Taxes: The Economic and Philosophical Necessity of Real Reform

Foreword

When, last September, Grover Norquist led an American Experiment Breakfast Forum on taxes, the issue was as customarily warm as ever. Five months later, in these early days of 1996 presidential primaries and caucuses, the topic has grown naturally hotter. And as for the flat tax — not coincidentally, the specific emphasis of Mr. Norquist’s speech that late summer morning — the temperature has risen higher still.

I had asked Mr. Norquist, who is president of Americans for Tax Reform (ATR), to talk about the economic and philosophical bases of “real” improvement in the way the federal government funds itself. He responded with seven principles, which collectively provide a very useful tool for understanding why rapidly increasing numbers of Americans now view the flat tax as compelling. For example:

So the first principle is a flat tax, which has radical implications. Flat-rate taxes are very difficult to raise. That’s why politicians from the beginning of time have always liked to divide people into different groups. . . . So they can mug people one at a time. . . .

One tax rate fits with the American sense of fairness. If we are going to have an adult relationship with the government, we need to have fair rules, and everybody needs to be treated the same.

In conjunction, he also argued on behalf of a “generous family allowance.” So, for instance, in Rep. Dick Armey’s proposal at the time, a family of four wouldn’t even begin to pay federal income taxes until its income surpassed $33,000 a year. It’s remarkable how flat-tax opponents rarely acknowledge such routinely deep (and I would argue, essential) bows to fairness — or “progressivity,” if you prefer.

Hindsight suggests that it’s not the least bit surprising that Mr. Norquist was so prescient last September about the national debate soon to erupt. As president of ATR, as well as a key player in a seeming thousand other activities, he’s literally at the center of the wheel when it comes to grass-roots conservative activism in the United States.

In introducing him five months ago, I said that I particularly appreciated his strong confidence in the fundamental wisdom and good sense of rank-and-

file Americans. And that Harvard educated though he may be — both his B.A. and MBA are from there — he is one of the nation’s most important populists in the best sense of that term.

In addition, Mr. Norquist is the author of the new bookRock the House; he writes a monthly column, “On Politics,” for theAmerican Spectator; and he co-hosts a monthly show on National Empowerment Television. It was a pleasure to host him and I commend his energetically argued paper to you.

My colleagues and I are likewise grateful to Eden Prairie-based Fargo Electronics, and its president, Robert P. Cummins, for sponsoring Mr. Norquist’s Minnesota visit.

American Experiment members receive free copies of almost all Center publications, including “Taxes: The Economic and Philosophical Necessity of Real Reform.” Additional copies of this oral essay are $4 for members and $5 for nonmembers. Bulk discounts are available for schools, civic groups and other organizations. Please note our phone and address on the previous page for membership and other information.

Thanks very much, and as always, I welcome your comments.

Mitchell B. Pearlstein
President
February 1996


Introduction

I want to talk about tax policy, because I think it’s central to where the country is going.

The one central question in America today — in America at any time — is the size and scope of the government versus the freedom of individuals. We had a revolution about this in the 1770s. What is the relationship between the individual and the state? That’s the central civics question.

Whenever the government raises taxes, it says that more decisions will be made by the state and fewer decisions will be made by individuals. And when taxes are reduced, we’re saying more decisions about the allocation of resources and people’s lives will be made by individuals, and fewer decisions will be made by the central government. So, the question about whether we’re going to raise taxes or not is really a question of what direction we are going. Are we going to have people make more decisions? Or are we to have the government make more decisions?

That’s why the Taxpayer Protection Pledge that Americans for Tax Reform — the group I work with — sends out each federal election cycle is so important. We now have 198 members of the House who have signed the pledge which says they will vote against and work against any increase in the income tax — personal or corporate. We have 31 members of the Senate. Every major Republican candidate for the presidency has signed that pledge. There are a handful of Democrats who have made the commitment. But Bill Clinton, of course, has both refused to sign the pledge and has, in fact, raised taxes. But I think it is very interesting that we have a growing coalition that is simply saying no to tax increases. I call that a containment strategy against Washington, much as we had a containment strategy against the Soviet empire.

