Reagan, Bush, and Taxes

Andrew E. Busch

April 1, 2005

Thanks to George W. Bush, the income tax bite felt by Americans will be considerably smaller this April 15 than it would otherwise have been. Due to the tax cuts of 2001, 2002, and 2003, tax rates are lower, families receive a larger per child credit, and even adoptions are more affordable.

The tax cuts have been the most "Reaganesque" feature of Bush’s domestic presidency thus far, and are the reason many commentators have declared Bush a worthy heir of Reagan.

In one respect this is quite right. Bush understands, as Reagan did, the economic importance of providing individuals with strong incentives to work, save, and invest. The 43rd president also understands, as did the 40th, the moral imperative of letting people keep what they earn, and the political imperative of maintaining liberty by avoiding a bloated and overcentralized government. Finally, like Reagan, Bush has recognized that a balanced budget per se cannot be the highest end of government, and cannot justify draconian tax measures. For this he should be commended.

On the other hand, Bush has thus far missed an important part of Reagan’s equation.

Reagan coupled his tax cuts with a serious effort to trim the size and scope of the federal government. He pushed through billions of dollars in discretionary domestic spending cuts, tried to transfer federal programs to the states, blocked the creation of new entitlement programs, and backed tougher budget rules that brought the deficit down considerably in the last half of the 1980s. By the late 1980s, under the leadership of Reagan and James Miller, his director of the Office of Management and Budget, the federal budget was growing less than 2 percent a year in real terms. Ultimately, under the pressure of the deficits, even entitlement spending slowed.

Some Democrats charged Reagan with deliberately creating deficits in order to "starve" the federal government. Taken literally, this charge was not true. Reagan clearly disliked the deficits, and it is clear that they occurred because of a confluence of events, many of which (like the recession of 1981-82 and program decisions made in the 1960s and 1970s) were outside his direct control. What he did do was to accept deficits rather than raise income taxes in response, allowing those deficits to impose a spending control that Congress would not have adopted otherwise.

In short, cutting taxes was only part of his broader aim of limiting government. Indeed, Reagan’s understanding was that reduced federal expenditures ought to accompany tax cuts to accomplish the broader aim.

In contrast, George W. Bush has made little effort to rein in a federal spending binge that began in 1999. Discretionary domestic spending has increased dramatically, the prescription drug entitlement will cost another $700 billion (or more) in the next decade, and the federal government has not devolved authority but seized even greater power in areas like elementary and secondary education. He has recently sought modest budget limits, but the effort seems too little, too late. It is, as Bush is discovering, quite difficult to take away benefits once they have been given. It would have been much easier to have limited spending from the beginning.

The unwillingness of Bush and the Republican Congress to restrain spending despite having the power to do so is potentially catastrophic for them and the country. It dooms Americans to a highly unsatisfying choice between gambling that large deficits can go on indefinitely without harm to the economy, or a massive tax increase that almost certainly will harm the economy. It undercuts the credibility of arguments Republicans may wish to make in the future against new proposed spending programs. It gives Democrats the opportunity (not that they will take it) of flanking Republicans on the right on questions of fiscal responsibility. It may lead many Republican or Republican-leaning voters to wonder why it is so important to keep the White House and Congress in Republican hands.

What Reagan grasped but Bush has not yet is that government spending, not just taxing, can distort the economy, give too much power to Washington, and corrupt the civic virtue of those who become dependent on it. Indeed, spending may be more politically and morally dangerous than taxation, offering the state a greater degree of control.

It has been argued in some respectable, indeed honorable, quarters that limited government conservatism is at a dead end and the future lies with "big government conservatism." Yet no one has refuted Reagan’s objections to big government on economic, political, or moral grounds. The concerns he raised when he insisted on trying to cut spending and taxes together have not been rendered invalid.

Cutting taxes with no concern for spending is not an imitation of Reagan but of Lyndon Johnson, who pushed through the Kennedy tax cut at the very same time he was pushing through the Great Society. The result was a massive explosion of government and deficits and an economic hole that only Reagan could climb out of two decades later. George Bush may have to decide whether he wants to be Ronald Reagan or Lyndon Johnson.

Andrew E. Busch is a Professor of Government at Claremont McKenna College and an Adjunct Fellow of the Ashbrook Center.