ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Thursday, August 15, 1996 TAG: 9608150032
SECTION: EDITORIAL PAGE: A-11 EDITION: METRO
COLUMN: Ray L. Garland
SOURCE: RAY L. GARLAND
WITH THE Republican ticket of Bob Dole and Jack Kemp prepared to make tax cuts the centerpiece of this campaign, and Gov. George Allen still pushing the same idea in Virginia, this is a good time to take stock of where we stand - and have stood - tax-wise. The history of modern American politics can be summed up in the equation: money = programs; programs = votes.
David Stockman, writing of his years as President Reagan's budget chief, said they realized the tax cuts of 1981 (and 1986) would balloon the deficit. But they thought it was worth doing to keep Congress from expanding the welfare state. That is, no new money = no new programs. Perhaps.
Federal revenues in Reagan's first year, fiscal 1981, were $517 billion. In his last full year, 1988, they were $908 billion, an increase of 78 percent! But spending wasn't controlled and the cumulative deficits under Reagan exceeded $1.3 trillion.
With Democrats in firm control of both houses of Congress under George Bush, the real fun began: more than $1 trillion added to the national debt in just four years. President Clinton, with a more conservative Congress and no recession, will have a better record: no more than $750 billion in new debt in four years, not counting more than $200 billion in surplus Social Security funds that were spent instead of placed in trust.
You can play all kinds of games with these numbers. Had spending under Reagan tracked inflation and population growth, plus 10 percent for good measure, total outlays in 1988 would have been about $835 billion, instead of $1.063 trillion, leaving a surplus instead of a deficit of $155 billion.
The fatal flaw in that argument is the large share of federal spending driven by entitlements that had to be honored. These grew far faster than inflation. With Democrats controlling the House during all the Reagan-Bush years, and the Senate for the last half, there was no chance of reforming entitlements.
When Republicans led by Dole tried to tackle entitlements in the early '80s, they paid a high price at the polls. Reagan, for one, did little to help. Those votes probably cost Republicans the Senate in 1986, when Democrats gained seven seats, mainly at the expense of those GOP senators elected with Reagan in 1980 who were foolish enough to believe that their promises to balance the budget meant something.
But the most interesting number is the growth in revenues while taxes were being cut, compared to their growth while taxes were being raised. In the years 1989-96, despite two major tax increases, federal revenues rose only 61 percent. In fairness, there was a substantial increase in the earned-income credit for those at the bottom during the Bush-Clinton years, which must be counted a tax cut. And Reagan presided over at least one major tax increase in 1983 to "save" Social Security.
It was the image of a nation in perpetual crisis that sustained tax rates at what would now be considered astronomical levels through President Carter. In 1981, before the first of the Reagan tax cuts took effect, a single person with a taxable income of $108,300 paid a federal income tax of $55,697 and 70 percent on everything over that. A married couple making $108,300 paid a tax of $46,895. Beyond that, they paid at rates of 64 or 70 percent.
By 1988, that same single taxpayer paid only $31,261. Instead of $55,697, our married couple paid $28,276. No one paid at a higher rate than 28 percent.
Well, you say, what about those making less? In 1981, a single person making $40,000 paid a federal tax of $12,511 and a married couple paid $10,109. After Reagan, that same single taxpayer paid $3,624 less and the married couple $2,729 less. And personal exemptions had been raised under Reagan. Also, tax brackets had been indexed for inflation to keep people who weren't really making more from being kicked into brackets intended for a different era.
Of course, the federal income tax is by no means the sole tax, but space doesn't permit a dissertation. To make a long story short, before Reagan, the total tax burden could exceed 80 percent.
You might make an argument that the high taxes prevailing in the 40 years after America's entry into World War II were justified by an era of war and rumors of war. But by the end of the 1970s, the American economy was clearly struggling to meet competition from abroad and create several million new jobs a year at home. The Reagan tax cuts were not only long overdue, but most of the evidence suggests they worked.
For those with taxable incomes less than $148,000, Dole would essentially cut rates by 15 percent, just below what they were under Reagan. Those making more than $264,000 would be taxed at a rate of 33.66 percent instead of Clinton's 39.60 percent. The tax on capital gains would be slashed 50 percent, but those with small incomes would receive a $500 credit against taxes due for each child under 18.
It's unlikely even a GOP Congress would enact the entire Dole plan. But a combined federal, state and local tax burden nowhere exceeding 50 percent seems not only fair but positive for American prosperity.
Naturally, it wouldn't work unless spending is controlled, as Reagan proved. Colin Powell was on target when he told the GOP convention, "Let me put it to you, it is the entitlement state that must be reformed and not just the welfare state."
If the Dole-Kemp ticket does nothing more than make people aware of the taxes they're actually paying, they will blunt and perhaps defeat Democratic cries of "unfairness." Only in the Clinton-Gore demonology is a successful person paying more than half his income in taxes being coddled.
Ray L. Garland is a Roanoke Times columnist.
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