Today’s fight is actually an old fight, but it’s also new because the situation is changed. A number of years ago Dick Armey — a congressman from Texas who is now the majority leader for the House of Representatives — said we ought to move to a flat tax. Working with economists Robert E. Hall and Alvin Rabushka of the Hoover Institution, he came up with a rate of 17 percent, both corporate and individual. It does not tax investment income at the personal level.

Dick Armey’s plan of one rate for all — individuals and corporations — is now front and center in the public debate. It wasn’t prior to the 1994 elections, but a number of things have happened. One was the ’94 elections, which gave the Republicans majorities in both houses of Congress. In 1994 Republicans picked up 52 seats in the House and eight in the Senate — and then another five Democrats switched in the House to become Republicans, with two Democrats in the Senate doing the same thing. So now if the Republicans want to pass a flat tax, they have the votes to do it. Interestingly, the Republicans have sort of coalesced around the idea of a flat tax. Bob Dole in a recent speech endorsed moving to a flat tax. That puts every Republican running for president in support of either a flat tax or a national sales tax.

For a model, recall how the Kemp-Roth legislation moved through the House and Senate; then through a presidential election; and then how it passed into law eight months into Ronald Reagan’s first term. I had dinner with Jack Kemp and his tax commission recently, and I asked his thoughts on this. I said it seems that the flat tax is moving faster and has more support today than the Kemp-Roth bill did at a similar point before the 1980 election. He said that’s true.

Kemp said he had real trouble getting national politicians to support Kemp-Roth, which was the 33-percent across-the-board income-tax rate cut. Reagan then endorsed it in the 1980 campaign, raising its visibility. But only when Reagan won did everyone say, “Oh, I guess that’s where we’re going.” Former Sen. William Brock, who ran the Republican National Committee, had endorsed it because he thought it was sound policy. But for national politicians, we weren’t very far with Kemp-Roth a year and a half out of the new presidency. The flat tax is much further along.

Seven principles

Let me walk through the seven principles that I believe the Kemp Commission will come up with. I believe these are the seven principles for tax reform that any Republican president, whether it’s Dole, Gramm, or whoever, will endorse during the campaign.

First, there will be one rate.

This is revolutionary for several reasons. To start, it’s a political rejection of the politics of envy and of class warfare. It says to Dick Gephardt that we, as Americans, want to be treated equally and fairly, and fair means the same. I do not think it is a coincidence that two major national consensuses — false ones — have fallen apart at the same time.

The first to go was that everybody agreed on affirmative action and racial preferences. Now all the politicians say they’re against racial preferences and racial discrimination by the government. Everybody should be treated equally. And, of course, that’s exactly where the American people are, and where 80 percent of them have been for 20 years. But until it was put on an initiative, nobody had ever asked the question. And it just kept getting fudged every time it came up in Washington.

At the same time that people are saying, “Don’t divide us by race,” they are saying, “Don’t divide us by income.” Somebody shouldn’t be taxed more because they work on Saturday, or because their spouse works as well, or that they take a second job, or that they work really hard and make more money. The rate of taxation should not increase.

With a flat rate, of course, somebody who makes twice as much money pays twice as much, but they pay the same percentage. And polling data say that’s what people consider to be fair. Suffice it to say that Representative Gephardt, a Missouri Democrat, will explain that fair means that you divide people up in different classes and then treat them differently. But that’s also the way he feels about racial distinctions: You should divide everybody up by race and hand out spoils that way.

But only about 20 percent of the people in the country feel that way, and that number is fading quickly. People are saying: “Treat everybody the same. If I work twice as hard, I don’t want to pay a higher tax rate. If my spouse goes to work, I don’t want to pay a higher tax rate. If I take a second job, I don’t see why I should be fined for doing that.”

