This lecture was held at the Heritage Foundation on January 23, 1998.

It's sad to note that this record tax burden includes the full tax cut of 1997. Further, the only two times in history in which the federal tax burden was higher than today was when defense was almost 40 percent of GDP rather than barely 3 percent, as it is today.

Any accountant looking at America's fiscal books would have reason to conclude, on the basis of relative priorities--record-low defense, record-high and rising tax burdens, a small but continued deficit--that liberals are in power and trying to balance the budget while keeping their priorities intact. That is an accurate snapshot of freedom and opportunity in America today and tomorrow.

By 2020, funding for Medicare and Social Security will be falling far short of the mark. The intermediate estimate has the shortfall at about 11 percent of taxable payroll while the high cost estimate is at 21 percent. Tax hikes or spending cuts will have to cover this shortfall. Historically, these programs have exceeded the high-cost estimates, but to provide a hopeful perspective on this huge shortfall I will refer to the more optimistic intermediate assumption.

Under these assumptions, the gap is 11 percent of taxable payroll, an amount equal to:

• President Reagan's full individual tax cut of 1981, but instead of his 25 percent across-the-board cut, America would be hit with a 25
  percent across-the-board hike;

• Every dime of defense spending in 1993;

• Almost all of last year's Social Security spending;

• 5 times President Clinton's 1993 tax hike;

• 23 times the 1997 tax cut; and

• A doubling of all marginal tax rates.

Under any of those scenarios, would America still be America? On top of all this, consider doubling those burdens; that is the more likely high-cost scenario for America by 2020. Another doubling would just about describe the burden America would bear in 2040.

This captures the fiscal situation of America today and tomorrow and in the decades to come.

Considering this past, present, and future, let's reconsider the vote on the NEA amendment and summarize. Today, America has

• the highest tax burden ever;

• the lowest defense spending since the
  isolationist period;

• explosive growth in entitlement costs that begin in 10 years; and

• a conservative Congress that will not eliminate a single discretionary program.

Conclusion: Without a radical change in the votes of conservatives, the record-high tax burden of today will probably be lowest of our lifetimes.

That is why the vote against termination of the NEA--the only program eyed for termination by the 105th Congress--represents the high-water mark of the present campaign to reduce
government and taxes.

Wanting to make planes, conservatives bought an old General Motors factory that has made cars for 60 years. No matter how much we beg, yell, or kick the machines, all that is produced from the energy, material, manpower, and time poured into the process is cars. The result is frustration. Even though a conservative majority may be in control of Congress, the congressional process created by liberals over 60 years still drives what any majority produces. We changed management, but not machinery.

In order to retool effectively, we first must understand how the spending machine works to let liberals vote on their vision in a way that wins. Liberals regularly use three legislative processes--
appropriations, the budget resolution, and reconciliation--to ask three loaded questions of legislators. These three questions supply a framework of effective marketing, financing, and politics--all making for tough votes against the liberals' vision.

These three questions are:

• Are you for a specific human need as symbolized by government spending on that need? This includes the creation and expansion of government programs as well as opposition to their termination or reduction.

• Doesn't the recession/inflation/slowdown tell us we should pay our bills by raising taxes?

• Shouldn't rich individuals, families, foreigners, corporations, investors, and employers pay their fair share?

These three simple questions asked in that order--do you care? are you responsible? and shouldn't the rich pay their fair share?--have determined political careers for 62 years. These three politically loaded questions have been turning the liberal vision into liberal results for six decades.

This merging of spending and value was best captured by President Clinton's standard line during the balanced budget battle and the 1996 presidential campaign. How many times did you hear him say he was for balancing the budget consistent with our shared values of protecting Medicare, Medicaid, education, and the environment? He defined "shared values" in terms of government spending programs that represent the pinnacle of liberal marketing--icons like Social Security and Medicare, which symbolize the values of caring and compassion for the elderly and infirm. Our vision of limited government won congressional races in 1996 but Clinton's appeal to values, translated into spending programs, also won with voters.

But Clinton was referring to entitlements, which are just appropriations that grew up or have powerful marketing appeal. The spending machine begins with the appropriations process. It is where most conservatives can't say "No" because they can't explain or defend that answer. It is the way one-third of the budget is determined, and every dime is presented in this appropriations process in a way that ensures more spending and more taxes rather than less spending and lower taxes. Because most of the 80 House votes and 85 Senate votes last year on appropriations were limited basically to whether you were for or against some value or need represented by government spending on that value or need, the outcome was predetermined: More government, higher taxes.

Appropriations should be seen as a legislative event combining budget, marketing, process, and politics, which liberals use to erase any distinction between the legitimate role of government and the legitimate needs of a family. Child care is a vital need, but is it primarily the role of family or government? Appropriations bills cause conservatives problems because mixed in with the legitimate activities of government are the legitimate needs of families that we certainly acknowledge exist but that we don't believe government can best provide.

