The Myth of Reagan's Tax Cuts

Great story on NPR this morning about the enduring myth that Ronald Reagan refused on principle ever to raise taxes. Grover Norquist, for instance, claims that "we're spending too much, not taxing too little. It can be turned around. It was, in fact, when Reagan cut taxes. Tax hikes are what politicians do when they don't have the determination or the competency to govern."

Here's the trick, though: Reagan did cut taxes severely in his first year in office - but then he raised them 11 times before his presidency was over. As historian Douglas Brinkley, the editor of Reagan's diaries, explains, "Ronald Reagan was never afraid to raise taxes. He knew that it was necessary at times." Over time, these tax increases sliced his original tax cut in half.

Why did Reagan have to raise taxes? Because, try as he might, he couldn't find a way to cut the federal budget enough to make up for the revenue lost to his 1981 tax cuts. Sure, he decimated lots of important federal programs - but he raised the defense budget so much that he was faced with a choice of higher taxes instead of a higher deficit. He chose the taxes.

Republicans today, though, who claim to be his heirs, seem to be making the opposite choice. They refuse to even consider tax increases* and continue making exaggerated claims about how they're going to cut federal spending.

I recently attended a presentation by some distinguished historians about studying the 1980s, during which they made the point that the whole decade is overshadowed by the larger-than-life mythical persona of Ronald Reagan. David Stockman, Reagan's budget director, now talks about Reagan-worship as a kind of religion, and Brinkley says that calling Reagan only a tax-cutter is "outright revisionism, if not fabrication of history."

For us to really understand the 1980s, and for us to make progress today, we have to stand on the solid ground of reality, not myth. And that reality is that governments need money, and it's painfully obvious to everyone right now that they don't have enough of it. We cannot possibly cut spending enough to significantly cut the deficit while still funding necessary programs; we will have to find new ways of raising revenue. And that will mean tax increases of some kind, and the sooner we can all agree on that and start debating what kind of tax increases we want, the better off we will be.

* I put an asterisk on this because one of the major things that's left out of the conversation about tax increases is other ways that our governments (federal, state, and local) raise revenue. These are things like the lottery (accounting for $17 billion in 2006), highway tolls, fees for services (did anyone else's car registration costs just go up?), and the like. All of these are regressive taxes, costing proportionally more of a poor person's income than of a rich person's, and some of them - like the lottery - draw revenue overwhelmingly from poor people, who should least be paying it. These revenue sources are often hidden from public view in our discussions of "taxes," and people who argue for tax cuts are then shocked - shocked! - when their highway tolls go up.