So the first principle is a flat tax, which has radical implications. Flat-rate taxes are very difficult to raise. That is why politicians from the beginning of time have always liked to divide people into different groups. That’s why they don’t like to have one property tax rate. Why do they have different property tax rates for personal homes, second homes and businesses? So they can mug people one at a time. That’s why the sales tax is less exciting for politicians than a value-added tax.

With a sales tax, it’s more difficult to set different rates for different products. In Europe, though, they have a value-added tax — a VAT. So in Italy they have one tax for white wine and another for red wine. With a VAT you can really divide and discriminate among people. In the United States we have sin taxes. Sometimes we don’t like cigarettes or we don’t like alcohol or we don’t like insurance companies. There’s always some disfavored group that you can go and get. And half the country is saying, “Yes, yes, they’re bums.” But when they come around to you and you say, “Hey, guys, why don’t you help defend me?” the other guy answers, “Where were you when I was getting mugged?”

One tax rate fits with the American sense of fairness. If we are going to have an adult relationship with the government, we need to have fair rules, and everybody needs to be treated the same.

Massachusetts has a flat state income tax of 5.85 percent. Proposals to replace the flat tax with a graduated income tax have been on the ballot five times. Supporters of the graduated tax have promised to raise taxes only on the rich and to cut taxes for 80 percent of the rest of the people. It sounds like a pretty good deal. But the people of Massachusetts have rejected that proposal five times over the last 20 years, and by overwhelming numbers. They understand that as soon as they segregate taxpayers into groups, they’re going to come back for everybody else.

If all taxpayers have the same interest, it is very difficult for the political class to come and get more money unless they have a really good case.

Second point. The reason it’s important that income be taxed one time is that this eliminates the double taxation of savings and investment in which income is taxed at the corporate level — but is then taxed again as dividends or as interest payments to individuals.

This eliminates the capital gains tax. It doesn’t cut it. It doesn’t index it. It eliminates it. You buy a house and it goes up. You sell it. It’s your money. It’s not the government’s. In addition, this means the abolition of inheritance taxes, which I think is extremely helpful. The inheritance tax, of course, was a way for the king to steal everybody’s property after he’d let them have it temporarily. That’s not where we are. The king didn’t give you your house. The government didn’t give you your house. The government didn’t build your business. And the government doesn’t get to steal half of it when you pass away.

All this is extremely important for two reasons. One is the simple fairness issue again.

This money has been taxed under the present system again and again — and then the government takes part of it because somebody dies.

A second reason why it’s important is that the inheritance tax issue will provide muscle in the flat- tax debate. When you want to see who’s pushing for the flat tax in Washington — who writes, who visits, and so on — it will be the people who recognize the tremendous damage that an inheritance tax does to their farm, their small business, and the exchange of their property between generations. The good news is that a lot of people have signed on. The usual envy crowd that screams is going to have a very tough time going mano-a-mano with the farming community on this subject.

The third principle is a generous family allowance.

Under Representative Armey’s proposal, a family of four would not be taxed on the first $33,000 of income. There are a number of reasons for this, one of which is that the government wants to leave more money in the hands of families to take care of children. The left has decided that one of their mantras is children. Of course, they want to tax families that have children and then decide what programs they get back. Phil Gramm states the Republican case very eloquently. He says, “I am in favor of spending on children, but I am in favor of parents spending money on children, not the government taking parents’ money and the government spending money on children.” That, I think, is a particularly important distinction.

(It’s possible that somebody noticed that married people with children tend to be disproportionately Republicans. Married women with children tend to be the biggest Republican supporters.)

The fourth principle is few deductions.

This is a deliberate fudge, because a lot of people who support the flat tax believe that we would be better off with an even lower rate, which calls for phasing out the home mortgage deduction as well as the charitable deduction. But if you are going to have a national education campaign of why the envy politicians are wrong about graduated income taxes and why you shouldn’t confiscate people’s wealth at the end of their life, how many fights do you want to take on? Do you want to take on the real estate industry at the same time? Maybe you do. But that’s a decision that is going to be made, not today, but as we move closer to the final time.

