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Fiscal conservatism is a political phrase term used in North America to describe a fiscal policy that advocates a reduction in overall government spending. Fiscal conservatives often consider deficit and national debt reduction as well as balancing the federal budget of paramount importance. Free trade, deregulation of the economy, lower taxes, and other economically conservative or neoliberal policies are also often affiliated with fiscal conservatism.Template:Fact

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Early United States

The Democratic-Republican Party of Thomas Jefferson supported a weak central government and a more laissez-faire 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 (rather than the original holders) and because most of the debt was held by northern states. Hamilton passed his legislation and set up taxes to pay the debts (in exchange, he agreed to let Jefferson move the nation's capital to Washington, DC). Jefferson in particular strongly opposed having any national debt, although he relented in 1803 for the sake of the Louisiana Purchase.

James Madison, James Monroe, John Quincy Adams were elected by the Democratic-Republican Party, but after the fiscal disasters of the War of 1812, they came to support most of the Federalist position, deciding the nation needed a central bank and a steady income flow from tariffs.

Mid-to-late 1800s

In the mid-1800s, a new fiscal conservative political party emerged, the Republican Party. Unlike the modern fiscal conservatives, these fiscal conservatives were paleoconservative supporters of protectionism and tariffs, similar in some ways to today's Reform Party.

They were also generally supporters of big business and (internally) laissez-faire economics, although by 1890 they had been convinced into supporting Sherman Anti-Trust Act and the Interstate Commerce Commission following massive complaints.

Early 20th century

In the early 1900s fiscal conservatives were often at odds with progressive President Theodore Roosevelt, particularly for his support of antitrust laws.

During the 1920s President Calvin Coolidge's pro-business economic policy were credited for the successful period of economic growth known as the "Roaring Twenties." His actions, however, may have been due more to a sense of federalism than fiscal conservatism: Robert Sobel notes that "[a]s Governor of Massachusetts, Coolidge supported wages and hours legislation, opposed child labor, imposed economic controls during World War I, favored safety measures in factories, and even worker representation on corporate boards."

Reagan era

Fiscal Conservatism was rhetorically promoted during the presidency of Ronald Reagan (1981-1989). During Reagan's tenure, income tax rates of the top personal tax bracket dropped from 70% to 28% in 7 years,[1] while payroll taxes increased as well as the effective tax rates on the lower two income quintiles.[2][3] Real Gross Domestic Product (GDP) growth recovered strongly after the 1982 recession and grew during Reagan's remaining years in office at an annual rate of 3.4% per year,[4] slightly lower than the post-World War II average of 3.6%.[5] Unemployment peaked at over 10.7% percent in 1982 then dropped during the rest of Reagan's terms, and inflation significantly decreased.[6] Federal tax receipts nearly doubled from $517 billion in 1980 to $1,032 billion in 1990. A net job increase of about 16 million also occurred (about the rate of population growth).

According to a United States Department of the Treasury non-partisan economic study, the major tax bills enacted under Reagan, as a whole, significantly reduced (~-1% of GDP) government tax receipts.[7] The Economic Recovery Tax Act of 1981 was a massive (~-3% of GDP) decrease in revenues (the largest tax cuts ever enacted)[8]. By the end of Reagan's second term the national debt held by the public ballooned from 26 percent of the GDP in 1980 to 41 percent in 1989. By 1988, the debt totaled $2.6 trillion, due in part to both increased military spending at the end of the Cold War and according to some, the tax cuts. 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. [9]

Clinton era

While fiscal conservatism is most common among Republicans and Libertarians, it is also common among many centrist or moderate Democrats who often refer to themselves as "New Democrats". Former President Bill Clinton, who was a New Democrat and part of the fiscally conservative Third Way advocating Democratic Leadership Council, is a prime example of this as his administration along with the Republican majority congress led by former Speaker of the House Newt Gingrich (which created the Contract with America document that required such things as balancing the budget, providing the president with a line-item veto, and a reform of the welfare state), signed the North American Free Trade Agreement (NAFTA) into law as well as the Omnibus Budget Reconciliation Act of 1993 which cut government spending, created a 36% individual income tax bracket, raised the top tax bracket, which encompassed the top 1.2% earning taxpayers, from 31% to 39.6%, and created a 35% income tax rate for corporations.[10] In addition to this however, taxes were also cut for fifteen million low-income families, and made available to 90% of small businesses. The top capital gains tax rate would later be lowered from 28% to 20% and the 15% bracket lowered to 10% with the passing of Taxpayer Relief Act of 1997. With the passing of the Budget Enforcement Act of 1990 (part of the Omnibus Budget Reconciliation Act of 1990), the first PAYGO (pay-as-you-go) rules were enacted for the purpose of reducing the massive deficit that had grown during the Reagan and Bush years, and balancing the budget for the first time in decades. Very popular among deficit hawks, the system requires that all increases in direct spending or revenue decreases be offset by other spending decreases or revenue increases. The PAYGO system was used regularly throughout the Clinton years.

