By Sheri Rivlin and Allan Rivlin
“We must cut taxes and job killing regulations.” We could attribute this quote to scores, if not thousands, of Republican politicians from Ronald Reagan in 1980 to most of the likely Republican candidates in the 2024 presidential cycle.
For decades Republicans have had this simple prescription for the US economy. It is very simple, attractively simple, and it is overly simple. Without regard to the current economic conditions, Republicans have been telling us prosperity will surely follow if policy makers simply cut taxes and regulations. At ZenPolitics.com, we have lamented many times that Democrats have not been able to match the clarity of this simple message. But as economic policy it is an oversimplification, and in this political-economic moment it is simply wrong.
It is not bad policy to cut taxes and regulations when taxes are broadly speaking too high, and businesses are broadly speaking over-regulated. Neither are true today. Wealthy Americans and large corporations are currently undertaxed, leaving the government unable to meet its commitments to military defense, veterans, retirees, the poor and the disabled under Social Security, Medicare, Medicaid, without running large deficits that contribute to inflation and high interest rates.
At the same time, recent headlines have been highlighting the dangers of under-regulation. The 2022 Christmas holidays were ruined for many families by widespread flight cancellations, and 2023 has delivered train derailments and bank failures. Each of these stories bring bipartisan calls for greater regulation.
Starting with the Reagan Administration, Republicans have led, often with support from Democrats, a broad effort to deregulate many sectors of the economy. From telecommunications, to airlines, railroads, energy, and financial services, heavily regulated monopolies have been replaced by more competition and looser rules. This has delivered the promised growth and innovation for many industries. It is hard to imagine the modern connected digital economy developing as far and as fast as it has if the 1970s style “Ma Bell” Telephone company had continued to operate as a near monopoly regulated public utility.
But ideological opposition to business regulation requires ignorance of the reasons we have so many regulations, many of which were passed to protect workers, consumers, and citizens in response to major catastrophes. Congress has passed all of these regulations not to kill jobs, but to save lives. Factories, and now all public buildings, have multiple well-marked exits because 146 garment workers, mostly immigrant women and young girls, died in the 1911 Triangle Shirtwaist Factory fire in New York City. We write health, safety, and environmental regulations; and our buildings, factories, food supply, meat, and medicine are inspected because accidents happen, people have gotten sick and died, and the public says “there oughta be a law.” We write financial and business regulations after major market failures.
We ran a small business, and we know businesses face a daunting array of rules and regulations. Regulations are additive and can become excessive and outdated. We are not advocating for more regulations any more than we are advocates for higher taxes regardless of circumstances. We propose that policy makers should seek the right amount of taxes and the right amount of regulations, and more granularly, tax laws that raise the necessary revenue and fairly distribute the tax burden; and effective regulations that protect the public and economy from harm without placing undue or unfair burdens on businesses or individuals.
The ideological opposition to taxes and regulations are not unintentional. Business owners and top corporate executives may believe they would benefit from fewer regulations, so they have supported special interest groups that advocate for regulatory rollbacks and lower business taxes as the best strategy to create jobs. This became a key tenant of “Reaganomics” and the Republican Party and allied groups have worked to convince middle-class and working-class voters that their interests were aligned with those of business elites relabeled “job creators” in a strategy that has delivered political gains for several decades.
There is mounting evidence that the “cut taxes and job killing regulations” mantra is out of step for the times. On fiscal policy Republicans can’t propose tax cuts in large part because they passed large tax cuts in the George W. Bush and Donald J. Trump Administrations, that have contributed to the large deficits and inflation they decry. They are calling for a curtailment of deficit spending while rejecting tax or revenue increases. This would require dramatic spending reductions in popular programs which is why Republicans are unable to specify meaningfully large areas they would cut. Without cutting defense, veterans’ benefits, Social Security or Medicare there is not enough spending to cut without eliminating dozens of popular programs in the discretionary budget.
Republicans face an equally difficult challenge in their call for regulatory reform. In Donald Trump’s last year, 2020, his OMB Office of Information and Regulatory Affairs issued a report (no-longer available) detailing the 145 deregulatory actions, 58 deemed “significant” actions, including deregulation of the railroad industry. After a series of derailments including one that caused an environmental catastrophe in East Palestine, Ohio, this no longer is worth bragging about. Ohio’s two Senators, Republican J.D. Vance and Democrat Sherrod Brown, are working to pass new safety and inspection regulations on the industry in a welcome show of bipartisanship.
The history of regulation and deregulation of financial markets is more complicated. Financial markets were deregulated in both Republican and Democratic administrations from the 1970s into the turn of the century only to be re-regulated following a series of market failures in the Savings and Loan industry and then the major “too-big-to-fail” banks in 2008-2009. The Dodd Frank regulations initially applied to all banks and investment banks, but small and regional banks were exempted from many provisions in a 2018 reform celebrated by former president Trump. After a series of small but important bank failures roiled financial markets this week, and after a series of airline meltdowns and mass cancelations over the holiday season, voters are unlikely to reward politicians running on an economic message calling for more deregulation.
Heading into the 2024 cycle, Republicans will be without a message that has sustained them for the past forty years. It remains to be seen whether they can find any replacement. The early tell is that some plan to simply put the word “woke” in front of any policy they oppose. Will American voters support candidates that promise to fix the economy by opposing “woke” spending, “woke” taxes, and “woke” regulations? We suspect not.