Raising taxes

TownHall.com ^ | Tuesday, October 28, 2003 | by Bruce Bartlett

[JohnHuang2]

In a recent column, I predicted that President Bush will likely be forced into a budget deal involving higher taxes sometime after next year's election because of rising interest rates. Some of my friends thought I was endorsing such an action. I was not. But my experience in Washington over the last 25 years left me no choice but to come to this conclusion. The stars are aligning for a tax increase, and I think being forewarned means being forearmed.

Peter Wallison, who was White House counsel to President Reagan, responded to my analysis in The New York Times on Oct. 26. He pointed to Ronald Reagan's resistance to tax increases in 1982, citing passages from Reagan's diary that were published in his autobiography, "An American Life." The gist of Wallison's article is that Ronald Reagan successfully resisted efforts by his staff and many in Congress to raise taxes, thereby ensuring the victory of Reaganomics.

The only problem with this analysis is that it is historically inaccurate. Reagan may have resisted calls for tax increases, but he ultimately supported them. In 1982 alone, he signed into law not one but two major tax increases. The Tax Equity and Fiscal Responsibility Act raised taxes by $37.5 billion per year, and the Highway Revenue Act of 1982 raised the gasoline tax by another $3.3 billion.

According to a recent Treasury Department study, TEFRA alone raised taxes by almost 1 percent of the gross domestic product, making it the largest peacetime tax increase in American history. An increase of similar magnitude today would raise more than $100 billion per year.

In 1983, Reagan signed legislation raising the Social Security tax rate. This is a tax increase that lives with us still, since it initiated automatic increases in the taxable wage base. As a consequence, those with moderately high earnings see their payroll taxes rise every single year.

The following year, Reagan signed another big tax increase in the Deficit Reduction Act of 1984. This raised taxes by $18 billion per year or 0.4 percent of GDP. A similar sized tax increase today would be about $44 billion.

The Consolidated Omnibus Budget Reconciliation Act of 1985 raised taxes yet again. Even the Tax Reform Act of 1986, which was designed to be revenue-neutral, contained a net tax increase in its first two years. And the Omnibus Budget Reconciliation Act of 1987 raised taxes still more.

The year 1988 appears to be the only year of the Reagan presidency, other than the first, in which taxes were not raised legislatively. Of course, previous tax increases remained in effect. According to a table in the 1990 budget, the net effect of all these tax increases was to raise taxes by $164 billion in 1992, or 2.6 percent of GDP. This is equivalent to almost $300 billion in today's economy.

I say all this not to besmirch Reagan's reputation, but simply to set the record straight. The point being that if Ronald Reagan could be corralled into signing tax increases year after year, it is not unreasonable to think that President Bush may falter as well when push comes to shove.

I don't believe that Reagan ever initiated any of the tax increases enacted during his watch. Nor do I think Bush will, either. But when all the political and economic elites of this country gang up on a president to raise taxes, history shows that they always get what they want. Indeed, they were even able to get Bush's father to raise taxes in 1990, even though his political advisers knew that it would likely lead to his defeat in 1992, which it did.

How do the elites break down presidential resistance to tax increases? They do so by promising the moon. Tax increases, they say, will lead to huge reductions in interest rates, which will power economic growth and reduce unemployment. The rich only pay them anyway, which makes the president look like a populist. And tax increases are the price that must be paid to get spending cuts.

This last point is especially laughable. In 1982, Ronald Reagan proudly announced that he was getting $3 of spending cuts for every $1 of tax increase. He later lamented that all he ever got were the taxes. "Congress never cut spending by even one penny, " Reagan complained in 1993.

Earlier this year, Reagan's chief of staff, James A. Baker III, wrote a sort of mea culpa in The Wall Street Journal, saying that he had underestimated the positive economic effects of tax rate reductions. But he didn't repudiate his efforts to get Reagan to raise taxes. It will be interesting to see how Bush reacts when his staff tells him that taxes need to be raised.

[JohnHuang2]

Tuesday, October 28, 2003

Quote of the Day by PMCarey

[goldstategop]

I think the President should move to cut spending by vetoing bills and drive the Democrats crazy by announcing more tax cuts. Let the other side be the tax and spend party.

[nathanbedford]

President Bush will likely be forced into a budget deal involving higher taxes

Has it been brought upon him by his own hand which cannot pick up a veto Pen?

[Fledermaus]

I will, unless something changes, not even bother to vote in 2004.

I can't vote against Bush, but I can't vote for him either.

As usual, I'll take care of myself and will not wait for government or my representatives to do the right thing.

I'm not afraid of the terrorist and I'm not worried about the economy or my income. Bush has to earn my trust and so far he's coming up short.

[poet]

Of course he will increase taxes. He's spending our money and giving GRANTS like a drunken sailor. And, his obscene spending spree will be defended by the defenders of the indefensible come 2004.

[pdjplano]

Politicians appear to be the same, they NEVER look at reducing spending, almost like they have never heard of such heresy!

It just galls me to no end that these people continue to push America into a socialistic society with massive federal spending and programs that shouldn't even exist, or that should exist in a minor form compared to the major mess we have now. I hope others run as independents and put this country back on the right track, or convince the Republicans to get back to what we USED to stand for, smaller government...

[poet]

"or convince the Republicans to get back to what we USED to stand for, smaller government..."

