Lessons for Modern Conservatives Ronald Reagan Increased Taxes and the Economy Picked Up
In 1982, with the economy struggling badly and unemployment pushing 11%, President Reagan agreed to a tax increase. Under the thinking that dominates Republican thought in the 21st century, such a policy would, of course, represent true insanity. After all, “everyone knows” tax increases “kill jobs.” If there was already a jobs crisis, why would Reagan dare do such a thing?
At the time, the right was livid, and made all kinds of drastic predictions about the consequences of this misguided policy. Bruce Bartlett, a former official in the Reagan administration, this week flagged a letter U.S. Chamber of Commerce president Richard Lesher sent to Congress in August 1982, analyzing the proposed tax increase:
“If H.R. 4961 is passed in these troublesome economic times, we have no doubt that it will curb the economic recovery everyone wants. It will mean a lower cash flow as more businesses pay more taxes, with a depressing effect on stock prices. It will reduce incentives for the increased savings and investment so badly needed to improve productivity and create more jobs. It will mean higher prices for many products and services. It will increase government costs in caring for those who, because the economy is held down, cannot find employment.”
As Bruce noted in his column, “It would be hard to find an economic forecast that was more wrong in every respect.” He added that it wasn’t the Chamber that had it backwards.
Economist Arthur Laffer told his clients on July 26, 1982, that the Tax Equity and Fiscal Responsibility Act, which raised taxes by about one percent of GDP, “will stifle economic recovery,” “retard economic growth,” and undercut “the economy’s ability to enter into a period of expansion.” On August 20, 1982, he told his clients that TEFRA “will tend to lengthen and deepen the recession.” Writing in the New York Times on September 12, 1982, economist Norman Ture said the administration’s claim that TEFRA would promote economic growth was “bizarre.” He said it would “weaken the impetus for economic growth” and make the economic recovery “less certain and less vigorous.”
All of this, we now know, wasn’t even close to being right. Almost immediately after Reagan raised taxes by quite a bit, the economy began to soar.
This isn’t just some historical footnote. This is worth keeping in mind because the basics of modern Republican economic thought are, quite literally, always wrong. It’s not a matter of ideological or philosophical differences — these questions have been put to the test, repeatedly for decades, and the tenets of conservative economic policy have an unyielding track record of failure.
It’s awfully embarrassing, or at least would be if they were called on it more.
Perhaps the only good thing about modern Republican economic thought is how easy it is to recite its pillars: tax increases always make the economy worse, tax cuts always make the economy boom, and public investment will always make the economy worse.
But pesky facts keep getting in the way.
In 1982, Reagan raised taxes and the right assured Americans this would be a disaster. The right was wrong, and the economy boomed.
OK, the economy did not "boom" but we did start to climb out of the recession. Taxes are not bad for economic growth. No matter how much right-wing zealots say so. Tax cuts only make people who are doing very well even richer as the working class takes a beating, education takes a beating and cuts to Medicaid hurt seniors. Taxes help pay for roads, fire departments, good teachers, science research and lots of other things that serve as a basic for the economy.
