Ronald Reagan on Tax Reform

President of the U.S., 1981-1989; Republican Governor (CA)


Abhorred high tax rates due to negative incentive on wealthy

What was Ronald Reagan's position on growth-model legacy of John F. Kennedy? Reagan would win the presidency in 1980, cut tax rates, secure a sound dollar, preside over a phenomenal and exceptionally long-lasting economic boom, and remain the most influential American political figure since Kennedy, well into the twenty-first century.

As an actor in Hollywood in the 1940s and 1950s, Reagan abhorred high tax rates because of their negative incentive effect. He spoke many times of his own aversion to success in Hollywood, because it meant giving to the government 91 cents of every marginal dollar earned. In 1962 he supported an across the board tax rate reduction spread out over five years.

Source: JFK and the Reagan Revolution, by Lawrence Kudlow, p.201 , Sep 6, 2016

As CA governor, made tax system more progressive

In 1981, reporters reflected on Reagan's time as governor this way: "When he left office, the California tax system was far more progressive than when he found it, with upper income individuals, corporations and banks paying a markedly higher rate than the governments revenue than they had previously. Had Reagan abandoned his old conviction that tax progressivity sapped initiative and growth? Not at all. He had been trapped. Unable to achieve or seriously propose radical budget cuts"--largely because of federally mandated spending at the state level, on such Great Society programs as Medicaid "Reagan had to search out new sources of revenue available and easiest to obtain. This meant tax withholding and high progressivity of rates."
Source: JFK and the Reagan Revolution, by Lawrence Kudlow, p.202 , Sep 6, 2016

Bracket creep reduces deficit when there's inflation

Reagan and Bush tangled on the matter of tax cuts, supply-side economics, and the John F. Kennedy legacy. Bush jeered at Reagan that "you cite the Kennedy tax cut. There wasn't any surplus then--there was a deficit resulting from that scheme." He said that "it is my understanding that the Kennedy tax cut resulted in a $4.4 billion deficit. And it is my perception that tax cut applied today in the same percentages would result in an inflation rate of about 30 to 32 percent."

Reagan countered with an explanation that his across the board, 10-10-10 rate cut would return to owners only part of the bracket-creep gains that government was going to collect anyway over the next several years. He did not however, pick up on the central flaw, the contraction in Bush's argument. If the tax rate cut would cause a budget deficit that in turn would cause a 32% inflation, bracket creep would kick in to such a prodigious degree that the deficit would be wiped out.

Source: JFK and the Reagan Revolution, by Lawrence Kudlow, p.208 , Sep 6, 2016

System that penalizes success and discourages work is wrong

No doubt you work hard for your money--I know I do--and you should be permitted to keep more of it. Anything less creates a disincentive for a strong national work ethic. President Ronald Reagan saw it the same way:

"The more government takes in taxes, the less incentive people have to work. What coal miner or assembly-line worker jumps at the offer of overtime when he knows Uncle Sam is going to take sixty percent or more of his extra pay? Any system that penalizes success and accomplishment is wrong. Any system that discourages work, discourages productivity, discourages economic progress, is wrong.

"If, on the other hand, you reduce tax rats and allow people to spend or save more of what they earn, they'll become more industrious; they'll have more incentive to work hard, and money they earn will add fuel to the great economic machine that energizes our national progress. The result: more prosperity for all--and more revenue for government."

Source: Time to Get Tough, by Donald Trump, p. 51-52 , Dec 5, 2011

OpEd: Cut capital gains to end worse recession than 2008's

Our nation is facing great challenges, but I'm optimistic--ad I know there is a way forward.

Ronald Reagan faced an even worse recession. He showed us how to get out of one. If you want real job growth, cut capital gains taxes and slay the death tax once and for all. And if we really want to help the poor and middle class get through this recession, how about cutting their payroll taxes? Giving people control over more of the money they've earned: now that's real stimulus. Get federal spending under control, and then set aside and watch this economy roar back to life.

The way forward is full of promise. But it takes more courage for a politician to step back and let the free market correct itself than it does to push through quick fixes. Reagan showed courage when he stayed the course through the long recession of the early 1980s. Critics even in his own party told him to abandon his tax cuts. He was confident they would work. And they did.

Source: Going Rogue, by Sarah Palin, p.391-392 , Nov 17, 2009

1985 State of the Union speech: cut taxes; slash spending

After the 12-year siege of Reagan-Bush, I thought the plague of Reaganism had passed. How was I to know that a more virulent strain, personified by Newt Gingrich and the Contract With America, was about to lay us low? It was rolled out, like a big legislative Trojan horse, just six weeks before the congressional elections. It was fiendishly brilliant; in the end we lost 54 seats.