Speaker Gingrich says he likes Armey’s flat tax, but he thinks we should keep home mortgage and charitable deductions. That’s what a lot of people think. But once we start the debate, people can look at their own tax returns and make the calculations. They might decide they would be better off in the long run if we phased out home mortgage deductions in order to get a lower rate. I think ultimately that is the direction we will go. Obviously, home owners would benefit tremendously from a flat tax with no capital gains tax. They would benefit tremendously from not having half the house stolen when somebody passes away. And they benefit from the reduction in interest rates that will come from not taxing interest income.

Fifth, there will be a defanging of the IRS.

One reason people are unhappy about taxes is they feel the IRS is too intrusive. It’s too much in their face. Taxes cost a lot of money but they also cost a lot of time and energy. And the government wants to know everything there is to know about you, which is annoying.

We’ve been reading in the papers that the guys in the IRS sit at their computers and scan through the taxes of their neighbors, famous people, and Hollywood movie stars. There needs to be some way to keep that from happening. We also need to prevent audit abuses. The burden of proof for taxpayers is worse than the burden of proof for somebody who has been arrested for rape, or happens to be O.J. Simpson. The presumption in those latter cases is that you’re innocent. Under tax policy, the opposite is true.

The sixth principle is no increased taxes without a super majority vote in Congress.

Bob Dole endorsed a three-fifths super majority. I’m a strong supporter of two-thirds. Two-thirds is a better number because it’s bigger, but also because it just sounds more constitutional. Polling in California, Arizona and Ohio shows that people prefer two-thirds because it sounds like the kind of a number that belongs in a constitution. Three-fifths sounds almost ugly, as if we were still counting Indians and slaves. I am going to push for two-thirds. If we get three-fifths, it’s better than 50 percent.

But the point here is that after we get tax reform, it will be more difficult to raise the rate. We don’t want to take the rate to 17 percent, broaden the base, and then allow people to easily start going 18, 19, 20. Requiring the super majority is a particularly important project. It’s in Armey’s bill, and Speaker Gingrich has promised two votes on a super majority constitutional amendment. The first will be April 15, 1996. The second will be April 15, 1997. So, if we don’t win it in 1996, we’re going to change the people who vote, and we’ll have another vote in 1997.

I think this is as important as the rest of tax reform combined. It’s not some out-of-the-blue thing that’s never been done before. California requires two-thirds of both houses to raise taxes. Arizona requires two-thirds of both houses to raise taxes. A three-fifths requirement to raise taxes just passed in the Ohio House of Representatives. Nevada passed a two-thirds requirement in 1994. They have to vote twice on constitutional amendments. Oklahoma requires a vote of three-fourths of the legislature — or putting the question to the people. Because taxes are about as permanent as constitutional amendments — once they’re in, they don’t tend to come out — they should be as difficult to enact.

The seventh principle is no value-added tax.

I have commitments from the Republican leadership in both houses, in writing — in the safe — that they’ll oppose a value-added tax. And there are 150 members of the anti-value-added tax caucus in the House and Senate run by Dick Armey and Rep. Tom DeLay, both of Texas.

One of the dangers of this whole process is that we say, “Gee, we ought to come up with the perfect tax.” And a lot of economists like the VAT because it’s easier to collect and it doesn’t tax savings and investment. The problem with the VAT is not the economics of it but the politics of it.

It is very easy to increase. It can very easily be used to discriminate between people and between companies. And it is a tremendous fund-raiser for political leaders. Politicians might say, “We’re thinking of raising the tax on your part of the industry from the regular 19-percent VAT to a higher level unless, perhaps, you’d like to contribute to our campaigns this year.”

