Why Brown's medicine would not work in US
April 17, 2000
by Irwin Stelzer
SUNDAY TIMES (London)
March 26, 2000
GORDON BROWN may bestride the House of Commons, and even Britain, like some sort of colossus, but his act just would not play in America. Not that he is unpopular in my country - quite the opposite. The chancellor is widely regarded by those who follow British and European affairs as the best chancellor Britain has ever had. Wall Streeters and Washington financial-policy wonks regard him as a giant among the pygmies that hold similar offices in Europe.
But the American system just does not have room for a chief financial officer who can lock himself away with a few aides and decide how much to tax whom and where to spend the funds conscripted from taxpayers, in the process setting not only fiscal policy but policies for entrepreneurs, pensioners, families, single moms, drivers, smokers, homebuyers and travellers - to mention just a few of the souls favoured with Brown's beneficence or taxed by his disapproval.
Start with the fact that the huge majority of Brown's Labour party assures him that whatever he proposes will instantly become government policy. This is not so in America. George Bush famously warned those intending to raise taxes he would veto any increases - the famous "Read my lips, no new taxes" pledge. But to compromise with the Democrats who controlled Congress he had to go along with a budget deal that included big tax rises. It cost him his job.
In America the budget process is one in which the president has to persuade Congress - often controlled by the opposition - to pass the tax and appropriations measures he favours. Indeed, our consititution mandates that all appropriations bills originiate in the House of Representatives, not in the Treasury.
So the president rarely gets all that he asks. In 1995 the disagreements became so intense that Congress refused the president the funds needed to keep the government running, causing it to shut down. And in recent years there has been a series of compromises between a president who wants to spend the budget surplus on social programmes, and a Republican Congress that prefers to return it to the people who earned it, the taxpayers.
In short, there is no American official - not the president, not the treasury secretary, not the leaders of the houses of Congress - who can do what a British chancellor can do. For the occupant of No11 Downing Street has to produce a budget that satisfies only one party; no American administration in living memory was powerful enough to ignore the opposition's wishes.
But Brown remains a special case. All chancellors have the considerable power conferred upon them by the nature of the budget-making process. But this chancellor has, in addition, become the maker of health policy, education policy, transport policy and just about every policy that matters in the run up to the next election.
This is not to diminish the role of the prime minister, to whose exquisitely tuned political antennae the chancellor must at times defer, and who provides the spoonful of sugar that makes Brown's ugly-tasting tax-increase medicine go down. It is, however, to contrast the British chancellor with the American president and his treasury department appointees. Take cigarettes and petrol as examples. Brown thinks people should not smoke, so he raises the tax on a pack of cigarettes by 25p. Bill Clinton also thinks people should not smoke (the occasional White House cigar when Hillary is away being the exception) but he cannot persuade Congress to levy punitive taxes on cigarettes.
The same goes for petrol. The chancellor calmly raises the already astonishingly high petrol tax by 9p a gallon. Since taxes account for a far greater portion of the pump price than does the price Opec extracts for its crude oil, the Treasury far outranks the producers' cartel as the motorists' greatest enemy.
There is nothing to constrain it from doing in Mondeo Man, seen by the prime minister as a core constituency of his ever-expanding heartland. In America no politician could so easily assault the motorist. The Clinton-Gore effort to raise the relatively low federal tax on petrol led to a huge row, with the administration using up huge amounts of political capital to force through a rise only about half as large as the one Brown stuck to the British motorist last week.
So Brown would find it difficult to operate with such verve within the American system of checks and balances, designed explicitly to avoid letting any government official have the power over finances and policy that now rests in the chancellor's hands. He would also find his ability to use taxation to set policy constrained by the federal system, in which the states exert considerable influence.
In education, for example, the federal government provides only about 6% of all the funding. The balance comes from state and local governments. So the president can wring the odd few million from Congress for a few more teachers and some building repairs, but he is in no position to have the sort of impact on education funding that the British chancellor has.
It is the same story with petrol taxes. The prospect of $ 2-a-gallon petrol this summer has led some in Congress to suggest repealing the Clinton-Gore petrol-tax rise of about 5 cents a gallon. But even in the unlikely event that Congress passes such a tax cut, the money will not end up in the pockets of all the nation's drivers: California has said it will raise state taxes on petrol by an amount equal to any cut in federal taxes.
So Washington's power over the purse is not quite as extensive as Westminster's.
In the end, the American system is messier, involving more players, more compromises, more bipartisan solutions. Britain's system is more efficient.
But that is not necessarily a good thing. After all, raising taxes is not exactly an activity in which efficiency is a virtue.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.