The guts of that Trojan horse were taken nearly verbatim from Reagan's 1985 State of the Union speech. The core of that speech, the heart of Reaganism, venerated the new Republican mantra of cutting taxes on wealth and slashing government spending on entitlement programs. "Entitlement" became identified with a newly-revised, all-purpose political scapegoat: the undeserving poor.

The massive budget cuts in the Gingrich Congress in 1995 were the cutting edge of Reagan's 1985 vision of boosting growth and balancing the budget by cutting regulation on corporations, taxes on the wealthy, and spending on the poor.

Source: A Bad Day Since, by Charles Rangel, p.229-30 , Aug 5, 2008

After 1981 tax cut came 1982 TEFRA tax increase

Our tax structure generally, in fact, has come to reside more in the land of myth and legend than reality. Ronald Reagan is probably the best example of this. Most Americans seem to believe that he was a tax-cutter of heroic magnitude.

In fact, while Ronald Reagan did push for and win big, across-the-board tax cuts in 1981, just a year later Reagan signed into law the biggest peacetime tax increase in the nation's history. The TERFA of 1982--for Tax Equity and Fiscal Responsibility Act-- was, as a percentage of gross domestic product, even larger than Bill Clinton's tax increase in 1993. Reagan signed a massive Social Security tax increase, the result of a commission tasked to figure out a way to keep solvent America's retirement plan of last resort. Additional tax increases followed, so that by the end of his two terms, most Americans were paying more in Social Security taxes than in income taxes, and most Americans were paying more in federal taxes in 1988 than they were in 1980.

Source: America's Next Bush, by S.V. Date, p.290-291 , Feb 15, 2007

1985 Tax Code has unfair loopholes for real estate industry

As I studied Reagan's 1985 budget proposal carefully, I found I agreed with the critics. At a highly charged White House meeting, the president launched into a sales pitch. But I was unmoved. I said, "I don't agree that this is some sort of tax reform. I just think it's another tax increase. I don't think it's the right thing for the country."

The president's advisers were pushing a series of tax increases on the real estate industry as reform. "We have cut tax rates and capital gains," Reagan told me. "And now we have this unfair tax code with loopholes for real estate and industry." (The closing of this so-called loophole would almost crush Houston, Texas. After the bill passed, the real estate market there collapsed.)

In my opinion, the bill wasn't really about real estate at all; it was a manifestation of Reagan's old worries about the deficit. But I put aside my misgivings, cranked up the whip organization and passed it. I still regret it.

Source: Herding Cats, by Trent Lott, p. 90-91 , Aug 29, 2006

1982: Extended withholding to interest and dividends

The reality of April 15 as we know it under the withholding scheme, instead of being a day when Americans are focused on what the government is costing them, most of us are instead focused on how much we're getting back from that government.

Since 1943, there have been plenty of efforts to expand the withholding scheme. In the 1970s, Pres. Carter attempted to have withholding extended to interest and dividends. Americans seemed to understand that having taxes withheld on interest would cost them additional earnings. The effort failed, but it was revived a few years later in 1982. With the enthusiastic support of Pres. Reagan, politicians cited the budget deficit as a reason to expand withholding to include dividends and interest earnings. Congress authorized the additional withholding measure in 1982 but, to put it mildly, the American people were not pleased. The withholding measure for interest and dividends was repealed a month after it went into effect.

Source: The FairTax Book, by N.Boortz & Rep.J.Linder, p. 29-30 , May 31, 2006

OpEd: Common sense conservatives support supply-side

Ever since Ronald Reagan entered the White House in 1981, conservatives have been consistent and clear about what economic policies broadly promote a prosperous America and therefore strengthen family life. Whether you call it Reaganomics, supply-side economics, or something else, conservatives believe in lower taxes; common-sense, predictable regulation; free trade; and less litigation. They believe in the power of markets more than they do the power of government: that is, they wish to promote an economy based on freedom and opportunity. Conservatives believe, and for the most part I agree, that the marketplace, while competitive and often brutal arena, is the fairest way to reward people for their labor and ingenuity. Free markets are also the basis of all real lasting wealth creation.
Source: It Takes A Family, by Sen. Rick Santorum, p.121 , Apr 30, 2006

25% tax cut early, then overhaul tax system & reduce rates

Early budget cuts of $39 billion were followed by the passage of a 25% tax cut for individual taxpayers and faster tax write-offs for business.

