A Kemp-Roth Leadership Litmus Test

A Kemp-Roth Leadership Litmus Test

In 1977, Democrats had a 149-seat majority in the House (292-143), 61 votes in the Senate, and Jimmy Carter as president. The country was in decline. It was the worst economy since the Depression, far worse than it is today. The mainstream economists and the DC establishment were woefully unable to deal with the defining issue of that era: inflation. If there was ever a time to despair, it was then.

Jack Kemp, serving just his 4th term, didn’t sit on a committee relevant to economic policy, yet is the namesake of the most consequential (in a positive way) legislation in perhaps 50 years. Kemp proposed across the board tax cuts, knowing a surging economy would help tame inflation.[1]  Kemp was not deterred by the Democrat’s stronghold, nor fazed by the establishment saying his views were outside the mainstream. What did he do? How did he do it?[2] And, importantly, what can we learn that is relevant to the selection of the next Speaker of the House?

  • Attempt #1: February 23, 1977

Kemp offered his "across-the-board tax reduction for every American" as a substitute to the first budget resolution for FY 1978 (Jimmy Carter's $50 rebate). His effort went down 148-258. But, it was a new beginning. It stopped the pendulum’s swing.

By using the official forum of the House Floor to sell the benefits of economic growth, Kemp established that tax cuts and growth should be part of the national narrative. Media coverage and public engagement followed. Strategically, he walked out with a scorecard and 148 more votes than he had the previous day.

Will our next Speaker allow a vote on something leadership deems to have no chance to pass? Under Speaker Boehner, it’s doubtful a Kemp-Roth type bill would have seen the light of day. Will the next Speaker welcome such “new beginnings”?

  • Attempt #2: March 15, 1978

Kemp offered Kemp-Roth as an amendment to the Humphrey-Hawkins full employment bill (which gave the Fed its dual mandate). Depending on one’s perspective, he lost again 194-216, or he won 46 more votes.

  • Attempt #3: May 3, 1978

 Kemp-Roth, combined with limits on the growth of spending, passed the House of Representatives as the Holt amendment to the first budget resolution for FY 1979. Leadership was furious and forced eight members to change their votes. On the recount Kemp-Roth went down 197-203.  The following month, Proposition 13 in California, a property tax cut that the establishment opposed, but Reagan supported, passed. In addition, the Steiger-Hansen bill, which cut the capital gains tax from 49% to 28%, also passed in June, despite being deemed as having no chance just months earlier. The pendulum was in full counter-swing.

  • Attempt #4: Early August 1978

A Kemp-Roth amendment to a Ways and Means tax bill went down 177-240.

  • Attempt #5: August 16, 1978:

The Holt amendment to the second budget resolution lost 201- 206.

  • Attempt #6: Early October 1978:

A Kemp-Roth amendment to a Senate Finance Committee tax bill lost 36-60. 

  • Attempt #7: October 9, 1978

The Nunn amendment, better known as the son of Kemp-Roth, which combined the Kemp-Roth tax rate reductions, but phased them in, with limits on the growth of spending (essentially the Holt amendment), swept the Senate 65-20, when Republicans had only 38 votes.

Three days later the House voted 268-135 (when Republicans had only 143 seats) to instruct its conferees to support the Nunn amendment in the House-Senate Conference on the Tax Bill.

Kemp-Roth was killed in the Conference by the Carter Administration and business lobbyists. When an unpopular president overrode the will of the people on what had become a popular bill, it vaulted Kemp-Roth into the national spotlight. Reagan seized the opportunity and made tax cuts the centerpiece of his budding presidential campaign. The rest we know. Reagan won and signed Kemp-Roth into law as the Economic Recovery Tax Act.

We are facing very similar circumstances today as Kemp did in 1977. We have a lousy economy and an unpopular president. The mainstream economists, academia, the media, and the political establishment are all failing to address the defining issue of this era: ending 44 years of stagnant real income for the bottom 90% (the “striving majority”). We are told by “experts” this is a new normal, deal with it.

It’s ironic (or tragic) that the defining issue of Kemp’s era is related to the defining issue of ours. The same Keynesian economists who failed to grasp inflation in the 70’s, concluded afterward that it was caused by a so-called “wage-price spiral.” To them, rising wages caused inflation. In other words, inflation was no longer a monetary phenomenon characterized by too much money chasing too few goods. Instead, they insist it is a labor market phenomenon characterized by too many people working and prospering. And we are supposed to wonder why we have wage stagnation?

The Kemp-Roth legislation of our time is a bill requiring the Fed to stabilize the dollar. This removes the Fed from labor markets and prevents them from targeting wage growth. As the nearby chart shows, since the formation of the Fed, we have had 3 periods, totaling 48 years, in which the dollar was stable (1922-1929, 1948-1971, and 1982-2000). A stable dollar has produced 4.02% economic growth and 3.74% average annual real income growth for the bottom 90%. This is exactly what we need. Compare that to the 2.68% growth of the volatile dollar periods in which income for the bottom 90% declined by .7% per year.

Before arriving in Washington, the vast majority of members of congress serve in state or local government, where they gain dollar_value.pngexperience with taxes, regulation, budgets, spending, etc., essentially everything EXCEPT monetary policy. They run their campaign, and win, on their track record and experience which, by definition, excludes Fed policy. Once in Washington, it is difficult to engage on the subject. To overcome this “factory installed blind spot,” we need not just a Jack Kemp, but a Speaker who will allow amendments and debate on the House floor.

Imagine if a congressman was given the opportunity to amend the debt ceiling legislation with a bill to stabilize the dollar. He or she would have an official platform to establish that we can solve our debt problem with across-the-board prosperity, but then ask whether such prosperity can ever happen as long as the Fed thinks wage growth is undesirable.

The dollar is a unit of measure, the fundamental unit of value for the world economy, and it is imperative that it be just as stable and reliable as other units of measure like the foot, hour or pound. This will bring the issue to the forefront and represent another new beginning. Perhaps a presidential candidate would seize the opportunity.

Nobody knows how many attempts it will take to ultimately pass such a bill. But we should demand from every candidate for Speaker that we will at least have the opportunity. Only then will we discover how many Jack Kemps we may have in this congress. Only then can we enjoy another American victory over Washington.


1 Note: Inflation is a surplus of dollars relative to demand for them. Reducing the supply of dollars is one way to treat it, but increasing the demand for dollars through tax cuts is the preferable way. Fed Chair Volcker deserves credit for “breaking the back of inflation,” just not all the credit. The record shows he struggled until the tax cuts were implemented.

2 This legislative chronology comes from remarks made by former Kemp advisor Dr. Paul Craig Roberts at a Heritage Foundation panel “The 10th Anniversary Celebration of the Kemp-Roth Tax Cuts – The Importance of America’s Victory over Washington.”

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