Economy & Business

What Would Reagan Think of the GOP’s Tax Bills?

Former President Ronald Reagan in 1991 (Reuters photo: Gary Cameron)
He had three core principles. Not one is on display here.

It’s a simple question, and perhaps the easiest and best way to gauge whether the tax-cut bill Republicans are racing through Congress lives up to its billing: What would Reagan do?

Would Ronald Reagan, who made supply-side economics mainstream, support this bill? Of course, the Gipper has left us, so it is impossible to know with certainty. What we can be certain of, however, are the principles that guided his economic philosophy, which in turn won overwhelming public support for tax cuts, propelled our economy to record growth, and transformed the political landscape.

We can identify three core principles President Reagan championed with conviction, passion, and resolve. They represented wisdom gleaned from his lifetime of experience and studying America’s economy, politics, and history, set on course by the brilliance of the Founders. All are missing from the current legislation.

Growing up in rural Illinois, Reagan developed a deep love for everyday Americans and trust in the power of their faith, optimism, hard work, and pioneering spirit. And he became infuriated by politicians he viewed as arrogant, dimwitted, and forever erecting roadblocks to prosperity, robbing people of their dreams.

Accordingly, Reagan’s first principle was to dedicate tax rate reductions to the American people — individuals first, corporations second. In the 1980 campaign, Reagan repeatedly told his audiences, “We’re the party of Main Street, not the party of the corporation board room and the country-club set. Let’s tell the cop on the beat and the shopkeeper.”

And he did. Both the 1980 tax reductions and the 1986 tax reform focused on bold rate reductions for individuals, including millions of mom-and-pop enterprises — the little engines of innovation and job creation — that paid taxes on their earnings through the individual income tax and represented over 90 percent of all small businesses. Corporations also benefited from new incentives for research and development and the right to write off immediately new investments for equipment and technology.

Given the historical record — the most powerful economic boom in modern times — it is startling to see today’s Republicans throwing away Reagan’s playbook. Lowering the corporate tax rate from 35 to 20 percent is the GOP’s new Alpha and Omega. The large corporate tax cuts will be permanent, while smaller tax cuts for individuals and families will be temporary. Supporting individuals, families, and small enterprises struggling against the ravages of Obamacare, not to mention years of rising taxes and living costs with no earnings growth, is not a priority.

This reversal is clearly seen in the abandonment of Reagan’s second core principle — equity and fairness. Reagan’s rate cuts were for everyone. We all rise together. In addition, his 1986 tax reform sought to ensure that the elimination of major deductions — such as interest for consumer loans and credit-card debt — would be shouldered by citizens in the broadest sense.

Both of today’s GOP bills, House and Senate, violate these standards of equity and fairness. In the Senate bill, which is being debated and voted on this week, Republicans claim that by slightly lowering rates and adjusting income ranges, as well as doubling the standard deduction and eliminating the Alternative Minimum Tax, they can ensure that everyone will receive a tax cut — or, as the president describes it, “a huge tax cut for Christmas.”

Unfortunately, while taxes for most low- and high-income payers will decrease, many middle- and upper-middle-class payers will receive little or no tax relief, and some will even face higher taxes. Mom-and-pop enterprises won’t see the same tax cuts that corporations do — and the elimination of several common deductions is aimed directly at the middle class. Here are some of the items on the GOP chopping block:

‐ The personal exemption of $4,050 per taxpayer and dependent claimed on a return.

‐ The deduction for interest on student loans.

‐ In the Senate bill, deductions for state and local taxes, including property taxes, have been eliminated entirely. This is effectively double taxation — a tax on income people have earned but cannot keep.

Some cynics call this “smart politics” — let’s stick it to blue states. However, if smart politics means renouncing the strategy that led to a Republican president’s once-in-a-lifetime victory by uniting the entire country around shared aspirations, the new punitive approach may lead to election-night tears, rather than joy and celebrations.

The new punitive approach may lead to election-night tears, rather than joy and celebrations.

Reagan’s third core principle was to stop inflation from pushing people into higher tax brackets over time. The solution was simply to index all the brackets to the Consumer Price Index.

The GOP bills would index tax brackets (and the standard deduction) to a different measurement of inflation, the Chained Consumer Price Index. This rises more slowly than does the traditional CPI. As a result, taxpayers will move into higher tax brackets faster, leading to higher income-tax bills over time.

For the GOP — the Party of Lincoln and the Party of Reagan — to turn its back on its own principles will be to turn its back on millions of its own, most faithful followers, and to imperil its future. As another beloved Republican leader, Jack Kemp, used to tell us, good economics is good politics. Fortunately, the GOP still has time to propose and pass good economics that can lead to good politics. But only by rededicating itself to these age-old principles that have never failed us when we’ve remained true to them.


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