The antitax movement was encouraged by President Reagan’s partial success in cutting taxes. The antitax forces were also disappointed, but certainly not deterred, by his failure to reduce total federal spending or balance the budget. They continued to claim that cuts in tax rates could generate increases in tax revenue by encouraging saving, investment and economic growth. And if tax revenue did fall, that would eventually force government to rein in spending, whatever the cost to popular domestic programs.
Antitax warriors
Graetz’s book features three noteworthy figures who mobilized the antitax movement in the late 1980s and 1990s. They led the way in making tax-cutting the central mission of the Republican Party.
Grover Norquist founded Americans for Tax Reform and served as its first president. He had a radically hostile view of the federal government, often saying that he wanted “to get government down to the size where you can drown it in the bathtub.” As for taxes, he proclaimed, “There is no such thing as a just tax—it is a contradiction in terms. We just want the government to steal less of our money.” Apparently he thought that citizens owe their government nothing for whatever benefits they receive from it. In 1986, Norquist began urging politicians to sign a pledge that they would “oppose any and all efforts to increase the marginal income tax rates for individuals and for businesses…” Over the next few years, almost every Republican president, governor, Congressional representative and senator did.
Newt Gingrich was elected to the House in 1978 and served as Speaker from 1995 to 1999. He championed the most radical form of supply-side economics, claiming that tax cuts would actually increase federal revenue by stimulating growth. He did not hesitate to attack any president, even of his own Republican Party, who dared to raise taxes. He co-authored the “Contract with America,” the agenda Republicans ran on in 1994. It called for tax cuts, a balanced budget, and the requirement of a three-fifths majority to pass any future tax increases.
Rush Limbaugh was a talk-show host who became nationally syndicated in 1988. His antitax message was eventually heard on 650 radio stations and 200 TV stations. Graetz describes Limbaugh’s role in right-wing media as “the granddaddy of them all, untroubled by factual accuracy, often bigoted, feasting on outrage.”
“Read my lips”
In 1985, during Reagan’s second term, Congress passed the Balanced Budget and Emergency Deficit Control Act, also known as Gramm-Rudman-Hollings. It called for a phased reduction in the federal deficit until a balanced budget was achieved in 1990. (That date was later pushed back to 1993.) The bill mandated automatic spending cuts divided equally between defense and non-defense spending, if Congress failed to meet the annual targets on its own. At the end of the Reagan presidency, the Congressional Budget Office estimated that without tax increases, these cuts would have to be substantial, like a 42 percent cut in defense spending.
Nevertheless, Reagan’s successor, George H.W. Bush, ran with the campaign slogan, “Read my lips: No new taxes.” Two years into his presidency, over the vociferous objections of House Republicans like Gingrich, Bush bowed to necessity and signed the Omnibus Budget Reconciliation Act of 1990. This law raised the top income-tax rate from 28% to 31%. It also raised payroll taxes and taxes on gas, tobacco and alcohol.
When Bush was defeated for reelection in 1992, Republicans blamed his loss on his failure to keep his “no new taxes” pledge. They were determined not to make the same “mistake” again, regardless of the fiscal circumstances. No Republican president has agreed to a tax increase since.
Political polarization
When Bill Clinton took office in 1993, Democrats controlled Congress and the presidency for the first time since 1979. Clinton’s original hope had been to cut taxes for the middle class and increase some domestic spending, especially for his health-care initiative. He too was induced to shift his focus to deficit reduction. Federal Reserve Chair Alan Greenspan warned him that the government’s demand for loans to finance the deficit would eventually raise interest rates and hurt the economy. (For a less pessimistic view, see my summary of Stephanie Kelton’s The Deficit Myth, especially part 2.) Under Democratic leadership, Congress passed the Tax Reform Act of 1993, which reduced the deficit with a combination of tax increases and spending cuts. The top income-tax rate went up again, from 31% to 39.6%.
The Democrats suffered a major defeat in the 1994 midterms, losing the House for the first time in 40 years. Republicans ran on their Contract of America, which promised no tax increases. Newt Gingrich became Speaker of the House. The following year, House Republicans wrote much of their Contract with America into legislation. In addition to tax cuts, it included:
…a budget proposal to restructure and sharply limit Medicare and deeply cut Medicaid, welfare, job training, student loans, farm subsidies, and a host of other programs. It also proposed eliminating the commerce, education, and energy cabinet departments.
Clinton vetoed the Republican budget and stood by his more moderate plan. Republicans then shut down the government temporarily rather than pass the president’s budget. When public opinion turned against them, they finally gave in.
Clinton was reelected in 1996, but Republicans retained control of the House. In 1997, the two sides reached a compromise in which Republicans got some reductions in estate taxes and capital gains taxes (both mainly benefiting the wealthy), and Clinton got a $500 tax credit for families with low-to-middle incomes. In the following year, Republicans nearly succeeded in passing the Tax Code Termination Act, which called for ending all taxes except for payroll taxes. (It passed by 10 votes in the House but lost by one vote in the Senate.) The bill contained no plan for funding most of the government, given that payroll taxes normally go to fund Social Security, Medicare and Medicaid.
In the end, the tax breaks adopted in Clinton’s second term were not large enough to keep the government from achieving a balanced budget in 1998. Clinton’s moderate policy of combining tax increases with spending cuts had prevailed over the Republican agenda of radical tax cuts and draconian cuts in federal programs. For several years starting in 1998, the budget ran surpluses, but they were the last budget surpluses the country would see for a long time.
Beneath the Surface 