Will never happen. The Republican party has been captured by clones of the democrats and have become a small r party.

California proved how phony the "conservatives" like dreir, brulte, simon and the rest of them are. Every one of them is a political whore. Color them Democrat Lite and that goes for the National party as well.

But, hey, I wear a tin foil hat, so, what can I know?

[The Raven]

I remember the Reagan "taxes" as closing "loop-holes." The marginal rates of 50-70% before Reagan carried some off-sets in the deduction columns.

But the purpose of raising taxes is to continue or increase spending - which is and has been out-of-control on the Federal level.

[NoControllingLegalAuthority]

I will, unless something changes, not even bother to vote in 2004. I can't vote against Bush, but I can't vote for him either.

There are a lot of us that disgusted with both parties. I talked to an electrical utility supervisor a few days ago and he said he voted for Bush last time but cannot vote for him next year. He was furious with the export of good jobs and the flood of illegals taking the jobs left. He said he could stomach a vote for a Democrat but is thoroughly disgusted so he will not vote at all.

People are fed up. Neither major party is considering the best interests of the working American.

A lot of people on this forum may not like the reality but the Republican Party has abandoned many of its positions and has made a lot of good people feel like political orphans.

[NoControllingLegalAuthority]

The above should have read "..could NOT stomach a vote for a Democrat..."

[Coop]

Bush has to earn my trust and so far he's coming up short.

You need to pull your head out. Bush has earned my trust time and again as a leader during war, by restoring dignity to the White House, by cutting my taxes, by respecting our military, and by nominating conservatives to the bench. Not only will I vote for him, but I will volunteer for his re-election campaign.

[WhiteGuy]

Well said.

Unless the gop does a 180 in the next 6 months, I will happily vote for the most conservative non-incumbent candidate.

Third party or write-in - both OK with me.

It's well past the time for our elected to PUT AMERICANS FIRST.

[Fledermaus]

You need to pull your head out. Bush has earned my trust time and again as a leader during war, by restoring dignity to the White House, by cutting my taxes, by respecting our military, and by nominating conservatives to the bench. Not only will I vote for him, but I will volunteer for his re-election campaign.

That's fantastic and I wish all success. But I'm basing my position on the increasing pork spending, bloated entitlements, caving in to Kennedy on education, not being able to reign in the bureaucratic nonsense, and the inability of Bush to control the CIA and State Department.

Like I said, Dems are worse, but I refuse to go into the voting booth and hold my nose yet again for a Republican that NEVER listens to my beliefs. I held my nose for his dad in 1988 and was proved correct in not trusting him when Clinton won in 1992.

[Coop]

hold my nose yet again for a Republican that NEVER listens to my beliefs.

Never? So you're not into conservative judges, strong national defense, fighting terrorism, dignity, all that? Well, that would explain a lot.

I held my nose for his dad in 1988 and was proved correct in not trusting him when Clinton won in 1992.

Proved correct? Sounds more like you were part of the problem - either voting Perot or staying home.

[Fledermaus]

I voted for Bush in 1992 and in 2000. I tried to warn people that Clinton was a jerk and Perot was insane. I lived in Ark from 1970-1983, I knew Clinton was a sociopath.

But if you think we are getting conservative judges, a strong defense, dignity and terrorism fighting, you are deluded and that explains a lot.

What conservative judges? All I see are filibusters and Frist' cowardly giving in. Estrada quit for goodness sakes.

What strong national defense? Why are we still in Bosnia? Kosovo? Haiti? Germany? We are too worried about PC about Muslims to effectively fight them. And explain our open Southern border. If we had a strong national defense, that border would be closed. Screw the immigrant lovers.

How about the fact a soldier that shot his gun into the air twice is being investigated while interrogating an Iraqi? What about the fact the airport screeners are inept? Doesn't sound too strong to me.

And now we have the GOP Senate more worried about the Internet moratorium than our troops in Iraq. Just like Bush 41's entire time was spent on the Americans with Disabilities Act and the cost of cable. All while he caved and raised our tax rates.

And his son first let his tax rate cuts be phased in and then cancelled after 10 years. Wow. That's real principle. He did get them implemented early, thank G-d, but still the marriage penalty hasn't been fully implemented, the child tax credit starts paring back in 2006 and the estate tax comes back in full force in 2011.

Now let's examine the terrorist fighting. Great victories in many forms. But we can't close the borders between Iraq and Syria, Saudi Arabia and Iran. We allow Syria to host terrorist and condemn Israel for bombing them. We suck up to Saudi Arabia at every chance we get. We do nothing in Iran which is ready to explode and could use our help covertly. Just read Michael Leeden.

I think if we are going to make Iraq the central point of our war on terror, then send in 300,000 total troops and get the job done. Bomb Syria. Bomb Lebanon. Threaten Saudi Arabia. Nuke North Korea. Assassinate the Iran mullahs. Slap around Pakistan. Tell France to F off or be put on the list of terror sponsors. Spank Putin and make him cough up some troops.

That strong enough for you?

Would I trust all this to any of the 9 dwarves running for the Dem nomination? Heck no. They are all insane.

But I'm still, at this juncture, having to hold by nose to vote for Bush in 2004.

[Coop]

But if you think we are getting conservative judges, a strong defense, dignity and terrorism fighting, you are deluded and that explains a lot.

There is a disconnect with reality here, but I don't think it's with me.