Rarely does one come out publicly and admit that his signature achievement was not just a failure, but, in hindsight, a myth. However, when Bruce Bartlett, domestic policy advisor to President Reagan and treasury official under President George H. W. Bush, came out against the very initiative that he himself had a hand in creating, his Republican colleagues abandoned him like the proverbial rats on a sinking ship.
Now that he has nothing to lose anyway, Bartlett has become very outspoken in his opposition to tax reform as currently being interpreted by the Republican Party, and he readily admits regretting his role in creating what he terms “the GOP tax myth.”
In a little over two weeks, the GOP managed to introduce its tax bill, get it passed through committee, and then through the full House. But before it is rushed through the Senate, Bartlett wants it known that he is expecting to say “I told you so” when it all goes sour.
What would you say is wrong with President Trump’s tax reform?
The biggest problem is that it’s completely unnecessary. The economy is doing very well. Interest rates are low. The president’s own Twitter feed makes the argument that the economy is doing great. Every other tax cut of the magnitude Trump is proposing—going back to Kennedy, Reagan and George W. Bush—took place at a time when we were either in a recession or just coming out of one. We are long past the end of a recession; we are at a cyclical peak. There is thus simply no argument for doing anything.
History shows that when you enact an economic stimulus too late in a business cycle it tends to cause inflation rather than lead to additional growth. That could lead the Fed to tighten more than it already has, which implies risks to the economy.
Then, of course, the tax cut itself is grossly tilted towards the ultra-wealthy who are not overly taxed and simply have no moral or economic justification for a tax cut at all.
Specifically, what was it that made the Reagan tax cuts necessary that isn’t applicable today?
The Reagan tax cuts took place at a time when tax rates were significantly higher than they are now. The top income tax rate was 70%; today it’s only 39%. The rates were much higher throughout the income distribution.
Moreover, the tax system wasn’t indexed to inflation and we had very rapid inflation. Every time a worker received a cost of living adjustment to keep him even, he was pushed into a higher tax bracket. So you had an automatic tax raise taking place continuously. And you really needed a tax cut of the magnitude Reagan proposed just to keep taxes from rising further.
Then he raised taxes several more times in the years that followed. Isn’t that so?
There were 11 increases in all. The 1982 Tax Revenue and Equity Act, which raised taxes by about 1% of GDP, was the largest peacetime tax increase in American history. By 1988 Reagan had signed into law tax increases equal to about half of the 1981 cuts, so he took back half of his own tax cut to deal with the severe deficit problem.