Transformative Change
Posted on Mon Aug 30, 2010 at 12:38:20 PM EST
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A few weeks ago, I wrote about a Kevin Drum post in which he declared that in terms of enacting transforming change, President Obama was "clearly better than Carter and Clinton and quite possibly the equal of Reagan." I questioned the premise in terms of not only crediting Obama with transformative change but also crediting Reagan with having achieved it.
In an e-mail exchange with Drum, he fleshed out his argument that Reagan was transformative - stating that Reagan won the tax argument for a generation and made the case for the triumph of unfettered capitalism. Drum also mentioned Social Security reform and nuclear reduction treaties as transformative change. The last two points strike me as silly - certainly conservatives do not think of the last two as great triumphs for Reaganism. But I would like to consider the first 2. Let's discuss them on the flip.
In 1981, Ronald Reagan requested and lobbied for tax cuts. He succeeded - the Economic Recovery Tax Act was enacted. It was a big tax cut:
* phased-in 23% cut in individual tax rates; top rate dropped from 70% to 50%
* accelerated depreciation deductions; replaced depreciation system with ACRS
* indexed individual income tax parameters (beginning in 1985)
* created 10% exclusion on income for two-earner married couples ($3,000 cap)
* phased-in increase in estate tax exemption from $175,625 to $600,000 in 1987
* reduced Windfall Profit taxes
* allowed all working taxpayers to establish IRAs
* expanded provisions for employee stock ownership plans (ESOPs)
* replaced $200 interest exclusion with 15% net interest exclusion ($900 cap) (begin in 1985)
Did it transform the federal government? Hardly. Indeed, parts of the bill never even saw the light of day: "The accelerated depreciation changes were repealed by Tax Equity and Fiscal Responsibility Act of 1982 and the 15% interest exclusion repealed before it took effect by the Deficit Reduction Act of 1984." And of course, in 1983, Reagan signed the biggest tax increase in history - the Social Security Amendments of 1983:
Under the 1983 amendments to Social Security, signed into law by President Ronald Reagan, a previously-enacted increase in the payroll tax rate was accelerated, additional employees were added to the system, the full-benefit retirement age was slowly increased, and up to one-half of the value of the Social Security benefit was made potentially taxable income.
And in 1986, Reagan signed the 1986 Tax Reform Act:
The top tax rate was lowered from 50% to 28% while the bottom rate was raised from 11% to 15% since many lower level tax brackets were consolidated, and the upper income level of the bottom rate was increased from $5,720/year to $29,750/year. This package ultimately consolidated tax brackets from fifteen levels of income to four levels of income. [. . .] In addition, capital gains faced the same tax rate as ordinary income. Moreover, interest on consumer loans such as credit card debt were no longer deductible. An existing provision in the tax code, called Income Averaging, which reduced taxes for those only recently making a much higher salary than before, was eliminated (although later partially reinstated, for farmers in 1997 and for fishermen in 2004). The Act, however, increased the personal exemption and standard deduction.
The rate structure also maintained a novel "bubble rate." The rates were not 15%/28%, as widely reported. Rather, the rates were 15%/28%/33%/28%. The "bubble rate" of 33% simply elevated the 15% rate to 28% for higher-income taxpayers. As a result, for taxpayers after a certain income level, TRA86 provided a flat tax of 28%. This was jettisoned in the Omnibus Budget Reconciliation Act of 1990, otherwise known as the "Bush tax increase", which violated his Taxpayer Protection Pledge.
The reform eliminated many many deductions that largely favored the wealthy (and holding capital income to pay the same rates as ordinary income was extremely hard on the very wealthy) and the bill was touted as "revenue neutral." More importantly, the "reform has basically been washed away, with conservatives complaining about it.
In the end, Reagan's "tax transformation" was basically ephemeral at the time. Both his immediate successor, George H.W. Bush, and Bill Clinton, raised taxes, especially on the wealthy.
