Confusion about tax cuts traces to Reagan
I think I may have found the seeds of the 鈥渓argest tax increase in American history鈥� rhetoric鈥搕he start of Americans鈥� confusion about tax cuts vs. tax increases, whether tax cuts add or subtract from the deficit, and whether tax cuts shrink or grow the size and reach of government.
One of my kids first shared the photo above, from a July 1981 address of President Reagan to the nation on competing tax proposals being considered in Congress at that time. Only when I first saw the photo I didn鈥檛 know what 鈥渙ur bill鈥� vs. 鈥渢heir bill鈥� referred to and the first thing to come to me (perhaps because the photo came from my daughter) was that 鈥渙ur bill鈥� meant 鈥渙ur generation鈥檚 bill鈥� (what we would pay for) and 鈥渢heir bill鈥� meant 鈥渙ur kids鈥� bill鈥� (what they would end up paying for).
I had to hunt down and watch the video of the address () to figure out that Reagan was referring to his Administration鈥檚 favored tax cut proposal (which he labels a 鈥渂ipartisan鈥� bill) versus a competing Democratic proposal (which also was for a tax cut but a smaller tax cut that ends up being labeled a tax increase).
In any case, how is this address supposed to have helped Americans understand what was at stake regarding tax proposals, the deficit, and the role of government? Note the highly informative (not) labeling of the Y axis scale in the chart Reagan features, and the general obfuscation of the choice between the competing tax (cut) proposals.
If you read Chapter 5 on 鈥淭he Early Reagan Era: 1981鈥� in Gene Steuerle鈥檚 excellent book , you鈥檒l see this assessment of Gene鈥檚 in the section titled 鈥淚t Didn鈥檛 Add Up鈥� (pages 96-97):
The 1981 tax reductions were in many ways an extremest parody of previous tax reform efforts, especially the Kennedy round of tax reduction. Investment incentives proliferated and drove many tax rates to zero or below鈥ase broadeniing to remove special preferences that reduced that tax base was abandoned鈥搉ot just early on, as in the Kennedy round鈥揵ut completely.
Most of all, the change in underlying budget conditions was set in the law, and Congress in 1981 effectively removed the fiscal slack that the next congresses would need to enact their own laws and set their own priorities. This was the biggest mistake of all鈥he 1981 cut鈥as enacted in an era when it would be vastly harder to harvest future revenues that hadn鈥檛 yet been committed.
I know there鈥檚 a lot of nostalgia right now about President Reagan given his 100th birthday, but it鈥檚 clear our politicians didn鈥檛 need that as an excuse to renew the early-Reagan-era rhetoric. But they should read ahead to the next chapter in Gene鈥檚 book that talks about the tax increases that began the very next year (1982). Tax policy tends to be cyclical like fashion; what goes around comes around.
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