You can have many, many rates. You can have a necessities rate, a regular rate, a luxuries rate, etc. A value-added tax can discriminate between taxpayers in ways that help raise money for politicians who wander around and just target people. If they pay off, then that industry doesn’t get hit. We do, in fact, do that with the income tax in this country, but it’s a lot more difficult to organize.

When the VAT was introduced in Europe, it was always promised as a replacement tax. Yet every European country has a VAT and a personal income tax and a corporate income tax and wage taxes and, sometimes, excise taxes. So it replaces nothing. What it does is just make the government bigger. We did a chart of every European country which put in a VAT. In the 10 years after the VAT was instituted, compared to the 10 years before it was instituted, not only was the VAT added, but every other tax increased more rapidly after the VAT came to be. Personal income taxes went up faster than they did before. Corporate income taxes went up faster than they did in the previous 10 years.

All this happened because all the VAT did was make the government bigger, more powerful and have a bigger appetite. Every VAT that was introduced in Europe has increased from the level at which it was originally set. The value-added tax is easy to raise. It’s a money machine. We have worked very hard against any European-style VAT or national sales tax because of the danger that it becomes an add-on and can very easily be increased.

Conclusion

Let me wrap up simply by saying that all of this discussion about tax reform is very, very important. I think it will have tremendous consequences for economic growth for the United States. I think we’ll grow one or two points faster in the future under this tax reform. I think we’ll move back to historic levels of economic growth. We’ll create a tremendous number of jobs.

It means all those people who do honorable work in Washington trying to protect their companies and their industries from being looted by the tax collectors won’t have to spend their time there, because everyone will have to pay the same rate. You won’t have the kind of special deductions and credits you need when rates are 40 percent. You won’t need them, because the rate will be 17 percent.

The most important issue is the total size of government. There is no pleasant, proper, cheerful, nondestructive, nondiscriminatory way to take 22 percent of the economy, as the federal government does, from people who earn it and give much of it to people who don’t. There’s no easy or polite way to do that. There’s no nonintrusive way to do that. There’s no utopian tax code that can painlessly take one-fifth of what you earn.

So, part of what we have to do is reduce the total level of taxation and the total level of spending. And that’s what the House and the Senate leadership is working on. There’s going to be not a train wreck but a shoot-out at the OK Corral. There’s going to be one budget that puts the budget into balance, that reduces the growth of spending. And there will be Bill Clinton’s series of budgets that give you $200 billion deficits indefinitely. The budget that he claims balances in 10 years is $200 billion out of balance, according to the Congressional Budget Office. That’s the shoot-out at the OK Corral. Somebody’s going to blink, and we are either going to go on a route to a balanced budget or we are not.

According to calculations by Americans for Tax Reform, you work until May 6 to pay all your tax burdens — federal, state, local. All of January, February, March, April and the first six days of May. One-third of the year to pay taxes. But that’s not the end of it. ATR also figures in state and federal regulatory burdens and the cost of the deficit, and that takes you all the way to July 9. Everybody worked until July 9 this year to pay the cost of government. And that estimate is a conservative one. It does not include the cost of local government regulations. It does not include many state regulations, although it does include the largest ones.

We need to get the size of government down; then it will cost less. And a flat tax is going to pass because it’s not going to be revenue neutral. The Republicans in the House and the Senate have no intention of raising as much tax money as Bill Clinton would like to spend. That is not their goal. They are going to raise less money because they intend to spend less money.

Audience Questions

Moderator Mitch Pearlstein: What is to become of programs aimed at helping poor people? Won’t critics on the other side come back and say, “You’re just insensitive. You’re hurting poor folks.” What does it mean in terms of compassion, helping people who truly are in need, when we say we’re going to cut back on spending?

Norquist: You can look back on the last 30 years of welfare spending, and the onus is on the left, which created the welfare state, which committed these resources, which went into working people’s lives and stole their money with a promise that they were going to help poor people with it.

