In 1981, Ronald Reagan thought he had an answer for a sluggish economy and an out-of-whack federal budget.
Guided by an obscure author named George Gilder and an obscure professor named Arthur Laffer, Reagan and his Republican allies pushed through a massive reduction in income tax rates. They believed the cuts would energize the economy enough to actually increase revenue and close a gaping federal budget deficit of $41 billion.
It didn’t work. By 1982, it was clear the federal red ink was growing and something had to be done.
Guided by a not-so-obscure senator from Kansas named Bob Dole, Reagan eventually agreed to one of the biggest federal tax increases in history. The measure didn’t raise income tax rates, but it increased taxes on tobacco and telephone service, imposed withholding on some investment income and closed other loopholes.
“We think we did the right thing,” Dole said at the time.
Later in his first term, Reagan signed bills raising the gasoline tax and Social Security taxes. Conservatives said voters would punish him for the apostasy.
He won 49 states in 1984.
This week, Kansas lawmakers sat down to consider a list of tax increase options designed to close a budget gap of between $400 million and $800 million. It may be weeks before consensus can be reached on specific mechanisms — sales taxes, property taxes, tobacco taxes and the like — but there should be no doubt. When the debate is over, Gov. Sam Brownback will sign one of the largest tax increases in Kansas history.
And some conservatives are predicting doom, just like in 1982.
“Raising taxes to compensate for decades of overspending is not the answer,” Americans for Prosperity said earlier this year.
Yet the Reagan experience suggests voters are more tolerant of tax increases than politicians understand. Voters demand efficiency with their dollars and want taxes to be as fair and simple as possible. They believe in a progressive income tax system that dings the wealthy more than the poor.
But they also prefer sales and excise taxes to levies on property and income. That’s particularly true if sales tax policy can be adjusted to lessen the impact on the poor through rebates and exemptions.
That political reality suggests the broad outline of what Kansas lawmakers will come up with. Look for higher taxes on sales, gas and nicotine, with a small property tax hike thrown in. The final bill will probably cut some tax deductions and delay future income tax cuts.
It will look remarkably like the bill Dole wrote for Reagan in 1982.