Follow Ronald Reagan’s actions about tax increases

Posted 4 February 2011 by
Official Portrait of President Reagan, 1981

Official Portrait of President Reagan, 1981

In this present crisis, government is not the solution to our problem; government is the problem. From time to time, we’ve been tempted to believe that society has become too complex to be managed by self-rule, that government by an elite group is superior to government for, by, and of the people. Well, if no one among us is capable of governing himself, then who among us has the capacity to govern someone else? All of us together, in and out of government, must bear the burden. (Ronald Reagan, first inaugural address)

This statement from Ronald Reagan’s first inaugural address sums up his attitude towards using expert advice and guidance towards solving problems. He thought we all would be able to solve the then-current economic crisis by getting government out of everyone’s way.

One way to do this was to roll back tax rates.

Reagan consistently promoted this point of view about rolling back taxes from before his election as governor of California. He said he wanted to solve California’s economic problems by reducing expenditures by 10%. When it came to enacting withholding money from paychecks for state income taxes to solve a cash flow crisis, he opposed it and added:

My feet are in concrete.

The interesting thing is that after his election to be governor, Reagan’s tune changed a bit on withholding.

That sound you hear is the concrete breaking around my feet.

He supported withholding to solve the cash flow crisis. Instead of trimming the budget by 10%, Reagan’s first budget increased spending by 10%. He also signed the largest to date income tax increase in California.

Total expenditures under Governor Reagan went up from $4.6 billion to $10.2 billion. So much for Governor Reagan’s fiscal conservative rhetoric.

What happened when Reagan moved his conservative principles to the White House?

Reagan did manage a modest decrease in domestic spending. Offsetting it was a major increase in military spending and middle class entitlements. While reluctant, Reagan supported increasing taxes 11 times to reduce the deficit after it exploded. Somehow, Reagan managed to get away with it.

At some point there needs to be an adult conversation about this. Reagan accepted the damage, and agreed to increase taxes.

When George W. Bush was president, Reagan’s rhetoric about taxes had to be obeyed. Even if the deficit soared, you could not use increased taxes to solve the problem. There was no discussion about what Reagan did when confronting the same issue. Building up military spending, fighting to wars “off budget” with supplementary budget resolutions, and not doing anything meaningful to reduce the increase in expenditures on the same middle class entitlements did exactly the same thing it did during Reagan’s two terms in office.

Why did people ignore Reagan’s response to budget deficits?

Now we have a larger problem with deficits. When taken as a percentage of the gross domestic product, deficits still are not has high as they were after the Great Depression and World War II. However, something needs to be done to reverse the trend.

In 1988—Reagan’s last year in office—the average tax rate on adjusted gross incomes for all tax payers was 13.21% (the highest percentage paid was 24.04%) according to the Tax Foundation (Table 8). In 2008, the average was 12.24% (the highest was 22.70%).

I would say it is time to do as Reagan did and not as he said. It is time to raise taxes on adjusted gross income to match taxes during Reagan’s last year in office, at the very least.

(Happy 100th birthday, Gipper.)

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