Here’s what Donald Trump could learn from Ronald Reagan about tax reform
It was October 1986.
After a grueling 10 months pushing for the massive tax reform he’d promised in his State of the Union address more than two years earlier, and ran on in his 1984 re-election campaign, former President Ronald Reagan stood on the South Lawn of the White House, on a sunny autumn morning, to announce the tax cuts that would cement his status as a kind of political deity for conservatives for decades to come.
“When I sign this bill into law, America will have the lowest marginal tax rates and the most modern tax code among major industrialized nations, one that encourages risk-taking, innovation, and that old American spirit of enterprise,” Reagan said. “I’m certain that the bill I’m signing today is not only an historic overhaul of our tax code and a sweeping victory for fairness, it’s also the best anti-poverty bill, the best pro-family measure, and the best job-creation program ever to come out of the Congress of the United States.”
The Tax Reform Act of 1986 — which dramatically slashed both the top individual tax rate and the corporate tax rate — remains the most sweeping overhaul to the federal tax system since the Sixteenth Amendment, and a legislative north star for Reagan’s Republican acolytes more than 30 years later.
President Donald Trump is trying to rally his party behind his own dramatic tax cuts for a possible vote this week — ones he’s characterized as the “biggest ... in the history of our country.”
But Reagan’s legacy on taxes is more complicated than the conservatives who revere him would let on — and there are lessons Trump and the GOP could learn from his reforms in the 1980s.
Reagan tax cuts caused deficit headaches
Reagan famously enacted two big tax cuts during his tenure: in 1981 and 1986.
As CNN observed in 2010, those took the top income tax rate from 70% all the way down to 28% — certainly a major drop.
But an ensuing spike in the deficit forced Reagan to actually raise taxes at various points in his presidency.
Alan Simpson, a former Republican senator from Wyoming who served as the party whip as Reagan pushed for his second round of tax cuts, noted on NPR on the 30th anniversary of the TRA’s passage that the Gipper hiked taxes 11 times during his time in office.
Bills he signed in 1982 and 1984, in fact, represented “the biggest tax increase ever enacted during peacetime,” tax historian Joseph Thorndike told CNN.
Like Reagan’s, Trump tax cuts would also result in a big increase in the federal deficit.
According to an estimate from the Congressional Budget Office, the deficit would grow by $1.4 billion over the next ten years — something that could negatively impact the economy in the long run, and could cause the GOP some political headaches, considering they spent former President Barack Obama’s presidency complaining that his “leadership on deficit reduction leaves America’s future in the balance.”
Though Reagan believed in lowering taxes, he recognized that his severe cuts had consequences, his former budget director David Stockman told NPR in 2011, and the president was forced to undo a significant portion of his own early reforms.
“He did it reluctantly,” Stockman said. “But at the end of the day, the math was overwhelming.”
The Trump administration so far has not publicly indicated they take the CBO’s deficit numbers seriously. While the president tweeted Monday that there will be “some mathematical” tweaks to the bill, his budget director Mick Mulvaney over the weekend directly challenged the nonpartisan cost estimate’s credibility, telling CNN it “refuses to give any value at all to the dynamic effects of lowering taxes and letting people keep more of their own money.”
Tax cuts may not bring promised economic growth
Mulvaney’s argument, essentially, is that the tax cuts will pay for themselves through economic growth.
But, as former CBO director Douglas Holtz-Eakin told NPR last week, that notion seems far-fetched.
“We don’t have any experience that says that,” Holtz-Eakin said. “We don’t have any reason to believe that’s true.”
Further, economists have questioned how much tax cuts really help the economy.
The New York Times’ Paul Krugman wrote in 2008 — in the twilight days of the presidency of George W. Bush, himself an enthusiastic cutter of taxes — that the “Reagan economy was a one-hit wonder,” a bubble followed by a burst.
“Yes, there was a boom in the mid-1980s, as the economy recovered from a severe recession,” Krugman wrote. “But while the rich got much richer, there was little sustained economic improvement for most Americans.”
Krugman, of course, is a left-leaning economist, so it perhaps makes sense that he would not buy into the “failure” of Reaganomics.
But even Bruce Bartlett — a former policy adviser to Reagan who helped push his landmark tax cuts — acknowledged in 2017 that lowering taxes is not a panacea for all that ails the economy.
In an op-ed for the Washington Post in September, Bartlett wrote that “the prosperity of the ’80s is overrated in the Republican mind” and that “there’s no evidence that a tax cut now would spur growth.”
“There is no evidence showing a boost in growth from the 1986 act,” Bartlett wrote. “The economy remained on the same track, with huge stock market crashes ... Real wages fell.”
By contrast, he suggested that tax increases by former presidents Bill Clinton and Obama edified the economy — and countered the “myth” that the economy was better off with Republicans at the reins.
“Republicans have failed to make a sound case that it’s time to cut taxes,” Bartlett argued. “Nor have they signaled that they’ll commit to a viable process.”
Trump tax plan will be tough to enact
Trump’s tax plan cleared an important hurdle Tuesday afternoon, with Republicans passing through the Senate Budget Committee in a party line vote.
That said, it still faces a tough road forward as party leaders prepare to bring it to a vote. Because no Democrats are expected to vote for the bill, more than two Republican defections could doom it — handing Trump and the Republicans yet another humiliating legislative defeat.
Reagan, too, faced challenges en route to his historic tax reform 31 years ago — he acknowledged as much in his remarks on the South Lawn before he signed it.
“The journey’s been long, and many said we’d never make it to the end,” Reagan said. “I feel like we just played the World Series of tax reform and the American people won.”
Reagan’s reform had bipartisan support — and still nearly failed over close to a year of negotiations.
Trump, by contrast, is trying to push his tax cuts through a bitterly divided Capitol Hill, and will need to rally a fractured Republican party in support of the plan — something he has already failed to do several times on health care.
He has made a difficult process harder, the New York Times reported in October. Impulsive, divisive and apparently lacking an ability to navigate the important specifics of the plan, lawmakers in his own party are worried that the president could undermine their efforts to pass these dramatic cuts.
“We have to worry about him shifting positions,” Rep. Charlie Dent (R-Penn.) told the Times.
Many Republicans remain concerned about the bill’s repeal of the Affordable Care Act’s individual mandate, likely deficit increases and that the cuts will largely benefit the country’s top 1% of earners.
But Trump has publicly expressed confidence in the bill’s future, tweeting it is “coming along very well” with “great support.”