In November 1982, in former President Ronald Reagan’s first midterm election, House Republicans lost 26 seats, effectively ending the conservative Republican-Democratic coalition that had passed the Reagan tax cuts in 1981. The economy was still mired in a recession in 1982, as the Federal Reserve tightened monetary policy, and the election pundits were quick to declare Reaganomics a failure.
The New York Times said the “Reagan Revolution has stalled,” and political observers predicted that the House losses were going to put a check on Reagan’s policies.
Many of the president’s own advisers and allies in Congress began urging the president to compromise with Congress, especially on taxes. The third year of the Reagan tax, the final 10 percent cut, was scheduled to go into effect in 1983, and House Democrats wanted to block it.
Many congressional Republicans were spooked by the election losses and urged Reagan to change course and compromise with congressional Democrats. Former House Republican Leader Bob Michel, R-Ill., told the New York Times that Reagan “has got to make some adjustments in the original course.” Former Sen. William Cohen, R-Maine, insisted Reagan “has to compromise.”
But Reagan was adamant that he was not going to make any “adjustments” to his historic tax cuts. Reagan instead said that “we are going to stay the course” on his economic policies and told Congress he would “oppose any efforts to undo the basic tax reforms that we have already enacted.”
Reagan’s determination paid off. Once the full tax cut went into effect, the economy came roaring back, with GDP growing by 4.6 percent in 1983 and 7.3 percent in 1984. Between 1983 and 1989, the economy grew at an average rate of 4.6 percent, producing one of the greatest economic expansions in U.S. history.
President Trump is now facing the same pressure to cut a deal with Congress and make “adjustments” to his historic tax cuts. Many in Congress want to undo the Trump tax cuts, and some have proposed increasing the new corporate tax rate from 21 to 25 percent.
Trump’s corporate tax rate reduction was a historic achievement, and we are already seeing the beginning of a strong economic expansion. Raising the corporate tax rate now would stop the economic recovery in its tracks, curbing the long-term investments needed to fuel long-term economic growth.
The lower corporate tax rate is helping to drive economic growth, leading to more jobs, higher wages, and a better standard of living for all.
Like Reagan, Trump needs to stay the course on his tax cuts.
Bruce Thompson is a consultant in Washington. During former President Ronald Reagan’s administration, he was assistant secretary of Treasury for legislative affairs.