In 1990, Bush signed a deficit reduction bill that relied primarily on raising taxes on the wealthy:
Early in his term, Bush faced the problem of what to do with leftover deficits spawned by the Reagan years. At $220 billion in 1990, the deficit had grown to three times its size since 1980. Bush was dedicated to curbing the deficit, believing that America could not continue to be a leader in the world without doing so. He began an effort to persuade the Democratic controlled Congress to act on the budget; with Republicans believing that the best way was to cut government spending, and Democrats convinced that the only way would be to raise taxes, Bush faced problems when it came to consensus building.
In the wake of a struggle with Congress, Bush was forced by the Democratic majority to raise tax revenues; as a result, many Republicans felt betrayed because Bush had promised "no new taxes" in his 1988 campaign. Perceiving a means of revenge, Republican congressmen defeated Bush's proposal which would enact spending cuts and tax increases that would reduce the deficit by $500 billion over five years. Scrambling, Bush accepted the Democrats' demands for higher taxes and more spending, which alienated him from Republicans and gave way to a sharp decrease in popularity.
And of course, as discussed before by me, President Clinton signed the Omnibus Budget Reconciliation Act of 1993 which:
It created 36 percent and 39.6 income tax rates for individuals. [up from 33% top rate]
It created a 35 percent income tax rate for corporations. [up from 28%]
The cap on Medicare taxes was repealed. [Making it less regressive.]
Transportation fuels taxes were raised by 4.3 cents per gallon. [Helpful for the environment.]
The taxable portion of Social Security benefits was raised.[Making wealthier seniors pay more in taxes.]
The phase-out of the personal exemption and limit on itemized deductions were permanently extended. [Again, making wealthier Americans pay more in taxes.]
Part IV Section 14131: Expansion of the Earned Income Tax Credit and added inflation adjustments [In essence eliminating taxes for the working poor.]
In sum, after Reagan's "transformative change" of 1981, never again were taxes cut. Instead, Reagan himself, Bush 41, and Clinton raised taxes, especially on the wealthy and Clinton reduced the tax burden on the working poor through the expansion of the Earned Income Tax Credit.
What Drum argues was a "transformative change" was not. Of course, George W. Bush did cut taxes for the wealthy. And now those tax cuts should be undone and will be, if Dems are firm.
Contra Drum, there is no majority public support for maintaining Bush' tax cuts for the wealthy and for corporations. In other words, Reagan lost the argument on tax cuts for the wealthy.
In addition, Reagan lost his battle against FDR regarding the vision and structure of the federal government. Reagan made no inroads in reducing the role of the federal government at all. Indeed, Drum actually pointed out to me in an e-mail that Reagan won the battle over increasing the size of the federal government with regard to military spending. If Reagan had a transformative effect, it was here.
Bill Clinton was at least Reagan's equal in terms of transforming the debate about taxes and government. Clinton's 8 years of "peace and prosperity" were marked by an inrease in taxes for the wealthy and a recommitment to the positive role of the federal government. At the end of his Presidency, Clinton fought and beat the Gingrich Republicans in their attempts to gut Medicare and Social Security and indeed all aspects of the wlefare state. Indeed, in the last 3 years of his Presidency, Clinton issued 27 vetoes of GOP legislation (PDF).
And of course, in 1995, Clinton issued 11 vetoes in his fight with Gingrich that led to the shutting down of the government. Clinton won that battle. And then won reelection.
Now of course those battles are ongoing to this day. And that is indeed precisely my point. Look how those battles are fought - no one is arguing for a wholesale dismantling of the federal government, as Reagan did early in his Presidency. FDR won the battle.
And indeed, the only transformative President of the last 100 years - the one who has won the ideological battle for the foreseeable future, remains FDR.
Neither Reagan, nor Clinton nor Obama have enacted "transformative change." And it is silly to pretend otherwise.
Speaking for me only
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