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Really Not the ‘Reagan Rule’


Yesterday, President Obama attempted to claim that Ronald Reagan would have supported the “Buffett Rule” — a dubious claim, I pointed out yesterday, even if one compares just the tax policies enacted under Reagan with Obama’s new meddling minimum tax. But, as John Berlau documented in an insightful 2005 National Review piece, it also isn’t fair to claim that the end result of Reagan’s reforms represent his true vision for tax reform. Berlau was responding to liberal critics (including, surprise, Jonathan Chait) of the Bush tax cuts, who had, like Obama, attempted to turn the Right’s rhetoric against it. They argued, among other things, that Bush’s proposals were anti-Reaganite because they proposed more-preferential treatment of capital-income, the opposite of Reagan’s policies.

As Berlau points out, Reagan’s proposals, and therefore his ideal policies and ideological preferences, aren’t the same as the laws that were actually passed — and the differences are revealing.

For one, Berlau notes, liberals have time and again made much of the fact that the Reagan tax reforms actually raised capital-gains rates, which the Buffett Rule will in effect do for most of the millionaires who don’t currently “pay their fair share” (since they derive income from capital, not labor). In fact, I admitted this could be a putative similarity between the two proposals. But Berlau explains that Reagan recognized the importance of encouraging investment, and actually hoped to cut the rate, keeping it below the parallel earned-income one:

Reagan’s original 1985 proposal would have cut the capital-gains tax. He had reduced the rate from 25 percent to 20 percent in his 1981 tax cut and wanted to reduce it to 17.5 percent in his new tax reform. In his televised address unveiling the plan, Reagan proclaimed: “To marshal more venture capital for new industries — the kind of efforts that begin with a couple of partners setting out to create and develop a new product — we intend to lower the maximum capital-gains tax rate to 17-1/2 percent.”

It was only after a bruising legislative fight that conservatives admitted that, in order to lower marginal income-tax rates, they would have to agree to raise capital gains rates.

Also notably, while the difference between Obama’s tax-code complications and Reagan’s simplifying reforms is obvious enough, it’s worth nothing that Reagan was so obsessed with treating all earners differently, regardless of what constituted their “fair share,” that he originally proposed closing more loopholes than he did. Berlau writes:

Reagan was particularly passionate on scrapping the state and local deduction, which he saw as a subsidy to high-income filers in high-tax states. It was members of Congress from both parties scrambling to preserve their favored deductions — rather than any grand doctrine of taxation — that was ultimately responsible for the tax hikes on capital gains and IRAs.

The differences between President Obama and President Reagan’s approaches to taxation are obvious enough to any reasonable observer, but it should still be noted that liberals’ attempts to parrot Ronald Reagan for their own purposes are even more deceptive than they seem.