On Wednesday June 29, 2011 President Obama threw down the gauntlet and sternly told Congress, “The tax cuts I’m proposing we get rid of are tax breaks for millionaires and billionaires; tax breaks for oil companies and hedge fund managers and corporate jet owners.” That drew a quick response from Speaker of the House John Boehner, (R-OH) through a statement that he released to the press saying, “The President is sorely mistaken if he believes a bill to raise the debt ceiling and raise taxes would pass the House. The votes simply aren’t there, and they aren’t going to be there, because the American people know tax hikes destroy jobs.” The question presented here is do tax hikes “destroy jobs” and if they do not, why continue to lie to the American people?
In the last thirty years there have been five significant tax hikes. The Reagan tax increases in 1982 (Tax Equity and Fiscal Responsibility Act of 1982, TEFRA), 1984 (The Deficit Reduction Act of 1984, DEFRA), and again in 1986 (The Tax Reform Act of 1986). George H.W. Bush signed into law the tax increase that violated his infamous “read my lips, no new taxes” pledge, the Omnibus Budget Reconciliation Act of 1990 (OBRA-90). The last significant tax increase occurred under Bill Clinton with the Omnibus Budget Reconciliation Act of 1993 (OBRA-93).
The first Reagan tax increase, TEFRA, took effect in October 1982, and was an exercise in reworking his tax cut plan, the Economic Recovery Tax Act of 1981 (ERTA). There was concern that ERTA was going to greatly increase the budget deficit in the future so Congress closed loopholes in the tax code, strengthened certain enforcement procedures, raised taxes on telephone use, airline tickets and cigarettes, and removed some future tax breaks for businesses. The tax cuts weren’t boosting the economy anyway. Unemployment went from 7.9% when the tax cuts started taking effect to 10.4% in October of 1982 when TEFRA went into place. The economy had shed 2,364,000 private sector jobs in the year following the ERTA tax cuts. Reagan was pragmatic when it came to the budget. When he saw that his tax cuts of 1981 weren’t working out as he thought that they would, that Treasury revenues were actually decreasing, the deficit was in reality increasing, that his hopes for “trickle down” help from the rich wasn’t translating into jobs, he changed course. In the two years following the TEFRA tax hike, which former Reagan advisor Bruce Bartlett called the “largest peacetime tax increase in American history” in an article he wrote in 2003, the economy created 6,711,000 private sector jobs.
Because the yearly deficit kept increasing, adjusted for inflation it increased by over 57% from 1982 to 1983, Congress panicked and passed DEFRA, which again raised taxes, this time by 0.4% of GDP per year, almost 59 billion dollars yearly adjusted to today’s dollars. Following this tax increase in October 1984 to the next large increase in October 1986, the private sector added another 3,788,000 employees.
Technically designed to be revenue-neutral, the Tax Reform Act of 1986 lowered tax rates for individuals while greatly increasing taxes on corporations and the wealthy through changes to the way capital gains were taxed among other methods, and sharply reducing the use of tax shelters. It should be noted here that this is one of the Republican Party’s most used talking points, that raising corporate taxes inhibits job growth due to lower revenue flowing to the profit line. History shows otherwise. From October 1986 through Reagan’s last month in office, January 1989, the labor market saw an additional 6,234,000 jobs added, even though businesses and their wealthy stockholders were paying an additional 500 billion dollars in taxes over a five year period. What makes that additional tax burden more astounding is how large it would be if it were converted into today’s dollars. Inflated to current value, that would translate into a 1.03 TRILLION dollar tax increase on businesses and the wealthy. Somehow I don’t believe that Mitch McConnell and John Boehner would ever sign off on a tax increase of that magnitude for their wealthy taskmasters. Reagan did. J. Roger Mentz, who was the Treasury Assistant Secretary for Tax Policy in 1986, wrote in 2009, “Some of these taxpayers were substantial contributors to the Republican Party and to the president’s re-election campaign, and had direct access to the White House. Reagan rebuffed their pleas — ” Ronald Reagan told his wealthy backers to go pound sand, something that current Republicans lack the spine to do. Increased taxes did not destroy jobs during the Reagan Era.
History shows us that Ronald Reagan cut income taxes on individuals twice during his presidency, but raised other taxes and fees 11 times, including a 5 cent per gallon tax increase on gasoline and increased taxes for the trucking industry, in addition to the corporate tax increases. Adjusted for inflation, the gasoline tax increase would be 11.7 cents per gallon in current dollars. Today that would be described as a “job killer”, as would increasing taxes during recessionary times, which Reagan also did. To repeat, after the big tax cuts of 1981, the economy shed over 2 million jobs. After and while Reagan adopted his tax increase position, especially hitting the wealthy and corporations, the country added over 16.7 million private sector workers. These numbers do not support what we hear from the Republican Congressional leadership today.
