Against all odds, Congress has passed a historic tax reform bill, reducing individual and corporate tax rates, and reforming the tax code for the first time in 31 years. Although it has faced intense media criticism, public support for the bill has grown as tax cuts start to show up in paychecks and hundreds of businesses share their tax reform savings with their workers through bonuses, pay raises, and increased benefits.
Yet despite the success of the bill, the tax reform battle has just begun. If history is a guide, Republican lawmakers and tax reform proponents will have to spend years fending off the coming attempts to repeal, cut back, and discredit the tax reform bill.
History has shown that the opponents of tax cuts will be relentless in trying to repeal and replace the tax reform bill. They fought to repeal or delay the second and third stages of President Ronald Reagan’s tax cuts, fought to undo major portions of the Tax Reform Act of 1986, and spent years fighting against an extension of President George W. Bush’s tax cuts.
The 1981 Reagan tax cut, passed with bipartisan support, reduced individual tax rates by 25 percent — 5 percent in the first year and 10 percent in the second and third years, followed by indexing. Once fully implemented, the tax cuts resulted in seven straight years of economic growth averaging nearly 5 percent a year. It was enormously popular and successful. Yet tax cut opponents tried repeatedly to repeal, cap, or delay the scheduled tax cuts.
Within months of the bill’s enactment, legislation was introduced to repeal or cap the third year, defer indexing, and freeze any future tax cuts. Media pressure was intense to delay the tax cuts, and even some Republicans became wobbly on the issue. But Reagan was steadfast and promised to veto any bill that tampered with his tax cuts.
But tax cut opponents persisted, and the 1984 Democratic platform pledged to “reverse” Reagan’s tax plan and called for corporate and personal tax increases. The platform called for capping the Reagan tax cuts, limiting the third year, deferring indexing, and increasing corporate tax rates.
After losing 49 states in the 1984 elections, Democrats worked with Reagan to pass the Tax Reform Act of 1986, which reduced the top individual tax rate to 28 percent and the corporate rate to 34 percent. But efforts to undo the 1986 reform act began almost immediately. By 1990, the top individual rate was raised to 31 percent, and by 1993 the top rate was increased to nearly 40 percent and the corporate rate was increased to 35 percent.
The same fate awaited the Bush tax cuts, which were enacted in 2001 and 2003 and scheduled to expire in 2011. Tax cut opponents tried to block their extension and spent years trying to reinstate the top rate to 39.6 percent.
I worked at the Treasury Department during the Reagan administration and helped pass the Reagan tax cuts in 1981. I then spent the next three years fighting off repeated efforts to gut the Reagan tax cuts.
Tax reform supporters can expect the same determined effort to repeal and replace the Republican tax reform plan. Tax reform opponents are mobilizing forces in opposition to the bill and plan to make it a major issue in the midterm elections and in 2020.
Tax reform supporters cannot afford to let their guards down. Groups like Americans for Prosperity and Freedom Partners are leading the fight to promote and defend the bill. More groups and organizations need to join the fight to save tax reform as it strengthens the economy.
As Reagan once said, “We have some people around here who never met a tax they didn’t hike.” Reagan was right, and it is why tax reform supporters need to stay united and oppose any and all efforts to tamper with the tax reform bill.
Bruce Thompson is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a consultant in Washington. During the Reagan administration, he was assistant secretary of the Treasury for legislative affairs.
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