Biden’s Inflation Reduction Act exposes our allergy to taxes

Republicans accusing Democrats of wanting to hike taxes and Democrats running from the “tax and spend” label is one of the most familiar features of modern American politics, but it wasn’t always this way.

Americans once saw paying taxes as a patriotic duty and Republicans spent most of the 20th century positioning the GOP as the party of fiscal responsibility, focused more on balancing the federal budget, not tax cuts.

The tax politics of the past 40 years have made it harder to address the nation’s societal problems and has even come to threaten our democracy.

The income tax as we know it was a result of World War II. In 1942, Congress transformed the federal income tax from a class tax, paid only by the wealthiest individuals, to a mass tax. Between 1939 and 1945, the number of Americans subject to the income tax increased more than 10-fold, from 3.9 million to more than 42 million.

To sell the new system, the government undertook a major public relations campaign to paint the move as patriotic. The campaign featured a new Irving Berlin song celebrating the ordinary men and women “proud” to pay “taxes to beat the Axis.” The public relations blitz also included radio spots, celebrity endorsements and even Disney films featuring Donald Duck.

This campaign helped make the wartime tax system not only effective but popular.

It was so popular, in fact, that when Republicans regained the presidency in the 1950s after two decades out of the White House, Dwight D. Eisenhower signed a bill that both codified the WWII-era tax system and set the top marginal tax rate at 91 percent. Republicans saw embracing this system as fiscally responsible at a moment when Cold War defense spending was ramping up alongside domestic spending on priorities like housing, highways and education. The move was considered both popular and vital to the national interest, as Republicans positioned themselves as the guardian of America’s pocketbook.

In the early 1960s, when President John F. Kennedy proposed a massive across-the-board tax cut, the GOP, along with conservative Democrats, threatened the bill’s prospects. Rep. John Byrnes (Wis.), the ranking Republican on the House Ways and Means Committee, warned that the proposal would produce an “inflationary binge,” while the joint Senate-House GOP leadership called it, “the “biggest economic gamble in the history of nations.”

In the early 1970s, however, as a new brand of conservatives gained a greater foothold in the GOP, the party began to abandon fiscal responsibility and refashion itself as the “tax cut party.” Conservatives latched on to “supply side economics” — which centered on income tax cuts — and gradually abandoned the party’s historic commitment to balanced budgets, except as a rhetorical cudgel to beat back domestic spending proposals.

Politics, not economics, is what truly drove the GOP’s embrace of tax cuts.

Republicans had rarely controlled both the legislative and executive branches of government since the onset of the Great Depression. Tax cuts might allow the GOP to become what one 1971 Nixon campaign strategy memo called the “visible and outspoken champion of the Forgotten Americans, the working people of this country.” Significantly, these voters had been aligned with Democrats since the New Deal.

But unlike spending programs aimed at those voters, tax cuts could appeal to working-class voters without alienating the wealthy and corporate interests that constituted the GOP base. Paired with an attack on the welfare state — which by the early 1970s had become linked in the public mind with poor, minority communities — tax cut politics fused cultural resentments, racial backlash and economic politics in a way that would soon remake the GOP.

Policy entrepreneurs on the right pushed the GOP in this direction. Jude Wanniski, who helped turned the Wall Street Journal editorial page into the leading cheerleader for supply side economics and lower tax rates, argued in 1976 that the GOP should remake itself as the “Santa Claus of Tax Cuts.” Republicans’ “dumb” fixation on balanced budgets, Wanniski wrote, had “shriveled” the GOP’s “influence as a party,” because it left Republicans without an economic agenda that promised to benefit the majority of voters.

The stagflation seen under the Carter administration in the late 1970s made tax cuts a popular economic and political solution. Pushed by skyrocketing inflation into higher and higher tax brackets, and buffeted by economic head winds that economists seemed unable to explain much less reverse, ordinary voters were now open to previously radical economic ideas and policies. Tax-cut fever swept the nation and enabled tax-cut conservatives to triumph over balanced-budget moderates in the GOP. Tax politics helped to catapult the conservatives’ standard-bearer, Ronald Reagan, into the White House with broad public support in 1980. Promising to stand between the “taxpayer and the tax spender,” Reagan led the effort to remake the tax code and to bring tax rates down for all Americans, though the largest gains were at the very top.

The 1981 tax cut and Reagan’s anti-tax and anti-government rhetoric transformed American politics in significant and lasting ways. But even the “Reagan Revolution” had its limits. In 1982 and 1983, the self-proclaimed tax cutter in chief grudgingly signed two tax hikes — bills supported by members of his own party — to address the problem of rising deficits.

Still, the transformation was underway. By 1990, the GOP had abandoned fiscal responsibility in favor of tax cuts. That year, a new generation of far-right conservatives, led by House Minority Whip Newt Gingrich (R-Ga.), rebelled over the budget deal struck between President George H.W. Bush and congressional Democrats because it included increased taxes. These firebrands seized control of the GOP in part by attacking its leaders as “tax collectors for the welfare state.”

Outside the halls of Congress, organizations like Americans for Tax Reform (ATR) and the Club for Growth developed as the enforcers of the new tax cut orthodoxy — promising primary challenges to any Republican who did not to sign a written pledge — enforced by the ATR — that promised to “oppose any effort to increase income taxes on individuals and businesses.”

The result has been near unanimity among Republicans that tax cuts are good policy and good politics, no matter their effect on the deficit. In fact, the only major legislative accomplishment of Donald Trump’s presidency was the passage of a sweeping tax cut in 2017; nothing brings the GOP together like a tax cut.

Democrats, too, have largely accepted Republicans’ framing of the tax issue. Despite its reputation for taxing and spending, the modern Democratic Party has rarely defended taxation as a positive good. This reluctance, evident even at the height of Democratic control of government in the 1960s, grew more pronounced in the wake of the Reagan Revolution, as Democrats worked to win back those White working- and middle-class “Reagan Democrats” who abandoned the party in all three presidential elections in the 1980s.

Given this history, it is little wonder that Democrats insist the Inflation Reduction Act is not a tax increase. They argue that its revenue provisions simply close loopholes to make the system fairer. But Republicans’ refusal to contemplate any new taxes and Democrats’ reluctance to defend them as anything other than necessary to balance the budget or to improve tax fairness, has hamstrung good economic and social policymaking for more than four decades. Equally important, this tax politics has contributed to the toxicity of our politics.

This focus on the costs of government rather than its benefits has distorted public opinion as well as public policy in the decades since Reagan’s presidency. As both the left and the right have highlighted how tax eaters — whether they be the “welfare queens” of the right’s imagination or the corporate tax cheats targeted by the left — have flourished at the expense of hard-working taxpayers, it drives more Americans see themselves as victims, rather than beneficiaries of their government.

Biden’s Inflation Reduction Act exposes our allergy to taxes