Repeal Tax Cuts? There They Go Again
Senate Majority Leader Tom Daschle has now staked out his and his party's economic policies, and -- in tune with the styles of today -- they're retro. The Bush tax cuts, he says, could actually be making the recession worse.</br></br>To a veteran of the Reagan administration, all of this sounds pretty familiar. In 1981, shortly after the enactment of the Reagan tax cut, the economy slid into a serious recession. The tax cut, combined with the recession, resulted in a substantial deficit in 1982, and deficits "as far as the eye could see" thereafter.</br></br>Ronald Reagan's economic plan -- based on supply-side theory -- was a relatively new idea at the time, and the severe recession spread alarm through the political community. The deficits, it was thought, would bring back inflation, cause interest rates to rise, worsen the recession and slow or defer any recovery. The president was implored to back a tax increase, not just by the Democrats -- who wanted desperately to repeal or defer the tax cut -- but also by Republicans, who feared that the recession would decimate their ranks in the 1982 election.</br></br>Even members of the president's staff lost their nerve, with leaks from the White House complaining that Mr. Reagan would not listen to reason, and budget director David Stockman being quoted in a magazine article to the effect that Mr. Reagan didn't know what he was doing. Alone among the president's advisers, Treasury Secretary Donald Regan made the obvious point: It's absurd to raise taxes in the midst of a recession. Mr. Reagan, bless his stubborn heart, agreed with his treasury secretary and, as he put it, "stayed the course."</br></br>Sure enough, the economy didn't just recover -- it boomed. Despite the deficits, which did indeed continue at historic peacetime levels through Mr. Reagan's two terms in office, inflation and interest rates declined. The nation shook off the strange combination of slow growth and inflation that characterized the Carter years and grew at a healthy rate through the rest of the 1980s. The stock market, recognizing that a new and different economic policy had taken hold in Washington, surged to unprecedented levels.