Reagan and Taxes

All right, it is beyond time to sort out the liberal claim, which Washington Post columnist Eugene Robinson advances once again this week, that because Reagan raised taxes he couldn’t be counted among today’s conservatives:

On the planet that today’s GOP leaders call home, Reagan would qualify as one of those big-government, tax-and-spend liberals who are trying so hard to destroy the American way of life. Some Republicans, I suppose, might be so enraptured by the Reagan legend that they are unaware of his actual record. I hate to break it to Sarah Palin, but Reagan raised taxes. Often. Sometimes by a lot.

Unlike most of the liberals making this claim, Robinson at least points to two specific examples. First, he points to Reagan’s large tax increase his first year as governor of California, where, to close the $1 billion deficit he inherited from Gov. Pat Brown (out of a total budget of about $5 billion–equivalent to about a $16 billion deficit today), Reagan raised income and business taxes–the largest tax increase in state history at the time. Robinson conveniently forgets several facts. First, the total tax burden in California at that time was less than 6 percent of personal income, and the economy was booming. Today the total tax burden in California is close to 12 percent of personal income (a reflection of the runaway growth of government), and the economy is in the tank. Query for Robinson: does he think California’s deficit today is due to the state being undertaxed? I have no doubt how Reagan would answer that question today. From Robinson we can expect only equivocation.
There’s two important footnotes to the 1967 story: Reagan refused to agree to the legislature’s desire to institute income tax withholding, on the theory that “taxes should hurt.” Reagan understood the insidious nature of withholding (another “temporary” World War II measure that, like rent control took on a permanent life), which intercepts your money before you ever see it. (Reagan relented on this in his second term, when, because of inflation, short term borrowing costs for the state soared).
Second, many conservatives were not happy with Reagan for this in 1967. In fact he was booed at an opening day major league baseball game in the spring. But the hit Reagan took proved evanescent for several reasons, but the main one is that over the long run everyone could see whose side Reagan was on, and whose side his opponents were on. When the state budget accumulated a large surplus in Reagan’s second term, he wanted to give the whole surplus back to the taxpayers, which liberals revealingly called “an unwarranted expenditure of public funds,” since they truly believe all your money belongs to them. As Reagan said in a speech at the time, “I want you to know that I am just as frightened of government, even though I am now a part of it, as I have been these many years, and I believe being frightened and concerned with the growth of government is legitimate.” The tax bill he was forced to adopt, he underscored, “does not represent my philosophy of government. I still think the government of California costs the people of California too much.” Query for Robinson: can he find me one Democrat–just one, anywhere–Buehler, Buehler??–who talks like that about government.
Robinson’s second example is the tax increase of 1982, the tax package Reagan agreed to that was supposed to deliver $3 in spending cuts for every $1 of tax increase (a deal which Congress didn’t honor, and which caused Reagan later to say the deal was his biggest mistake, making him realize that Congress wasn’t as scrupulous a body as the California legislature, which always did honor its deals with Reagan). Robinson notes that the tax deal (which he forgets infuriated conservatives at the time) took back about half of the tax cut Reagan achieved in 1981. Robinson’s got his numbers off, but let’s use them anyway, because it opens the window to his simplemindedness. One reason Reagan was ultimately sanguine about the 1982 tax increase was that the 1981 tax bill that passed cut total taxes twice as much as he had originally proposed. Reagan originally proposed the 30% income tax cut plus a few changes to business taxes, for a total five-year price tag of about $350 billion in lost revenue (according to static models, but never mind). Once Congress got done with its feeding frenzy of bidding with special interests (both parties did this, with the Democrats desperate to defeat Reagan’s income tax cuts), the final bill that passed cut revenue by twice that, over $700 billion over the next five years. Idea: Reagan knew he had some room to go back on some taxes if he needed to. His opening bid in the fall of 1981 was $3 billion.
Here’s the salient point that is lost on Robinson and other liberal supposed fans of Reagan’s “moderation.” He never–not once–considered raising the taxes that liberals most wanted raised–income taxes on the rich. When negotiation on the tax deal in 1982 began, Democrats (and some Republicans) were demanding that the third year of the income tax be cancelled outright, or that income tax indexing be repealed. These were always a complete non-starter for Reagan. The tax package of 1982 raised excise taxes in a number of areas, and cut many business tax breaks that shouldn’t have been included in the 1981 tax act anyway. Reagan knew, as liberals don’t, that not all taxes are created equal, or have the same effect on economic performance. Reagan was stalwart on protecting low tax rates in income and investment that drive economic growth, less so on excise taxes and the business tax code that is the plaything of special interest. Liberals above all want taxes that are punitive and redistributive, and do not care or even acknowledge their effect on economic growth. Obama explicitly acknowledged this in the 2008 campaign when ABC’s Charlie Gibson noted that capital gains tax revenues go up when the rate is cut and fall when the rate is raised, and Obama said he still wanted to raise the rates because of “fairness.”
Ironically, Robinson completely overlooks that Reagan’s supposedly “regressive” tax philosophy is one of the chief liberal complaints against Reagan. The Center for American Progress blog notes that “Reagan disproportionately taxes the poor and middle class.” (Ditto for the dunces at Slate.com.) To which I say, “precisely.” Making your ideological opponents sputter incoherently like this is yet another of the Gipper’s great triumphs.
I’m reminded here of Irving Kristol’s famous comment about McCarthyism and liberals, noting that while McCarthy might be a “vulgar demagogue,” at least people knew he was a firm anti-Communist, while about liberals, “they know no such thing.” Americans (especially the Tea Partiers) have their legitimate doubts about Republicans, who performed poorly under President Bush. But about liberals today, Americans know that they want to raise taxes again and again, and have no stomach for serious spending restraint. Reagan liked to say, “The government doesn’t have a deficit because you’re not taxed enough; we have a deficit because the government spends too much.” Again the challenge to Robinson: can he find a liberal Democrat anywhere who will say that? Buehler? Buehler?

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