Romantacizing Reagan: Part I – Taxation and Spending

in Economics/Politics

Among conservatives, Ronald Reagan is held in deific esteem. Find any Republican debate Bingo or drinking game, and his name is certain to be one of the triggers to take a drink. Even among libertarians (of the non-anarchist persuasion), Reagan is still viewed as one of our greatest presidents, if not the greatest outright.

The reasons for the romanticization of Reagan are difficult to understand. Ronald Reagan did have some of the best rhetoric when it came to conservative and Libertarian issues, and perhaps this is a good explanation for his appeal. But when you look at his policies as President, it seems like he stands for everything Conservatives, and especially Libertarians, are against. So let’s compare rhetoric to policy.

Part I – Spending and taxation

In one State of the Union address, Reagan gave a rousing condemnation of the problem with the federal deficit. In it, he gave the pithy insight that “we can’t spend ourselves rich,” which is one of the more popularly quoted phrases among conservatives and libertarians.

In their own hypocrisy, Democrats love to point out the massive increases in spending that took place under Reagan. Even if it’s for the wrong reasons, they are correct in this observation. Reagan may not have been trying to spend Americans rich, but he was certain spending.

Between Fiscal Years 1982 and 1989 (the years for which Reagan would have signed the budget), federal expenditures grew by more than 60%, increasing from 1.179 trillion to 1.904 trillion dollars.

The common excuse for this, of course, is the arms race of the Cold War. Even if you accept this as a reasonable reason to massively increase the federal deficit (while hypocritically condemning such actions in your predecessors), the increase in military spending only accounts for a portion of the total growth.

Spending on Education grew by 68%, despite Reagan’s unfulfilled campaign promise to shut down the Department of Education. Healthcare spending grew by 71%. Reagan also increased government subsidies, such as the one mentioned in my sugar article, as well as a myriad of other domestic spending categories.

The typical justification here is that, once we accept the “need” for the massive increases in military spending (which set the destructive precedent that any suggestion of budget cuts to the financial black hole that is the Department of Defense will cost a Republican an election), then it was a Democratic Congress that forced the compromise of domestic spending in exchange for the increase in military spending.

Even if there is some truth to that, and I’m sure there is, we are now accepting a great deal of compromise on conservative principles and making excuses for Reagan’s hypocritical proselytizing about federal deficits. This doesn’t even mention the common praise by Reaganites that his military spending was a strategy to help collapse the Soviet Union by essentially duplicating Soviet spending logic (pumping money into government agencies – in this case, the military). It almost seems to be a harbinger of George W. Bush’s eyebrow-raiser “I’ve abandoned free market principles to save the free market system.”

But whatever shortcomings Reagan may have had when it came to government spending, he made up for in tax cuts. Right?

This claim seems to be even more mythologized by conservatives. Where conservatives will make excuses for Reagan-era spending, they tend to be outright misinformed regarding Reagan’s tax policies.

In August of his first year in office, Reagan did sign into law the Economic Recovery Tax Act. This is something
in the Reagan legacy that I can actually get behind. While my ideal is, of course, zero taxes, I’m going to support, to paraphrase Milton Friedman, any cuts in taxes at any time for any reason. This piece of legislation did that. 

What conservatives tend to forget (or omit) are Reagan’s other pieces of tax legislation. The very next year, Reagan signed the Tax Equity and Fiscal Responsibility Act (TEFRA). This increased numerous taxes as well as eliminating certain deductions. It is important to keep in mind here that conservatives don’t have the excuse of a Democratic congress. The tax increases in this bill were added in Senate revisions when the Senate was still controlled by Republicans. This flies directly in the face of another popular piece of Reagan rhetoric made ten years later when speaking to the National Association of Realtors that “We don’t have a trillion-dollar debt because we haven’t taxed enough; we have a trillion dollar debt because we spend too much.”

Still in the Republican-dominated year of 1982, Reagan also increased taxes on the trucking industry and gasoline, which he actually cited as being an economic stimulant to create 320,000 jobs. This type of tax-and-spend policy is straight out of Keynes’ playbook, but conservatives prefer to remember Reagan’s quote about reading the great Austrian economists: “I’ve always been a voracious reader — I have read the economic views of von Mises and Hayek, and Bastiat.” He may have read them, but it seems he ignored them.

Likewise, the payroll tax increase of the following year was also not forced on Reagan. In fact, he requested it. He also passed the Deficit Reduction Act of 1984, which was another contradictory attempt to reduce deficits by raising taxes.

Along with the tax cuts of 1981, Conservatives are inclined to tout Reagan’s Tax Reform Act of 1986. This is the oft-hailed piece of legislation that lowered the top marginal tax rate on personal income from 50% to 28%. But this bill wasn’t as much of a tax cut as it was a reorganization of taxation. In addition to cutting personal income tax rates, it also closed a great deal of significant tax deductions (which is effectively a tax hike in itself), increased restrictions on retirement accounts, and expanded the criteria for the Alternative Minimum Tax which extended the umbrella of this tax burden to affect many middle-class taxpayers.

As long as conservatism and especially libertarianism claim to be the ideologies opposed to high levels of spending and taxation, Reagan seems like an unlikely hero. The excuses that so-called “Reagan Republicans” make for him on these issues seem flimsy and misinformed. In comparing his words to his deeds, Reagan seems no different than any other politician: outright hypocritical.

Next: Part II – Regulation and Free Trade

Chris Calton is a senior contributor to The Liberty Conservative and through his work tries to educate people about Anarcho-Capitalist ideas and general anarchist history.