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

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.

As CA governor, made tax system more progressive

Bracket creep reduces deficit when there's inflation

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.

System that penalizes success and discourages work is wrong

"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."

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

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.

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

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.

After 1981 tax cut came 1982 TEFRA tax increase

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.

1985 Tax Code has unfair loopholes for real estate industry

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.

1982: Extended withholding to interest and dividends

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.

OpEd: Common sense conservatives support supply-side

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

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.

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

Tax reform's goal: replace incomprehensible system

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

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

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.

Success should not be penalized by high taxes