Reagan’s domestic program during his second term focused on tax reform. Late in 1986 the Senate joined the House to pass a major tax bill that reduced the number of tax rates, removed millions of low-income persons from the tax rolls, and eliminated most deductions.

Source: Grolier Encyclopedia on-line, “The Presidency” , Dec 25, 2000

Serious on tax simplification; mocked as “secret tax plan”

In one State of the Union address, the president announced that he was “asking for a plan of action to simplify the entire tax code so that all taxpayers, big and small, are treated more fairly.” This order was diminished by the qualifier that Reagan would not deliver “specific recommendations” until December. Democrats erupted in cynical laughter. Since he was totally serious about tax reform, Reagan had not realized that the wording of the announcement would make his commitment seem like a ploy.
Source: The Role of a Lifetime, by Lou Cannon, p. 553-54 , Jul 2, 1991

Tax reform's goal: replace incomprehensible system

The existing tax system was widely perceived to be incomprehensible in its details and shady in its exceptions, and its replacement by a fair and rational structure that placed all taxpayers on the same footing would certainly be regarded by the people as a great act of Presidential leadership. Admittedly, my judgment was colored by pride of authorship. But I also thought that tax reform was the best horse in the race for three basic reasons: it was an emotional issue that deserved to be an emotional issue; it was an issue that the Democrats could not oppose without abandoning their historic claim to be the protectors of the people; and, above all, it was good for the country. Tax reform could be the hallmark of his second term, along with arms control.
Source: For the Record, by Donald Regan, p.281 , May 2, 1988

1986 Tax Reform: reduce top rate from 50% to 28%

The 1986 Tax Reform Act was finally passed on October 22, 1986. The maximum rate for individuals was cut from 50% to 28%. A couple filing a joint return would be paying 15% on the first $29,750 of taxable income and in the 28% bracket on income above tha amount. The standard deduction was increased to $5,000 for joint returns and $3,000 for individuals. The personal exemption was nearly doubled to $2,000 in 1989 and then indexed for inflation. Deduction of interest on mortgages for both first and second homes was retained, but interest on such things as car loans, credit cards, and life insurance policies became nondeductible. Tax shelters were dealt a body blow; the investment tax credit was repealed; deductions for business entertainment and travel were curtailed. For the first time, corporations were made subject to the alternative minimum tax, the same as individuals. The maximum individual rate on long-term capital gains was increased from 20% to 28%, the same as ordinary income.
Source: For the Record, by Donald Regan, p.284-285 , May 2, 1988

Index tax rates so inflation can't push to higher brackets

Together, we passed the first across-the-board tax reduction for everyone since the Kennedy tax cuts. Next year, tax rates will be indexed so inflation can't push people into higher brackets when they get cost-of-living pay raises. Government must never again use inflation to profit at the people's expense.

Today a working family earning $25,000 has $1,100 more in purchasing power than if tax and inflation rates were still at the 1980 levels. Real after-tax income increased 5% last year. And economic deregulation of key industries like transportation has offered more choices to consumers and new chances for entrepreneurs and protecting safety. Tonight, we can report and be proud of one of the best recoveries in decades. Send away the handwringers and the doubting Thomases. Hope is reborn for couples dreaming of owning homes and for risktakers with vision to create tomorrow's opportunities.

Source: Pres. Reagan's 1984 State of the Union message to Congress , Jan 25, 1984

Success should not be penalized by high taxes

Idle industries have cast workers into unemployment and personal indignity. Those who do work are denied a fair return for their labor by a tax system which penalizes successful achievement and keeps us from maintaining full productivity.
Source: Inaugural Speech, Washington D.C. , Jan 20, 1980

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Other past presidents on Tax Reform: Ronald Reagan on other issues:
Former Presidents:
Barack Obama(D,2009-2017)
George W. Bush(R,2001-2009)
Bill Clinton(D,1993-2001)
George Bush Sr.(R,1989-1993)
Ronald Reagan(R,1981-1989)
Jimmy Carter(D,1977-1981)
Gerald Ford(R,1974-1977)
Richard Nixon(R,1969-1974)
Lyndon Johnson(D,1963-1969)
John F. Kennedy(D,1961-1963)
Dwight Eisenhower(R,1953-1961)
Harry S Truman(D,1945-1953)

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V.P.Joseph Biden
V.P.Dick Cheney
V.P.Al Gore
V.P.Dan Quayle
Sen.Bob Dole

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Page last updated: Feb 22, 2022