When Reagan Raised Taxes

Republicans love to remember President Ronald Reagan as the president who lightened the heavy tax burden on Americans. This is not without reason. In 1981, to keep his campaign promise, Reagan signed an ambitious reform that significantly reduced taxes in the United States. By reducing the tax burden on individuals by 23 percent, lowering the marginal tax rate for the top income bracket from 70 percent to 50 percent and accelerating the rate at which businesses could write off new investments, Reagan offered over $143 billion in tax relief per year.

But Republicans, particularly those in the tea party, have a very selective memory, notes Joseph Thorndike, a guest columnist on Bloomberg’s Echoes blog, in a comment that couldn’t be more relevant.

Only a few months after adopting the Economic Recovery Tax Act of 1981, Reagan took, with one hand, a third of what he had given with the other. He did it by eliminating tax loopholes.

Before coming to the White House, however, Reagan had vowed to do nothing of the sort. He had previously described tax shelters as a little bit of relief for hard-working Americans. Reagan resigned himself upon seeing the United States’ budget deficit swell. The result was the Tax Equity and Fiscal Responsibility Act of 1982, the first in a series of tax increases to take place over his two terms.

However, Reagan never announced that he would eliminate the loopholes. Instead, he used a euphemism that, if not pretty, covered up the reality: He talked about “revenue enhancement measures.”

Under the counsel of his economic advisers, Reagan quickly learned the needed lesson. Unfortunately, says Joseph Thorndike, visiting professor of history at the University of Virginia and expert in American tax history, the same cannot be said of conservative Republicans who claim his legacy.