Although conservatives can market the legitimate role of government they support, the current structure doesn't allow them to market their alternative view on how legitimate family needs should be met. The event--the vote-- markets itself to the press and media, and is used politically to show what value or need conservatives are against, with no opportunity to show how we are for that need or value.

So, out of 298 roll call votes in the Senate last year, 85--or about 29 percent--were on appropriations bills in which we voted on their vision of spending, and not ours. That's 85 votes to show how we were against their way of handling legitimate family needs through government but not one opportunity to show how we want to handle legitimate needs through the family.

Speaking last September 16 for the amendment to end the NEA, Senator Phil Gramm (R-TX) explained how the conservative vision is betrayed by our reliance on a process that has served liberal ends for six decades:

For 60 years, we have been losing in the appropriations process, because the choice is always spending money and being for something, rather than not spending money. What I would like to do is to have the ability to put all these appropriations bills out here and go through them one by one and basically decide, would you like [government] to do less of this and let families keep more of this money themselves? I think when we start changing the way we make these decisions, when we start looking at them from a bigger perspective, I think ultimately freedom will start winning in this debate instead of losing.

A process friendly to the conservative vision would portray the termination of the NEA and other entertainment spending like PBS as a completely appropriate conversion of big government programs into a small, but meaningful, tax allowance for every moderate-income family to put toward their own arts and entertainment expenses.

Until freedom and families are granted floor privileges in the House and Senate, the conservative vision will be absent. Never should a conservative House or Senate open for business when the interests of freedom and families can't be debated and voted on. Yet that is a daily occurrence.

Can conservatives create a rival to the appropriations process that serves their vision? Yes, we can--and we must. The advantages of this rival process go well beyond most expectations. The greatest advantage is that conservatives would be for something! This is a major change. It's like my old dad. Anytime we began a sentence with "Dad?" he'd respond, "No! Now, what's the question?" Conservatives have been against a liberal vision but rarely been able to be for their vision during votes. What if that changed? What if we were for housing, nutrition, education, and all sorts of values and legitimate family needs--but only when provided by families with freedom rather than by government with regulation? Conservatives would have achieved a communications breakthrough! By showing our vision of compassion and caring, we'd expand the common language to further identify with the problems of the common family. For decades, liberals have dominated the legislative process by identifying typical family problems and proposing federal solutions. Remember how people used to say "Don't make a federal case about it"? Now everything is a federal case, from phone service to kids' math quizzes to cable rates to medical procedures. Big government is the price, but the advantage has been that typical families identify more with liberals because they talk more about their family's everyday problems.

The new process would allow conservatives to identify with problems and propose solutions directly to families--solutions that involve shrinking the government. Further, we not only would be identifying with a value but linking it directly to reality as well.

During the debate over the NEA, numerous conservatives asserted that the NEA was not the reality of how arts and culture thrive in America, but rather a powerful symbol of arts in America--in fact, too powerful to overcome. Symbolism, magnified by a simplistic media, wins--but reality loses.

Under our new rival system, conservatives would merge symbolism with reality, and reality here would be the family. Families are how the needs of housing, nutrition, health care, and education (including arts and entertainment) are achieved. As we bowed to the power of symbolism and transferred funding to government, we transferred it away from families, along with the freedom to choose. Our weakness has made the family's reality more difficult.

Instead of pitting symbolism against reality, we could merge them to our huge advantage. But that's not all; our approach would be more relevant to families. Just ask which a typical family would prefer to have: An extra couple-hundred bucks to pay for cable or the Internet, or a hundred thousand sent to some arts board downtown? We would direct our solution to voters at the kitchen table, where the bills are paid. Let liberals try to win by focusing on the mayor's desk or Cabinet table.

Finally, allowing tax-cut alternatives to be integrated into appropriations would mean that conservatives no longer would be forced to limit entitlements like Medicare in order to cut taxes. Liberals have never wanted (nor did their budget process allow) tax cuts to be financed by cuts in discretionary accounts. So long as tax cuts require Medicare or welfare cuts, tax cuts will be rare. But discretionary spending is not entitlements, it is not a means-tested welfare program; it is the millions of other "valued" things that government wants to do, many of which would be more vulnerable to the budget ax when put up against tax cuts in a legislative beauty contest of more for families vs. more for government.

Bear in mind that the liberals' great spending machine that is currently thwarting our vision took 60 years to build. It's going to take some work to dismantle it. Their machine builds and fosters willpower for their vision--it's tough to cast a vote against their vision when the process frames the question for them.

Conservatives must engineer a new process for a conservative Congress, a process that builds and fosters the willpower of Members to vote for their vision. That is exactly what happens when we frame the question so that no one can explain a "no" vote--exactly the reverse of the situation today.

