Raising taxes

The year 1988 appears to be the only year of the Reagan presidency, other than the first, in which taxes were not raised legislatively. Of course, previous tax increases remained in effect. According to a table in the 1990 budget, the net effect of all these tax increases was to raise taxes by $164 billion in 1992, or 2.6 percent of GDP. This is equivalent to almost $300 billion in today's economy.

I say all this not to besmirch Reagan's reputation, but simply to set the record straight. The point being that if Ronald Reagan could be corralled into signing tax increases year after year, it is not unreasonable to think that President Bush may falter as well when push comes to shove.

I don't believe that Reagan ever initiated any of the tax increases enacted during his watch. Nor do I think Bush will, either. But when all the political and economic elites of this country gang up on a president to raise taxes, history shows that they always get what they want. Indeed, they were even able to get Bush's father to raise taxes in 1990, even though his political advisers knew that it would likely lead to his defeat in 1992, which it did.

How do the elites break down presidential resistance to tax increases? They do so by promising the moon. Tax increases, they say, will lead to huge reductions in interest rates, which will power economic growth and reduce unemployment. The rich only pay them anyway, which makes the president look like a populist. And tax increases are the price that must be paid to get spending cuts.

This last point is especially laughable. In 1982, Ronald Reagan proudly announced that he was getting $3 of spending cuts for every $1 of tax increase. He later lamented that all he ever got were the taxes. "Congress never cut spending by even one penny, " Reagan complained in 1993.

Earlier this year, Reagan's chief of staff, James A. Baker III, wrote a sort of mea culpa in The Wall Street Journal, saying that he had underestimated the positive economic effects of tax rate reductions. But he didn't repudiate his efforts to get Reagan to raise taxes. It will be interesting to see how Bush reacts when his staff tells him that taxes need to be raised.