Reagan's signature 1981 tax cuts forever changed the landscape. Ghost of Gipper looms over GOP

With the nation at risk of default next month, the Republicans’ fierce anti-tax orthodoxy is running square into the Ghost of the Gipper— the GOP’s great modern, pre-tea party hero, Ronald Reagan.

Indeed, a POLITICO review of Reagan’s own budget documents shows that the Republican president repeatedly signed deficit-reduction legislation in the 1980’s that melded annual tax increases with spending cuts just as President Barack Obama is now asking Congress to consider.


The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) is the most famous, because of its historic size and timing, a dramatic course correction that quickly followed Reagan’s signature income tax cuts in 1981. But in the six years after were four more deficit-reduction acts, which combined to almost double TEFRA’s revenue impact on an annual basis.

A table in one of Reagan’s final budget submissions spells this out.

For 1991, the document projects $61.6 billion in revenue increases attributed to TEFRA. At the same time, the four other smaller deficit-reduction acts were expected to add a total of $53 billion in revenues on an annual basis.

Translated into current dollars, the total revenue increases for the five bills would then be equal to about $190 billion a year. That’s far in excess of anything that has been proposed by the White House in recent deficit talks led by Vice President Joseph Biden, yet most of these increases were approved when Republicans controlled the Senate in the 1980’s.

The contrast with today’s politics is striking.

The administration is still hoping that Speaker John Boehner (R-Ohio) will see the potential of a large deficit-reduction deal that would include revenues but be more heavily tilted toward spending reductions over the next 10 years. Yet Senate Minority Leader Mitch McConnell (R-Ky.)—who came to Congress in the midst of the Reagan administration—is unyielding and time is running out given the Treasury’s early August deadline for action on raising the federal debt ceiling.

Given the impasse, there is almost daily speculation of a fall-back position, allowing for a short-term debt resolution to get past August. Senate conservatives have also begun to promote a scheme under which the House would add a balanced budget amendment to the debt package and try to jam it through the Senate.

Thus far Senate Majority Leader Harry Reid (D-Nev.) and Obama appear united in trying to convince Boehner to move toward a larger deficit-reduction agreement. The speaker lashed back after Obama’s critical remarks at a press conference Wednesday, but staff contacts continue and the administration and Reid appear willing to discuss substantial Medicare reforms in return for a deal.

In the case of revenues, both parties have a shared interest in long-term corporate tax reform. The assumption has been that if the code could be simplified by doing away with tax expenditures, rates could be reduced, thereby generating new economic growth and more revenues. This long-term approach is one taken by the so-called “Gang of Six” bipartisan group in the Senate, but these senators have also been willing to discuss more immediate revenue-generating changes up front, impacting how standard tax deductions and tax brackets are adjusted each year for inflation, for example.

In the Biden deficit talks, Minority Whip Jon Kyl (R-Ariz.) has pegged the administration’s tax options at raising about $400 billion over 10 years –or an average of $40 billion annually. White House officials have indicated they are prepared to accept less, but there is clearly some competition between the need for deficit reduction up front vs. paying for corporate tax reform in the future.

In Reagan’s case, he also signed major tax reform and his signature 1981 tax cuts forever changed the landscape.

A decade after his 1981 Economic Recovery Act, for example, Reagan budgets predicted those tax cuts would reduce annual receipts for the Treasury by as much as $350.2 billion. But the same tables also show that the combination of TEFRA and the four other deficit-reduction bills effectively took back a third of this in the name of deficit reduction.

The rich diversity of Reagan-era tax changes is most striking, impacting even such conservative priorities now as the estate tax. At the same time, Reagan also signed laws to double the federal gasoline tax to build more roads and increase payroll taxes to stabilize Social Security.

If these receipts are added to the mix, the same table for 1991 revenues shows that the combined Reagan revenue increases would be almost 40 percent of his 1981 tax cuts.