Monday, February 07, 2011

The Reagan Myth

Ronald Reagan is famously remembered for cutting taxes in 1981, his first year in the Oval Office.

However, Republicans, who worship Reagan in hero-like fashion, often forget (or neglect to mention) that Reagan was a consummate political pragmatist who subsequently raised taxes numerous times during the remainder of his tenure in the White House.

Former Republican Senator Alan Simpson, a friend and colleague of Reagan's, notes that the president raised taxes a total of 11 times and calls Reagan "a total realist as to politics."

Due to the same political roadblocks that still exist today, Reagan was unable to come up with the spending cuts necessary to pay for his historic 1981 tax cut program. Consequently, those cuts blew a massive hole in the federal budget.

Though Reagan oversaw a modest reduction in domestic spending, it was dwarfed by a large buildup in the Pentagon budget.

Subsequently, the pragmatic president wisely — though regretfully — raised taxes multiple times. Ultimately, the repeated hikes unwound about half the savings of the '81 cut.

Former Reagan Budget Director David Stockman says it was a tough decision for Reagan.

"He wasn't very happy about it. He did it reluctantly. But at the end of the day, the math was overwhelming," says Stockman.

Reagan was stymied by the popularity of entitlements and the lack of political will to significantly cut those programs in order to pay for all his tax cuts.

"The White House and President Reagan himself retreated within three days when it became clear the enormous political resistance that would occur if you were going to cut entitlements," Stockman remembers.

The president also recognized that he couldn't significantly increase defense spending while simultaneously reducing government revenues.

What's often lost in all of the conservative idolatry of Reagan is that he was a realist, not an ideologue.

"Ronald Reagan was never afraid to raise taxes," says historian Douglas Brinkley, editor of Reagan's diaries. "And so there's a false mythology out there about Reagan as this conservative president who came in and just cut taxes and trimmed federal spending in a dramatic way. It didn't happen that way. It's false."

Faced with either raising taxes or an even bigger federal debt, Reagan chose to raise taxes. That's an important lesson at a time when the nation is facing a much larger debt — not just in terms of total dollars, but also in debt-to-GDP ratio.

With a stalled economy, a shrunken tax base and two ongoing wars, government revenues and expenditures are moving in opposite directions.

The bipartisan Deficit Reduction Commission recently warned that the deficit problem cannot be solved without a combination of spending cuts and revenue increases.

The latter may be in the form of tax hikes, or a restructuring of the tax code that streamlines and simplifies the system, while eliminating all deductions, credits and write offs. Such an overhaul could simultaneously lower rates, raise more revenue and level the playing field for everyone.

But to do that, the Republicans need to overcome their knee-jerk opposition to raising revenues, even if it means raising taxes, at least until the deficit is wiped out.

Upholding the Reagan myth gets in the way, says Stockman.

"I wouldn't call it merely airbrushing. I would call it outright revisionism, if not fabrication of history."

Along with cutting entitlements, raising taxes is one of the third rails of American politics. Just ask George H.W. Bush.

Reagan was the exception. Brinkley is amazed that Reagan somehow managed to raise taxes without paying a political price.

"He seemed to get away with both. He seemed to really be kind of a centrist, big government deficit spender, but also be seen as a budget cutter. And it's because his persona was so great."

After all, Reagan was known as the 'Great Communicator" and it served him well.

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