between the tax cuts and spending increases means a rise in government borrowing to make up the difference. Some of this borrowing will come out of capital markets, thereby draining the source of private investment. Thus, on net, I don't expect significant gains in long-run economic growth from these tax cuts.
Some conservatives recognize that the proposed tax cuts would create deficits long into the future, but they have a secret Machiavellian argument held in reserve. The Bush deficits, they believe, will force future administrations -- presumably of a more liberal bent -- to cut spending. Conservatives used to argue that the public didn't want big government but was fooled by deficit financing and other hidden taxes into thinking that it costs less than it actually does.
Today, conservatives seem to believe that the public does want big government and that the only way to curb government growth it is to fool the public with lower taxes today so that the costs of government will be so high tomorrow that no one will accept the offer. How cynical.
Will deficits in fact force future administrations to cut spending? It's possible but I am fearful. The combination of changing demographics and current tax cuts is seeding our economy for a fiscal "perfect storm." When the storm hits there will be a crisis, and as economist and historian Robert Higgs has ably demonstrated in "Crisis and Leviathan", small government rarely does well in a crisis.
Today it is evident that we have two political parties: the Tax and Spenders and the No-Tax and Spenders. Neither party is fiscally conservative. Is there no room at the inn for an honest conservative? A conservative who makes the case for smaller government on its merits and not just as the fallback option when fiscal bankruptcy threatens?
(Alexander Tabarrok is director of research at the Independent Institute and associate professor of economics at George Mason University.)
The Heritage Foundation
WASHINGTON -- Iraq and the myth of media concentration
By James L. Gattuso
The military world is abuzz with talk of a "revolution in military affairs", or RMA -- the changes in technology and tactics that helped U.S. forces subdue Iraq in less than a month. However, another RMA was also on display during the war: a revolution in media affairs.
Despite populist warnings about media mergers and concentration, Americans enjoyed more, and more diverse, outlets of information on this war than any other war in history. This cornucopia of news should be noted by the Federal Communications Commission, which will consider changes to media ownership rules early next month.
The sheer volume of news coverage was impressive from the start. Like millions of other Americans, I found myself glued to the television as military action commenced March 19. And, like many others, one outlet wasn't enough.
Starting with CNN, I watched Aaron Brown's comforting coverage of the unfolding events. Perhaps it was too comforting, I thought, so I switched to Tom Brokaw, who had a more urgent tone. Then to Fox. Then to CBS to get Rather's view. That doesn't include the dozens of other sources I was too busy to check out.
This kind of choice in news was unheard of during past conflicts. In the 1960s, for example, the sources available to Americans for news on the Vietnam War were far more limited. Three networks provided a half-hour or so of news nightly, in addition to the news offerings on a few independent channels (only in large cities), a few AM radio stations and print media. During the first Gulf War in 1991, CNN famously made its mark. But no one else had 24-hour coverage.
Today, instead of one 24-hour news channel, there are many -- plus any number of local stations with access to satellite feeds from overseas. As important, television is increasingly sharing the media stage with a new competitor: the Internet.
More than half of all U.S. households are connected to the Internet. That means Web sites are increasingly becoming an alternative -- and sometimes the primary -- source of news for Americans. According to Pew Research, a majority of Americans with Internet access got information about the Iraq war online. Almost one out of every six said the Internet was their primary source of news.
This isn't to say that all the coverage was high quality. Far from it -- one needs only to think "Peter Arnett" to know that. Choice doesn't mean that everything will be informative, let alone accurate. But it does mean the big providers will face constant pressure from below to improve their product.
Critics of today's media market rightly point out that having many outlets doesn't necessarily mean having the same number of owners. NBC, MSNBC and msnbc.com are clearly not independent from each other. Media firms today tend to own many outlets -- putting broadcast, cable, print and even Internet outlets under the same roof. But such "media empires" may actually be good for consumers, providing each outlet with the resources needed to do a better job.
Moreover, there's evidence that despite these cross-media holdings, ownership concentration has not increased. A study released by the Federal Communications Commission last fall found the number of separately owned media outlets (including broadcast, cable and newspaper outlets) skyrocketed in most cities between 1960 and 2000 -- growing more than 90 percent in New York, for instance.
Since 1980, ownership levels have increased slightly in most cities. And this doesn't even account for the Internet, where choices are almost limitless. While most Americans may select cnn.com or msnbc.com, with a click they can reach less traditional sources, ranging from Matt Drudge to al-Jazeera.
Such variety shouldn't be ignored. Early next month, the FCC is expected to vote on changes to its decades-old media ownership rules. These include regulations on how many television stations one company can own and cross-ownership of newspapers and radio stations, among others.
The rules were written in a different era, when choices were more limited. Today, they are likely doing more harm than good -- hindering innovation and efficiencies in media markets.
Debate over these rules is heated, with the FCC's five commissioners virtually besieged by opponents of change. That includes everyone from special interests whose market niches are protected by the current regulations to populist demagogues making emotional pleas against what they see as "media octopi."
But when the commissioners finally sit down, they can remember the war in Iraq, and the cornucopia of information and perspectives that the media market provided. That's proof enough that they should relax the outdated restrictions, and let the free market do its work.
(James Gattuso is a research fellow in regulatory policy at The Heritage Foundation.)