George H.W. Bush followed Reagan and in his second year in office, OBRA-90 was passed. This law extended some of the Reagan era gas and telephone taxes but also added a new tax rate for individuals, 31%, and increased the income cap on which Medicare taxes would be paid to $123,000 from $53,400. No corporate taxes were raised. From October of 1990 through January of 1993 when Bush left office, the economy lost 57,000 private sector jobs. Job creation during the first Bush administration was relatively flat in total. For the entire four years that George H.W. Bush was in office, 1,465,000 private sector jobs were created. Even though job creation was not expanded after these tax increases, the .06% reduction in the labor force could not be classified as job killing either, or attributed to a corporate tax increase.
Bill Clinton took office in January of 1993. Deficit spending was again worrying the electorate. Adjusted for inflation, the administration of the first Bush had piled up 1591.9 billion dollars in public debt. This was on top of the 2768.3 billion dollars in public debt accumulated by the Reagan administration. The public wanted something done and the Democrats in Congress and Bill Clinton delivered OBRA-93, unofficially referred to as the Deficit Reduction Act of 1993, which according to a report published by the Heritage Foundation was now the ” — largest tax increase in history.” OBRA-93 raised taxes on the top 1.2% of wage earners, increasing the top rate to 39.6%. It created a 35% tax bracket for corporations with income over 10 million dollars, removed the income cap so that all income was now subject to hospital insurance taxes, and increased the federal fuel taxes by 4.3 cents per gallon. What is old is new again when it comes to Republicans using the term “job killer” to describe tax increases. Now Governor of Ohio, then Rep. John Kasich (R), when commenting on the bill, stated on the floor of the House that “…your economic program is a job killer. Your tax increases on the energy in this country will affect people from the automobile to the schoolhouse to the grocery shelves.” Rep. Jim Ramstad (R-IL) also stated on the House floor that the bill would “… stifle economic growth, destroy jobs, reduce revenues, and increase the deficit. …the Clinton tax increases will lead to widespread job loss.” Not a single Republican in Congress at that time voted in support of OBRA-93.
So what happened after the Clinton tax increase? Did the world end? Were jobs killed or destroyed? Did the deficit increase? No, no and no! After the law took effect in October of 1993, not only did the year-to-year deficit go down by 22.5% the first year and return to a surplus during fiscal year 1998, but private sector employment increased for 26 consecutive months. By the time Clinton left office in January of 2001 over 19 million private sector jobs were created after the tax increase of 1993. The world continued to rotate properly and George W. Bush was handed a budget that was projected to pay off the national debt by 2009.
What occurred next? George W. Bush decided that we didn’t need to pay off the debt that quickly and instead opted to cut taxes effective January 1, 2001, with one of the largest tax cuts in history. Vice President Dick Cheney even told then Treasury Secretary Paul O’Neill that “deficits didn’t matter”. President Bush declared that “If one is interested in job creation in the private sector, it is important to recognize that lower taxes enable the job creators, i.e., small businesses, to have more money with which to expand their work force.” How did that work out? From January 2001 when he took office to October 2004, one year after his second round of tax cuts, the economy shed 1,141,000 jobs. Although George W Bush cut taxes for every income bracket, the bulk of the cuts benefitted the top 5% of wage earners. Those were the same people that Clinton and Reagan had increased taxes on.
Although both Reagan and G. W. Bush declared that lowering taxes on the wealthy would free up capital that they would then use to create jobs, the opposite happened. After the two large tax cuts, the economy shed a total of 3,505,000 jobs and the federal deficit expanded. After large tax increases on the wealthy took place, the economy expanded, over 35 million jobs were created, and the deficit shrank.
Why then do people like John Boehner and Mitch McConnell continue to try and peddle that tired old lie that tax increases on the wealthy would “kill jobs” when demonstrably the exact opposite is true? In spite of the fact that 19 different polls show that Americans would support increased taxes on the wealthiest among us, Republicans in Congress steadfastly say not just no, but absolutely no. The reason they continue to shovel that same old barnyard byproduct to us by the fetid scoopful is because the corporate lobbyists, the bankers and the well-off own Republican Farmville. Almost all Republican members of Congress have signed the Taxpayer Protection Pledge that forbids signatories to vote for any tax increases whatsoever, even if it means just closing a loophole. If they increased taxes they would have to answer to the fanatic Tea Party wing that they have decided to embrace at their peril. The main reason though is that instead of Republicans working honestly with Democrats to fix what is wrong with our finances; their primary goal according to Mitch McConnell is to defeat Obama no matter what the cost to this country. The rest of us can go pound sand.