After the implementation of this fiscally conservative bipartisan effort, the United States was able to reduce the $5.7 trillion national debt by $360 billion and create the largest federal budget surplus ($236 billion in fiscal year 2000) as well as the longest period of sustained economic growth in United States history.[11][12]

Modern fiscal conservatism

Modern fiscal conservatives remain wary of government spending. They believe strongly in free trade and are committed to lowering the federal budget, paying off national debt, and acquiring a balanced budget.[13] Where fiscal conservatism gets more diverse in ideals is what steps should be taken to balance the budget. Deficit hawks are more willing to increase taxes in addition to cutting spending to balance the budget than libertarians, who want to "starve the beast" by cutting taxes for the purpose of decreasing tax revenue which they hope will cause the government to spend less, and supply-siders, who believe the best way to gain tax revenue is through deep across-the-board tax cuts that they believe will end up completely paying for themselves through the economic growth they cause.[14][15]

American businessman, politician, and current Mayor of New York City, Michael Bloomberg, considers himself a fiscal conservative and expressed his definition of the term at the 2007 United Kingdom Conservative Party Conference.

To me, fiscal conservatism means balancing budgets - not running deficits that the next generation can't afford. It means improving the efficiency of delivering services by finding innovative ways to do more with less. It means cutting taxes when possible and prudent to do so, raising them overall only when necessary to balance the budget, and only in combination with spending cuts. It means when you run a surplus, you save it; you don't squander it. And most importantly, being a fiscal conservative means preparing for the inevitable economic downturns - and by all indications, we've got one coming.

--Michael Bloomberg[16]

Australia

Fiscal Conservatism in Australia contains the same basic principles as in the US. In the 2007 federal election campaign, it was a key topic. PM Kevin Rudd stated that fiscal conservatism included budget surpluses, and maintaining the independence of the RBA, to ensure the continuation of its inflation targeting regime.

See also

Further reading

  • 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.
  • Left, 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
  • 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.
  • Herbert Stein. Presidential Economics, 3rd Edition: The Making of Economic Policy From Roosevelt to Clinton (1994)
  • Julian E. Zelizer; "The Forgotten Legacy of the New Deal: Fiscal Conservatism and the Roosevelt Administration, 1933-1938." Presidential Studies Quarterly. 30#2. (2000). pp 331+. online

References

  1. Daniel J. Mitchell, Ph.D. (July 19, 1996). "The Historical Lessons of Lower Tax Rates". The Heritage Foundation. http://www.heritage.org/Research/Taxes/BG1086.cfm. Retrieved on 2007-05-22. 
  2. "Social Security and Medicare Tax Rates". Social Security Administration. Jul 10, 2007. http://www.ssa.gov/OACT/ProgData/taxRates.html. 
  3. "Effective Federal Tax Rates: 1979-2001". Bureau of Economic Analysis. Jul 10, 2007. http://www.cbo.gov/ftpdoc.cfm?index=5324&type=0&sequence=0. 
  4. "Gross Domestic Product". Bureau of Economic Analysis. May 31, 2007. http://www.bea.gov/national/xls/gdpchg.xls. 
  5. John Miller (July/August 2004). "Ronald Reagan's Legacy". Dollars and Sense. http://www.thirdworldtraveler.com/Ronald_Reagan/Ronald_Reagan_Legacy.html. Retrieved on 2007-06-26. 
  6. "Ronald Reagan". Microsoft Corporation. 2007. http://encarta.msn.com/encyclopedia_761560259_2/Ronald_Reagan.html. Retrieved on 2007-07-27. 
  7. Office of Tax Analysis (2003, rev. Sept 2006). Revenue Effects of Major Tax Bills. United States Department of the Treasury. Working Paper 81, Table 2. http://www.ustreas.gov/offices/tax-policy/library/ota81.pdf. Retrieved on 2007-11-28. 
  8. Thorndike, Joseph J (14 June). "Historical Perspective: The Reagan Legacy". Taxhistory.org. http://www.taxhistory.org/thp/readings.nsf/cf7c9c870b600b9585256df80075b9dd/3df8b954567e6c8c85256eb300588d4b?OpenDocument. Retrieved on 2007-11-28. 
  9. Reagan Policies Gave Green Light to Red Ink (washingtonpost.com)
  10. Steve Schifferes (January 15, 2001). "Bill Clinton’s economic legacy". BBC News. http://news.bbc.co.uk/2/hi/business/1110165.stm. 
  11. Kelly Wallace (September 27, 2000). "President Clinton announces another record budget surplus". CNN. http://archives.cnn.com/2000/ALLPOLITICS/stories/09/27/clinton.surplus/. 
  12. John King (May 1, 2000). "Clinton announces record payment on national debt". CNN. http://archives.cnn.com/2000/ALLPOLITICS/stories/05/01/clinton.debt/. 
  13. Justin Quinn. "Are You A Fiscal Conservative?". About.com. http://usconservatives.about.com/od/typesofconservatives/a/FiscalCons.htm. 
  14. Jeff Lemieux (February 15, 2004). "What Is A Fiscal Conservative Anyway?". CentristPolicyNetwork.Org. http://www.centristpolicynetwork.org/archives/000056.html. 
  15. Robert Kuttner (December 27, 2004). "What Killed Off The GOP Deficit Hawks?". BusinessWeek. http://www.businessweek.com/magazine/content/04_52/b3914021_mz007.htm. 
  16. "Mayor Bloomberg Delivers Remarks At 2007 Conservative Party Conference". NYC.gov. September 30, 2007. http://www.nyc.gov/portal/site/nycgov/menuitem.c0935b9a57bb4ef3daf2f1c701c789a0/index.jsp?pageID=mayor_press_release&catID=1194&doc_name=http%3A%2F%2Fwww.nyc.gov%2Fhtml%2Fom%2Fhtml%2F2007b%2Fpr348-07.html&cc=unused1978&rc=1194&ndi=1. 

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