Before Ronald Reagan came on the scene, the Republican Party presented itself as the fiscally responsible party, which meant the Democrats had the political pleasure of spending money while Republicans dolefully raised taxes to pay for it - what one quick wit later characterized as being the "tax collector for the welfare state." Reagan figured out that not only wasn't that role politically successful, it also was bad policy and very harmful to the economy.
In his run for the presidency in 1964, Barry Goldwater had attacked the Kennedy tax cuts, which lowered the top income tax rate from 91 percent to 70 percent, as fiscally irresponsible. The economy boomed after the Kennedy tax cuts took effect. When Richard Nixon became president, he raised the capital gains tax in 1969, the economy tanked and the deficit swelled. Then he raised taxes again, implicitly, by taking America off the gold standard and allowing inflation to push average workers into tax brackets formerly reserved for the truly rich. President Gerald Ford also tried his hand at raising taxes and was promptly voted out of office.
It wasn't until Reagan offered a way out of the austerity box that Republicans regained their political footing and the economy recovered from a decade of stagnation. Reagan's great insight was that economic growth and the marvel of compound interest on saving put into productive investment is the only solution to the problem of big government. If the economy is flourishing and people have jobs, they don't clamor for the government to "do something" to ease their distress.
I never thought I would live to see the day when both political parties are clamoring for the fiscally responsible label. In order to feed the big-government beast, most Democrats insist on raising taxes, and too many of them refuse to consider allowing workers to place a significant portion of their payroll taxes into personal retirement accounts. Republicans, on the other hand, are reverting to the austerity rant, and while many of them want to allow workers to invest a small portion of their payroll taxes into personal retirement accounts, too many of them believe Social Security benefits must be cut to pay for it.
To my Democratic friends I would say the problem is not that tax rates are too low; the problem is that government spending is growing too fast. Moreover, we don't have to slash government spending to get it under control; we merely have to slow its growth.
To my Republican friends I would say scheduled Social Security benefits are not too high; retirees' incomes are, in fact, too low because the payroll taxes workers pay into the Social Security system are not put into productive investment in the private sector.