Na Ga Da Republicans Propose Higher Tax Rates
Rewritten Article:
Remember that iconic impression of President George H.W. Bush by comedian Dana Carvey? "Na-ga-da, na-ga-da, na-ga-da..." The funny bit wasn't about a specific issue, but it perfectly captured Bush's flip-flopping on his 1988 pledge during his Republican presidential nomination: "Read my lips, no new taxes."
Fast forward to 1989, and after being elected as president, Bush promptly went back on his promise. He introduced tax rate increases, particularly focusing on the top rate of the income tax. The Democrats controlling Congress were only too happy to oblige his request. This move was later accompanied by a significant increase in the top tax rate in 1993, which was a bitter pill for Bush, considering his earlier commitment.
The political backlash against Bush was epic. In 1992, he took 37% of the vote, a figure that no incumbent president has ever achieved in a re-election attempt. It was happenstance that his successor, Bill Clinton, re-established the top tax rate to 39.6%. Clinton was not one to let Bush's faux pas go unnoticed.
Now, it's 2023, and we find ourselves in a disheartening situation as controlling Republicans in Congress are pondering raising the top rate of the income tax. This move directly contradicts the GOP's long-held stance of preventing any increase in the top tax rate[1]. The reasoning goes like this, as articulated by economist Arthur Laffer and myself: keeping the top tax rate low secures the American Dream for everyone, whereas raising it aligns with the dim-witted ideologies of the extreme left[2].
However, opinions among economists regarding taxes are divided. For example, Nobel Prize winner Peter Diamond argues that the top tax rate should be 70%. Some top economic journals support raising tax rates at the top for a variety of reasons[2]. A further example of the schism is the profession's consensus on tariffs: zero tariff is best, based on their analysis of free-trade concepts[2].
It's important to acknowledge that the entire discussion around taxation among economists is potentially flawed. Taking a comprehensive look at the whole matter is advisable and acting rationally like actual leaders, rather than over-intellectualizing, would be more beneficial. Even prominent economists like Hayek and Friedman proposed a flat 25% income tax, questioning the wisdom of anyone who advocated for rates higher than 10% due to the inevitable shelters created[3].
Much of the scholarly debate on taxation is questionable. The arguments for raising the top tax rate to 70% or reducing tariffs to zero may not hold water. As Laffer and I have pointed out, the historical examples do not mostly support the notion that tax increases have been successful[3]. For instance, the tax hike in 2001 under W. Bush did not lead to the Great Recession; instead, it was the expansion of credits below the top rate.
On the other hand, the tax cuts proposed by Andrew Mellon significantly boosted the economy during the 1920s. The Depression occurred in 1929, shortly after Hoover announced a halt at a 25% top tax rate. The positive effect of his tax cuts under JFK in the 1960s and Reagan's in the 1980s is a matter of record, despite the common misconception that these periods led to economic problems[3].
In conclusion, the political consequences of George H.W. Bush raising the top income tax rate were significant, particularly in terms of his re-election prospects. However, the economic impacts are less clear-cut. Today's Republican leaders would do well to learn from the 1990 tax hike fiasco and reconsider their stance on raising the top tax rate[1].
Enrichment Data:
- Political Outcomes:
- The 1990 tax increase led to erosion of Bush's political credibility and support. Many viewed it as a broken promise and betrayal, resulting in his loss in the 1992 election[1][2].
- Economic Context:
- The 1990 tax increase was a modest move aiming to reduce federal deficits. It was not as disruptive as some subsequent tax changes.
- Subsequent policy shifts under later presidents, such as Clinton's increase of the top tax rate, did not necessarily stymie economic growth[3].
- During George H.W. Bush's presidency, he went back on his promise of no new taxes and implemented tax rate increases, a move which was a dramatic departure from his 1988 Republican presidential nomination pledge.
- Upon being elected president, Reagan set a concept involving tax policies and legislation that sought to lower the top tax rate to secure the American Dream, a stance that apparently still influences modern Republicans.
- In 2023, echoing the Reagan era, the modern Republican leaders are considering raising the top tax rate, seemingly contradicting the GOP's long-held stance on preventive tax rate increases.
- The political and economic ramifications of raising the top tax rate are often debated among economists, with opinions divided regarding the optimal rate. For instance, some argue for a maximum rate of 70%, while others propose zero tariffs. However, historical evidence suggests that the effects of tax rate increases and reductions on economic growth are complex and may not always lead to anticipated outcomes.