Government has spent $5.4 trillion since World War II on welfare programs to help the poor. In inflation-adjusted terms, that’s 70 percent more than what we spent to win World War II. What did we get for the money? Can you really go to any major city in this country and turn on the nightly news and listen to what’s happening in terms of crime and poverty and say that it got better? Newt Gingrich says go to a major city, watch the news for three nights, and if that isn’t the face of failure, write him a letter and tell him what failure would look like if you were designing it.

There isn’t a liberal in Washington who believes in his heart of hearts that the welfare state is presently helping the people it claims to help. They don’t believe that anymore. They know it isn’t true. The welfare state has destroyed more families, ripped apart more families, killed more kids, destroyed more lives, ended more promising futures than anything else in the country.

The reason that the left is on the defensive when it comes to the welfare state is that they can no longer look you in the eye and say, “Our programs are helping lots of people.” Oh really? Show us. Show us the area, the group that is better off today for your programs. Or would you rather show us the history of broken lives, broken families, torn up neighborhoods for your $5.4 trillion?

When we fought World War II there was an awful lot of destruction, but that was on purpose and it was in Germany and Japan, our enemies. The war on poverty has been equally destructive, but the people hurt in that war are the same people the left claims to be helping.

Washington, D.C., spends $9,000 per child on education. Yet the students are not in a safe environment and there’s no education going on in those schools. How do liberals face a mother in D.C. and tell her she’s not allowed to take a voucher and go to a real school that really educates because the teachers union owns the Democratic Party and it won’t let you? How do they tell her, “We’ll take your vote, but the union’s muscle is what keeps us in power, so we will sacrifice your children’s futures on the altar of make-work programs — which is what the D.C. public schools have become — for our political constituency.” That is immoral.

People are killed every week in that city because the welfare state has destroyed whole neighborhoods, destroyed families, destroyed people’s opportunity. This is not a question of whether we should keep helping people. There comes a point where we must demand that the left stop hurting people. Our goal, as Speaker Gingrich says, is not to repair the welfare state, it’s to replace it. It’s not something that’s just a little bit flawed.

Welfare is largely based on the left’s flawed analysis. The left says that if a middle-class person makes $20,000 a year, you need to give somebody else $20,000 so that they’ll have middle-class values. Not so. The one thing they won’t have is middle-class values because you’ve just given them $20,000 for free, and they’ve learned that they don’t have to work for $20,000. You’ve actually hurt that person.

I welcome the debate. The left will shout racism and say I’m hard on poor people, but that’s because they have no other argument, and they cannot afford a five-minute discussion about what they think they’ve been doing to help people all these years.

Alan Shilepsky: One piece of conventional wisdom is that we can’t bring down the cost of government unless we do something about entitlement programs, especially Medicare and Social Security. Is there some simple mantra that’s going to solve that?

Norquist: No. There’s no simple mantra that will solve that. The Republicans are tackling the Medicare question, and there will be a reduction in the rate of growth. The left likes to call it a cut, but actually individual spending on Medicare will go from $4,800 now to $6,700 per person seven years from now. So it’s not a cut, but it will slow the rate of growth. The people will have medical savings accounts and different options that don’t exist under present law, and I think that’s very important.

Social Security is not on the political table right now. Ultimately, and here I speak solely for myself, I think we need to move to something along the lines of what Chile has had in place for 10 years, which is required savings. Everybody in Chile is required to save 10 percent of their money in any one of a number of government-approved savings programs, which are in effect IRAs. Everyone in Chile was offered the choice to stay in the old government-run program or go into the private-sector program. Ninety percent of the people went into the private sector-program. Ten years from now the average Chilean will have more savings than the average American.

Of course, what we do with Social Security is that we take 14 percent of somebody’s wages and ship it out in immediate payments. There is no savings that goes on, no accumulation, because we’re running a Ponzi scheme as opposed to running a savings and investment plan. I think it’s very important that we shift over, though there is cost to shifting over, because you have to hold blameless everybody who got into the program. But for younger people, I think they will be much better off — we would all be much better off — if they could start saving in an IRA rather than in the government’s Ponzi scheme, which is Social Security. I think 15 years from now the younger generation’s going to take FDR’s picture off the dime when they figure out what his Social Security system did to their future.

