White House Chronicle

News Analysis With a Sense of Humor

On Tax Cuts, GOP Should Think like Business

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Mythology in Washington holds that when it comes to economics, Republicans know best. The root of this myth is another myth, which goes like this: When it comes to business, especially small business, Republicans know best.

All of this doesn’t matter until you get to taxes, when the Republicans, buttressed by their mythological understanding of these things, believe they know best.

And what the Republicans believe they know best is that when you cut taxes, everything gets better: Government shrinks, business booms and tax revenues go up.

It’s not that there aren’t shards of truth here; it’s just that everything has to be in the right conjunction to get one or all of these benefits.

Business doesn’t go along with these myths but, like everyone else, it hates paying taxes, so by and large it endorses the Republican position.

The thing is, business believes in a more durable truth: price.

Price means revenue, and business, therefore, believes and practices aggressive pricing. When business needs to exceed the gap between cost and revenue, it increases the price. If the market refuses to pay the price, business exits that market or fails.

Sometimes, however, and increasingly in these hard times, business pulls a con. It lowers or maintains the price, but adds other charges to gain income. The airlines are doing this. The banks make as much or more on fees than they do on consumer loans. Catalog companies do it with “shipping and handling” fees.

Publishers have experimented more with price than most businesses, and their conclusion is to stay on the high side. If the market rejects your high-priced publication, so be it.

I’ve spent a lifetime studying pricing in publishing. All I’ve learned is this: Defend your price.

In London, Rupert Murdoch engaged his Times in a costly price war with Conrad Black’s Daily Telegraph. In the middle of fierce cost-cutting, Murdoch’s camp, with more resources, was triumphant.

Cheap papers were selling.

But when it was all over, the relative positions of the publications had not changed by much and millions of British pounds had been lost. The hope had been that the victor, Murdoch’s papers, would gain so many more readers that they could make up the circulation revenue losses with higher advertising rates. It didn’t work.

Taxes are different, the GOP has averred. Not really. If they’re too high, they will stifle business, choke enterprise and cause businesses to go offshore. Clearly, marginal rates that exceed some magic number (well south of 50 percent) would stifle business.

At one point after World War II, they reached 90 percent in Britain with disastrous results and a few comical ones. The titled, moneyed families fled to Kenya and Rhodesia and the show-business types took up residence in Switzerland. Actor David Niven and playwright Noel Coward were among these.

Now that the tax cuts enacted in the early days of the George W. Bush administration are about to expire, it may behoove us to examine these with a question: What would business do? Things looked pretty bright when these cuts were enacted with the prospect of years of surpluses. But that was before 9-11, two big wars and a recession.

Therefore, if you looked at the tax issue from a boardroom point of view, the unanimous decision would be to go for the revenue and review the result later. Boardroom-loving Republicans ought to know this.

In business, they laugh at people who believe that lower prices automatically will produce compensating revenue. The joke goes something like losing a little on everything and making up with volume.

Many years ago, I had lunch with George Will and Trent Lott. All three of us were speakers at the American Petroleum Institute’s annual meeting in Houston. At the time, Lott and Will agreed that we were an under-taxed country, given the demands on government.

Back then, Republicans thought like business people.

 

Sarah Palin as Joan of Arc

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You see Sarah Palin, governor of Alaska; I see Joan of Arc, the peasant girl who vanquished the English in France and facilitated the crowning of Charles VII as King of France, thus ending English claims to the French throne.

Like Palin, Joan was an invigorator: She inspired the French to fight the English. When she failed to win over the generals and the nobles, she went over their heads to the people of France. Soon she had liberated Orleans, after a string of victories, and cleared the way for Charles’s investiture at Reims. Even before his ascent to the French throne, Charles had made the teenager co-commander of his army.

There is dispute over whether Joan actually fought or just carried the French standard in battle. No matter. She electrified the French. And although the 100 Years War dragged on for another generation, Joan had shaped the future of the French nation, giving it a sense of national identity that it had lacked:

She galvanized all levels of French society, revitalized a sick and cautious political establishment, and ignited the new feelings of nationalism in the French army and the peasantry. Essentially, what Palin has done so far for the Republicans.

Joan believed that she was the instrument of God; that she had heard voices from the age of 12, urging her to expel the English from France. Unfortunately, the voices were to be her death knell. She was captured by the English, who handed her over to the Ecclesiastical Court in Rouen, which tried her for heresy. She was convicted and burned at the stake. She was just 19, but she had changed the course of European history.

Later, the Roman Catholic Church decided that it had made a terrible mistake and denounced the trial, finding her innocent after the fact. But Joan was not canonized for another 500 years.

Look at Palin and see the “Maid of Orleans”: She has fought the Republican establishment and energized the rank and file of the party. And that is probably where the similarity ends, although she seems to be quite certain about God’s purposes.

The speculation in Washington is: When will the Palin bubble burst? So far, she has been repeating the same speech on the stump and has only granted one television interview.

The strategy of keeping Palin from the public is beginning to wear thin. And even John McCain himself seems to be hankering for the recognition that he is the nominee for the presidency not the trophy vice presidential candidate from Alaska.

Yet for McCain, it is also all about Palin. If he wins the presidency, she will be credited with attracting women and blue-collar voters to the Republican standard. If she falls apart in the next month, through a combination of hubris and ignorance, she will take down the McCain candidacy.

Also, the speculation in Washington is that Barack Obama’s forces are retooling for an assault to coincide with the one and only vice presidential debate. It is a debate fraught for both the Democratic vice presidential nominee, Joe Biden, and for Palin.

Biden is given to talking too much and he knows too much, which is sometimes a disadvantage. He will be struggling to appear neither avuncular nor condescending. Palin needs to memorize talking points on every issue and stick to them. This is a dangerous tactic, but it is her best option. And it more or less worked in her interview with Charles Gibson of ABC.

Henry “Scoop” Jackson, the late senator from Washington state, who I interviewed on many occasions, answered the question he thought you should ask not the one you asked. He did this especially on television, as I found out when I was part of a panel on NBC’s “Meet the Press.”

Palin’s strategists will probably also try to give her a disarming one-liner that she can repeat frequently, which George W. Bush did with “fuzzy math” in debating Al Gore. People tend to remember the one-liner and forget the rest of the question.

Although Charles ennobled St. Joan and her family, he resented the fact that she had done what he had failed to do against the English aggressor. History may be repeating itself with John McCain.