Trump is confused on Reagan and tax reform

It’s not clear how serious Donald Trump is about tax reform. Lately, he has been heaping praise on the last important tax reform, directed by Ronald Reagan in 1986. But in its wake he called it an “an absolute catastrophe for the country” and “one of the worst ideas in recent history.”

Presidents are entitled to change their minds; maybe Trump is currently sincere. Or maybe he is confused. In his speeches during the past week, he has conflated two very different aspects of Reagan’s policies: tax cuts and tax reform. 

{mosads}Reagan’s big tax cuts came at the beginning of his presidency. They made no pretense of reforming the tax code beyond slashing some very visible rates. The loopholes, deductions and special favors for privileged groups remained.

Reagan and his advisers understood that maneuvering the tax cuts through Congress would be a big job — and it was. But after six months of presidential speeches, backroom bargaining and massaging of budget projections, Reagan got what he wanted. In his diary he declared the victory “the greatest political win in half a century.”

Not everyone agreed. Reagan’s tax cuts inaugurated an era of unprecedented federal deficits. Before Reagan, the Republican Party had been the party of balanced budgets; by the time Reagan left office, it was the party of tax cuts — which badly unbalanced the budget. 

During his second term, Reagan took on a separate task: reforming the tax code. He knew he’d have another fight on his hands. Paul Laxalt, a Republican senator from Nevada who was one of Reagan’s close advisers, remarked, “When you open up the whole code, lobbyists from all over the country, and perhaps the world, will be crawling out from under any rock.”

Reagan himself described the need for tax reform in one of many speeches on the subject. “It’s a system so utterly complex and ultimately inexplicable that half the time the tax professionals themselves aren’t sure what the rules are —a system that even Albert Einstein is said to have admitted he couldn’t begin to fathom.” Reagan paused and grinned. “You know, it’s said that his hair didn’t look that way until after he experienced his first tax form.” 

Reagan’s jokes and jawboning contributed to the success of the tax reform bill, but no less essential to its ability to attract votes from both parties was its adherence to the principle of revenue neutrality. The proposed reform would neither raise nor lower taxes overall. Tax cuts had their place, but not in a bill to reshape the entire tax code.

It was a completely pragmatic decision. Reagan still thought taxes were too high. But beating back the lobbyists — including those for Donald Trump’s real estate industry — would take everything the administration could muster. He needed Democratic votes as well as Republican votes. 

And he got them. Indeed, Democrats became some of the strongest supporters of Reagan’s tax reform — which he tactfully and accurately cast as a bipartisan measure. “Let the bill take effect and let the American people and businesses make their adjustments,” said Democrat Dan Rostenkowski, the chairman of the House Ways and Means Committee, in the face of demands to restore some of the loopholes the reform bill closed. 

The 1986 reform did lower tax rates. The top rate on personal income fell from 50 percent (already reduced from 70 percent by the 1981 tax cuts) to 28 percent. But enough deductions disappeared to offset the fall in rates. Taxes as a whole went neither up nor down. 

Reagan accounted the tax reform one of his greatest accomplishments. “I feel like we just played the World Series of tax reform and the American people won,” he declared at the signing.

Donald Trump wasn’t cheering then. Yet if he’s serious now about following Reagan’s lead, he should pay attention to the Gipper’s game plan. The tax code again needs reforming, but if reform becomes a cover for tax cuts — and the program-cutting pressure that will follow — it’s unlikely to attract the broad support needed to beat back the lobbyists once more.

H.W. Brands is a presidential historian and the author of “Reagan” and other books on American history and politics. Brands is a professor at the University of Texas at Austin. Follow him on Twitter @hwbrands. 

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