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The joys of picking and choosing Reagan



The Republicans debating in Dearborn, Mich., predictably donned the cloak of the sainted Ronald Reagan. The presidential candidate most convincing in his Reagan-ness, however, was not there.

He is, of all people, John Edwards, the former North Carolina senator and a Democrat. Now why would anyone say that Edwards is Reaganesque, when he’s proposing tax hikes on the rich?

Because Reagan did also. Once it became clear that his taxslicing and spree-spending (done in collaboration with Congress) was creating monster deficits, Reagan signed tax increases – eight times. Reaganomics was a disaster that Reagan himself started reversing, though he still left behind a pile of debt.

The next president, Republican George H.W. Bush, worked on the pile, courageously raising taxes. His party’s free-lunchers tore him to pieces. Democrat Bill Clinton further hiked taxes, and also at a high political price. But by the time Clinton left office, America was sitting pretty with a handsome surplus.

Then came George W. Bush, candy man extraordinaire. Big tax cuts and big spending were back – and with them deficits that will leave America in awful fiscal shape for the baby boomers’ retirement.

Despite the recklessness – and a public appalled by it – leading Republican candidates on the Michigan stage were in full tax-cut mode, boasting of past achievements and slashing to come. They sidestepped the matter of where spending reductions might be made, preferring the fantasy that tax cuts always pay for themselves.

Reagan outgrew that whimsy. The Tax Reform Act of 1986 lowered the top tax rate from 50 percent to 28 percent – but it raised taxes on capital gains by treating them as ordinary income. For high-earners, this had the effect of boosting the capital gains tax to 28 percent from an effective rate of 20 percent.

In addition to providing new revenues, the higher capital-gains tax was seen as a fair compromise. If the rich were enjoying a big break on income taxes, they shouldn’t also need a special deal on their stock-market profits.

The younger Bush does not care about such niceties. He cut rich people’s tax rates and pushed the capital-gains rate down to 15 percent. That’s why the earnings of many teachers, police officers and secretaries are now taxed at far higher rates than the millions investors make in the stock market.

Back to John Edwards: Debating fellow Democrats in Davenport, Iowa, Edwards was asked how he’d pay for his health-care proposals. He suggested raising the capital-gains tax to 27 percent for people making more than $250,000, which would be less of a tax hike than Reagan’s. But at least two of the Reagan wannabes in Dearborn – former New York Mayor Rudy Giuliani and former Massachusetts Gov. Mitt Romney – have responded with predictions of economic ruin.

Reagan’s biggest tax increase was on the working stiffs. We speak of the jump in the Social Security payroll tax. The Democratic Congress went along because the new revenues would keep payments flowing to current retirees, and the excess would be set aside (in Treasury securities) for when baby boomers retired in force.

The plan worked well. Social Security should be solvent until 2041, by which time the baby boom will be mostly history.

But in Dearborn, candidate Tom Tancredo, the Republican congressman from Colorado, seemed unaware that Social Security is doing fine in part because of a Reagan tax increase. Tancredo can be half forgiven, having been exposed to Bush propaganda that Social Security was sinking. (The alarms were rung in a failed effort to con workers into handing their Social Security savings over to Wall Street – something Tancredo supports.)

Yes, the Republican candidates can pick-and-choose Reagan. But Reagan changed course so much, anyone can.

©2007 The Providence Journal Co.

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