If you are at the beginning of a chain letter, and you’re the guy at the top, you get all the money. If you are the guy at the bottom, you get none of the money. For older people who got in at the top of the letter, Social Security has worked out as if it were real savings. The problem is that Social Security is a government program, run by politicians, put together by politicians, who have never thought past the next election, and certainly not about the next generation.

You could go in and shave off the cost-of-living adjustments for Social Security. You could go in and require higher copayments for different things. But that’s like trying to patch up a sinking boat. I think it’s a waste of time as well as cruel. So I believe the level of change to think about is not paring Social Security down here and there, at which point you’re just a little cheaper but the system is still broken.

Instead, we should move to choice; move to a system in which people are fully funded and able to control their own pensions — which would be portable. That’s a much more radical change which will prove more effective over time. It also represents a radical drop in government.

I believe that 30 years from now the federal government will be half its present size because we will have put Social Security fully in people’s own hands rather than running it through the government. For that matter, I also believe we will have voucherized education.

Maxine Mandt: My major problem with the flat tax is that I don’t trust what the political process will do with it. With the VAT we have examples in foreign countries of what can happen to the concept. Are there any examples for the flat tax that would give us reassurance?

Norquist: Hong Kong, plus the improvements in the United States in the 1980s when we moved to a flatter tax. The top rate when Ronald Reagan took office was 70 percent. When he left it was 28 percent, and revenue was coming in faster than before. And for those people who think that fairness means getting other people to pay your taxes, the top 5 percent and 10 percent of taxpayers were paying a larger percentage of the total tax burden. So I think that moving to a flatter rate has in every case led to more economic growth, though unfortunately, it has also given the government more revenue. That’s unfortunate because governments spend it if you give it to them.

And then you have the counterpart (or the opposite). George Bush raised taxes in 1990. We created 18.5 million jobs between the day Ronald Reagan’s tax cut took effect and the day George Bush announced he was raising taxes. Eighteen-and-a-half million jobs. Then we went into the Bush recession. And then we have Clinton’s tax increase in 1993 on top of the Bush tax increase. Each increase made the tax code less progressive because people don’t pay tax rates like they’re “expected”; they do something else with their money.

We also have a situation in which economic growth coming out of recovery under Clinton is half of what it was under Reagan. That’s because while we were supposed to be coming out of a recession, he hit us with a tax increase. So the growth that the Clinton Administration likes to talk about is better than the Bush growth, but half of what it was under Reagan.

I would argue that when rates have come down in American history, we have had more growth and more job creation than when rates were higher. But your argument about not trusting politicians is exactly the right argument. Newt Gingrich, who by definition is a politician, has said to groups, “Do not trust us. Watch us. Talk to us. Hold our feet to the fire. Check what we’ve done about the Contract with America every day.” That’s the only standard by which they want to be held, and they will be held to that standard. And you help keep them honest by pushing and watching and arguing.

Buzz Anderson: What do you predict will happen? You’re suggesting there are going to be dramatic changes in the tax system. What will happen to a special program like Archer Daniels Midland’s ethanol tax credit and other things like that?

Norquist: I think that such programs are unlikely to survive. When you have something that helps everyone come to appreciate lower taxes, you end up trumping specific tax credits. I think there will be a phase-out period for people who have geared their lives around the tax code and for companies that have understandably organized around the tax code. On the other hand, the Archer Daniels Midland people have been reasonably active in Washington. If anybody can defend a special tax cut, they can.

But I think that all of that stuff is going away, largely because the new leadership in Washington doesn’t presume to tell people what to put in their cars and doesn’t want to favor one industry over another, or one fuel over another, or one plant over another, or one industrialist over another.