Yesterday, House Majority Leader Eric Cantor (R-VA) walked out of deficit reduction negotiations being led by Vice President Joe Biden, on the justification that Democrats were insisting on some sort of new revenue being part of the deal, while Republicans have ruled taxes “off the table.” “There is not support in the House for a tax increase, and I don’t believe now is the time to raise taxes in light of our current economic situation,” Cantor said in a statement.
Cantor’s sentiment was echoed by Speaker of the House John Boehner (R-OH), who said, “raising taxes is going to destroy jobs. If you raise taxes on the people that we need to grow our economy and to hire new workers, guess what: they’re not going to do it if they have to pay higher taxes to the federal government.” But the GOP needs to check the history of one of its icons to see if this is really the case.
After all, in 1982, the Reagan administration implemented the first of several tax increases that it would endorse in order to reduce the deficit. (Reagan raised taxes in seven of the eight years that he was President.) Republican lawmakers and conservative economists screamed that the tax increase would slam the economy and hinder growth. But as former Reagan and George H.W. Bush economic official Bruce Bartlett noted, “It would be hard to find an economic forecast that was more wrong in every respect“:
Looking at real gross domestic product, it grew 4.5 percent in 1983 and 7.2 percent in 1984 – an exceptionally strong performance. The stock market had one of its best years ever in 1983 – both the Dow Jones Industrial Average and the S&P 500 Index rose 35 percent. There was no increase in the rate of inflation, which was exactly the same in 1983 and 1984 as it was in 1982. The unemployment rate fell from 10.6 percent in December 1982 to 8.1 percent by December 1983 and 7.1 percent in December 1984.
The 1982 tax increase is the largest peacetime tax increase in U.S. history. And the same thing happened around President Bill Clinton’s 1993 tax increase: dire warnings from Republicans about economic Armageddon, followed by a booming economy.
As Center for American Progress Director of Tax and Budget Policy Michael Linden noted, over the last 50 years, lower top tax rates have coincided with weaker growth, while the strongest growth was during periods when the top tax rate was substantially higher than it is now. As he explained, “These numbers do not mean that higher rates necessarily lead to higher growth. But the central tenet of modern conservative economics is that a lower top marginal tax rate will result in more growth, and these numbers do show conclusively that history has not been kind to that theory.”
Of course, it’s not really surprising that the GOP has no idea what went on during Reagan’s term. After all, House Republicans scoffed and rolled their eyes when presented with the fact that taxes were higher under Reagan than they are under Obama.