Fiscal conservatism

Fiscal conservatism is a political position (primarily in the United States) that calls for lower levels of public spending, lower taxes and lower government debt. Fiscal conservatism may also support limited periods of higher taxes in order to lower the public debt. It can include any or all levels of government, federal, state and local. Fiscal conservatism is typically justified in terms of economic efficiency (it assumes the private sector is more efficient than the public sector), and in moral terms with high spending, budget deficits, and high debt seen as indicators of corruption. In opposition to corruption fiscal conservatism develops classic themes of republicanism that emerged in the era of the American Revolution.

"Fiscal conservatism" is distinct in American politics from social conservatism, which concentrates ion issues of personal morality regarding family life and sexual norms. It is closer to the libertarian approach to drastically limited government. Republicans and Democrats both make claims to fiscal conservatism, though both parties may honor its principles more in the breach than in the observance, and both use the idea as a cudgel to attack their opponents as much as a guide to their own proffered policies.

Conservative fiscal policies

One of the familiar slogans associated with fiscal conservatism since the Reagan years has been "starve the beast"; a phrase which suggests a policy approach of limiting the size of government by limiting appropriations for government programs. Earlier in the 1960s, Milton Friedman first proposed greater concentration on monetary policy over against the reigning Keynesian approaches of the time. Conservative fiscal policies also either flatly oppose redistributive social policies, or, more recently prefer actions which redistribute wealth upward. Officials in the Reagan Administration first used the phrase trickle-down economics to describe this process. Advocacy of the principles of the free market and, when necessary, deregulation of industry are also usually associated with the approach of fiscal conservatism

Fiscal conservatism in U.S. History

A major cause of the American Revolution was "No Taxation without Representation." The Americans insisted that their historic rights as Englishmen 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 Republican party of Thomas Jefferson supported a weak central government and a low-tax approach, in sharp opposition to the high-spending, high-taxation policies of Hamilton and his dominant Federalist Party. Jeffersonians 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 they said did not deserve payment) rather than the original holders. Hamilton passed his legislation and set up tariffs and a highly controversial whiskey tax to pay the debts. When western farmers (who shipped their crops as whiskey) revolted, President George Washington led militia units (provided by state governors) to quell the rebellion without bloodshed. When Jefferson became president he dropped the whiskey tax, kept the tariffs, and grew the national debt by purchasing Louisiana in 1803.

James Madison, James Monroe, and John Quincy Adams were all elected as Republicans, but after the fiscal disasters of the War of 1812, they came to support most of the Federalist position, realizing that the nation needed a central bank and a steady income flow from tariffs.

Republican Era

In 1854 a new fiscally 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 national 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.

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 Midwestern 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 Democrat 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.

Grassroots advocacy

Private sector individuals and groups, such as Grover Norquist and Citizens Against Government Waste advocate fiscal conservatism. A numbers of politicians, such as Jeff Flake of Arizona are involved with the grassroots efforts, and have pushed for earmark reform in Congress to slash government expenditure.