Ronald Reagan raised taxes 11 times? The real story

Matt K. Lewis Senior Contributor
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Ronald Reagan may have presided over the most significant tax reform effort in our nation’s history, yet historical revisionists are attempting to besmirch that legacy — while using him as a straw man against modern Republicans.

Saying Ronald Reagan raised taxes is like saying Michael Jordan was a guy who struck out a lot — or that he was a failed baseball player: It’s factually correct, but misleading, nonetheless.

I’ve decided to examine Reagan’s tax cuts and tax increases in order to set the record straight and end this tomfoolery.

Over the course of his two terms in office, Reagan presided  over several changes to the tax code. What is important to remember — what is vital to understand — is that not all taxes are created equal.

When Democrats or media embrace Reagan for “raising taxes X number of times,” they are usually engaging in willful obfuscation. This is because they know that when most people hear the words, “tax hike,” they naturally assume you mean raising income taxes. But tax rates (both nominal and effective) dropped dramatically across-the-board during Reagan’s tenure.

Not only did the top individual income tax rate go from 70 to 28 percent! — but the tax code was also indexed for inflation (this is a big deal, because inflation had heretofore pushed people into higher tax brackets — a double whammy.)

Yet the notion that Reagan was a tax-hiker has persisted. In recent years, Republicans ranging from former Sen. Alan Simpson to Reagan aide Bruce Bartlett have been cited noting that Reagan raised taxes (he did.) But their statements are often taken out of context — as if to muddy the waters — to make it appear that Reagan was a fan of tax hikes.

The typical tactic is to say Reagan raised taxes 11 or 12 times (the exact number depends on whom you ask.) But it’s unhelpful — in fact, it’s a bit misleading — to talk about how many times Reagan raised taxes. That’s because (as noted earlier) tax increases are not created equal. Some are much worse than others. And many of Reagan’s so-called “tax increases” were actually examples of ending deductions.

Overall, Reagan dramatically cut the most odious of taxes.

So, for those who care about the truth, here are some details. One of the tax increases Reagan signed (the Highway Revenue Act of 1982) was a temporary increase in the federal gas tax from 4 to 9 cents. (This could be thought of as a sort of “user fee,” inasmuch as the revenue generally went to roads and infrastructure.) Another was a cigarette tax (Consolidated Omnibus Budget Reconciliation Act of 1985.) These are real tax increases, but should not be confused with the income tax.

(Reagan also deserves special criticism from free marketers on the right for raising the capital gains tax rate — as well as the corporate rate — in the Tax Reform Act of 1986.)

Make no mistake, these were real tax increases — in some cases, “regressive” taxation — but they pale in comparison to the scale of the income tax cuts that defined the Reagan era. Again, it’s important to put things in context. When inaugurated, Reagan inherited a nation with 16 tax brackets — ranging from marginal rates of 14 percent to 70 percent. By 1989, that was down to two brackets — with marginal rates of 15 percent and 28 percent. (Those rates — and brackets — were short lived. By the time Clinton left office, the top marginal rate was back up to 39.6 percent. But you can’t blame Reagan for tax increases that came after his tenure. That’d be like President Obama blaming George W. Bush for tax cuts passed in 2011…)

Again, my argument is that some taxes are more important than others. Do massive cuts to income taxes — perhaps the most confiscatory and arbitrary form of taxation (which disencentivize the very act of working) — carry the same weight as a temporary consumption tax increase which raised just over 3 billion in revenue a year? I would argue that the two clearly aren’t the same thing — and yet that distinction is seldom made.

So how has this canard advanced to a state where it would demand correction so many years later? Both sides have contributed to advancing this misleading narrative. It’s in nobody’s interest to clarify the distinction — that not all taxes hikes and cuts are equal. Conservatives who oppose all tax hikes (or revenue raisers such as removing deductions) gain little by exposing Reagan’s nuanced approach. Liberals benefit most from the opaqueness — because they can label Reagan a serial tax increaser — while ignoring the broader impact of his work on the federal tax racket.

Facts matter. Reagan’s legacy has been co-opted and mangled by both sides. Yes, he raised taxes. Yes he cut taxes. The real story is how he raised taxes and how he cut them. And the overarching theme is that Reagan dramatically lowered tax rates and broadened the base. He was a reformer willing to make tough decisions. And at the end of the day, his legacy is that of a free market tax cutter. “If you aggregate together all the tax hikes … Reagan was a net tax cutter,” says Americans for Tax Reform’s Ryan Ellis. “I believe that makes him unique in the 20th century Cold War era. (Kennedy’s were passed by Johnson, who later raised taxes to pay for Vietnam).”

Why is it important to set the record straight on this? Because liberals continue to attempt to hoodwink conservatives into supporting deficit reduction plans along the lines of tit for tat. “We’ll cut spending if you raise taxes.” Looking to history, though, conservatives should be wary of this feint.

Reagan was offered such a deal (a 3-1 ratio of spending cuts to tax increases) in 1982, and it’s the reason he reluctantly agreed to the largest tax increase of his presidency, the “Tax Equity and Fiscal Responsibility Act of 1982.” The Democratic Congress then promptly proceeded to ignore the planned spending cuts. George H.W. Bush encountered the same trick in 1990. It cost him the presidency. The same idea was tossed out last summer — and smartly rejected by the GOP.

President Reagan deserves better than to have his legacy misrepresented. It is healthy for us to properly assess his policies. He came into office amid very difficult times, vowing to restore the American dream. Considering the full body of his work, I’d say that was a mission well accomplished.