Changing that appropriations process to serve conservatives' vision is one type of fiscal policy engineering, but there are other types, such as policy engineering and informational engineering. As for other elements of fiscal policy engineering, once we change the rules on tax cuts with appropriations, we improve all sorts of other dynamics. For example, there is a little-known and unused House Rule XXI-2, which prohibits appropriations without authorization. Almost all non-defense spending is unauthorized, but the point of order is never used. Using it to stop spending might sound better if the funds immediately went to same-value tax cuts.

There are other things we can do in fiscal engineering. As for the legitimate functions of government, does the current content of each of the 13 appropriations bills make our programs compete against one another? Can we arrange it so that, for example, the National Aeronautics and Space Administration isn't competing with the Veterans Administration but instead against the NEA or the Legal Services Corporation? The bottom line is that we should arrange our big dogs and little dogs so that they are not fighting one another.

A good example of policy engineering is Majority Leader Dick Armey's (R-TX) Base Closing Commission. Can we set up something like that for tort reform? Let's vote on the big picture of whether we are for the idea of tort reform in some area like high technology. There would be no details to attack. Then let a commission look at reform, and we could vote straight up or down. If the commission were properly filled, we would get improved tort reform--and it couldn't be filibustered.

Another bill reflecting good policy engineering is the Auto Choice insurance reform bill proposed by Senator Mitch McConnell (R-KY) and Majority Leader Armey. It would put it in the direct interest of consumers to change liability law at the expense of lawyers. Again, this would play to our strengths, minimize our weaknesses, have good marketing, and be relevant to the real-world needs of families, especially young drivers.

Information engineering also suffers from a lack of attention. Liberals have divided and hidden both taxation and spending to such an extent that few understand or see the real size and cost of government. This serves the liberals' vision and hurts ours. For example, the federal tax burden is broken up and hidden in so many ways that most people see only a fraction of the total.

Chart 10 shows the following:

• 19.4 percent of all gross national product was absorbed by the federal government in 1996;

• Only two of the tax burdens show up on the worker's payroll check--income and payroll;

• Of those two, only half the payroll tax shows up on the payroll stub; and

• Almost no income taxes are paid by 60 percent of all workers.

The result is that 60 percent of all workers see a federal tax burden of 3.4 percent of GDP--just one-fifth of the total of 19.4 percent. The rest is hidden or shifted. Guess what would happen if people knew what their tax burden really was? Just ask Virginia's governor, Jim Gilmore (R), about the importance of a highly visible tax. If we exposed excise taxes and payroll taxes, we'd fuel a tax revolt.

This also applies to the spending side. How many times do we see a news article about a family getting only $300 or so a month from the major welfare program Temporary Assistance to Needy Families (the new Aid to Families with Dependent Children program)? The reporter does not know it, but that program represents just $16.7 billion of $1.68 trillion--1 percent of all federal spending in 1998. Total payments to individuals in 1998 will break the $1 trillion mark, yet the reporter writes as though just $16 billion is spent on welfare.

Like taxes, liberals have divided spending up not just to maximize the number of "I care" press releases but also to confuse just how much is being spent and to make it appear as though it isn't really that much.

Let's change that. Let's require that every dime of assistance--in-kind, direct, federal, state, and local--be reported on W-2s so that we'd know exactly how much we are spending as well as being taxed. If the value of a worker's parking spot in a major city has to be reported, then the value of all welfare benefits should be reported as well--reported, but not taxed. This would change the way we look at spending and taxation in America. How? When more taxpayers see themselves as taxed and realize that the burden is two or three times greater than they previously had thought, those workers will have a greater reaction when they hear that total welfare benefits are almost as much as they earn. That will change attitudes. Specifically, political charges like "tax breaks for the rich at the expense of the poor" will ring hollow.

That is information engineering that frames the debate for us.

There are other needs and examples of political engineering, but the need for a radical improvement here is vital.

Finally, a lot of these engineering changes would not be of benefit to the current generation of leaders. They are so much a part of the process that it's difficult for them to see that barriers that have been fixed for decades can be moved. But these engineering changes would create opportunities for the Young Turks of today--and future generations--to push the opportunities beyond anything we can imagine. They'll need it, because with record-low defense now and an entitlement crunch just around the corner, tax cuts will face heavy competition for any resources. We need to target new areas of government for reduction in order to finance future reductions in taxes. Deliverance of our vision depends on it.

--Michael Solon is Director of the Senate Steering Committee. Prior to this assignment he was Adviser on Economic Policy for Senate Majority Leader Trent Lott (R-MS). He also served as the Counsel for Economic Policy for Senator Phil Gramm (R-TX). Before he joined Senator Gramm in November 1988, Solon worked for Representative Dick Armey, Senator Bob Kasten (R-WI), Senator Dan Quayle (R-IN), and Social Security Commissioner Dorcas Hardy, as well as for House candidate Steve Bartlett and gubernatorial candidate Bill Clements.