The Real Threat of Right-Wing Tax Plans: They Become Law
October 28, 2015
By Eric Harris Bernstein
When Jeb Bush’s proposed $100 billion tax cut for the top 1 percent was followed by Donald Trump’s $1 trillion dollar annual reduction, and then by Ben Carson’s call for biblical taxation, I was amused. It’s not that I take taxes lightly; it’s just that the various Republican candidates’ plans seemed too extreme to be serious. The proposed cuts (overwhelmingly for the wealthy) are so obviously not what the American economy needs and so clearly not what the American people want that I felt comfortable assuming they were intended to grab headlines and establish anti-tax street cred, but not to act as an outline for actual legislation.
My cynic’s instinct said that tax platforms are unimportant, and that the media’s heavy coverage of them is pure click-baiting. But to be sure, I dug back to answer a pair of questions: Have Republicans always taken such extreme stances on taxation? And if so, do these proposals ever really translate into policy?
On both counts, the answer is alarming.
In his failed but influential 1964 run for office, Barry Goldwater campaigned on a flat income tax. To be clear: this is not a serious idea. Depending on the rate, such a policy would likely cost the federal government more than a quarter of all its revenue; by the time we fueled the jets at Andrew’s, we would have bankrupted Social Security. So, in answer to our first question, the “shock and awe” tax plan is nothing new.
It would be easy to say that unrealistic ideas like this were the reason Goldwater carried only six states in the general election, but the idea didn’t die with Goldwater’s presidential aspirations. In fact, it gained steam: The flat tax campaign platform is survived by not one, but three 2016 candidates. Recently, the Citizens for Tax Justice estimated that Rand Paul’s proposal of a flat 14.5 percent rate on income would cost about $1.6 trillion per year. That is more than half of all 2014 federal tax revenue. It is unclear exactly which government services Senator Paul plans on cutting to pay for this policy, but if he’s looking for ideas, disbanding the entire armed forces would get him about halfway there.
It’s easy and fun to point out the problems with aggressive Republican tax cut plans, but there is also a sad and scary aspect to their proliferation. The Goldwater example shows that ideas—even really, really bad ones—have power.
Ronald Reagan’s 1980 campaign, which was also heavily influenced by Goldwater, emphasized the idea that America needed tax cuts to stimulate the economy. The plan he favored—outlined in a bill by Senator William Roth and Congressman Jack Kemp—proposed a phased-in income tax cut that would cost roughly $500 billion over five years. This would be a large price tag even by today’s budgetary standards, but in 1979, that figure was truly gargantuan, representing more than 18 percent of all federal spending over that time period.
Again, this is the kind of proposal some might be tempted to laugh off. The problem is that on August 13, 1981, President Reagan signed the (very similar) Economic Recovery Tax Act into law, cutting income tax rates by 23 percent and lowering the capital gains rate from 28 to 20 percent. This helped rig the tax system in a way that favored capital over labor and gave birth to trickle down economics
So, on the second question, we have another disappointing answer: Yes, it appears these outrageous plans do sometimes become law.
Thankfully, as one would hope, it was not long before Reagan’s cuts proved unsustainable and he backed off his position by raising taxes to a slightly more sustainable level with 1982’s Tax Equity and Fiscal Responsibility Act. But does a political environment that awards grandstanding over reason, and renewed 21st century anti-tax fervor, allow politicians the leeway to do something as sensible as correct a mistake, or revise their thinking on aggressive tax cuts?
I fear the answer to this question is as worrisome as the previous two.
Enormous, splashy tax cuts now seem an absolute prerequisite for any good, pro-business candidate hoping to replicate the growth of the 1980s. In 2000, George W. Bush campaigned on a 10-year, $1.9 trillion tax cut, roughly 60 percent of which would go to the top 10 percent. The cut that Bush actually passed was only slightly more mild than the one he proposed, estimated to have cost $2 trillion over the 16 years from 2001 to 2017. The cuts left income tax revenues at their lowest level since 1951 and transformed an $888 billion surplus into a $1.5 trillion deficit.
You can read more about the negative economic impact of the Reagan and Bush tax cuts in the Roosevelt Institute’s Rewriting the Rules report, but for now it will suffice to say that in 2008, America entered a long and painful recession and recovery that has exposed the true cost of runaway tax cuts for the top and lacking investment for the country as a whole.
Now, just eight years later, we are asked to believe again that enormous tax cuts for the wealthy, the likes of which would make even Reagan blush, are the solution to our economic woes. It’s laughable, but I will not ask you not to laugh. Instead, when you watch tonight’s debate, and throughout this campaign season, as you poke fun at your favorite Republican candidate’s tax plan, don’t forget to consider one thing: This crazy scheme might actually be law someday.