Don't Just Blame the Republicans for the No-Tax Pledge -- Democrats are Allergic to Tax Hikes, Too





7-9-12

Molly Michelmore is an expert on the history of tax and spending politics in the 20th century United States. She teaches American history at Washington and Lee University in Lexington, Virginia. Her first book, Tax and Spend: The Welfare State, Tax Politics and the Limits of American Liberalism (University of Pennsylvania Press, 2012), is on sale now.

Only moments after the Supreme Court announced that the Affordable Care Act (ACA) passed constitutional muster, GOP legislators, right-wing pundits, and conservative strategists launched a new attack on the health care law. The right’s talking point was as simple as it was predictable. Obamacare wasn’t an unconstitutional power grab by the federal government. It was something much worse. It was a new tax on the middle class.

Republicans hope that tax politics will let them snatch electoral victory out of the jaws of judicial defeat. Almost immediately after the Court handed down its decision, the Republican National Committee responded with a new Internet ad featuring the word “tax” 12 times and accusing Democrats of celebrating “another Obama tax increase.” Americans for Prosperity, the Super PAC founded by conservative billionaires David and Charles Koch, released its own television ad in 12 swing states labeling the ACA the “largest tax increase in history.”

This turn to tax politics is hardly surprising. Over the last four decades, opposition to any kind of tax increase has been the defining feature of the GOP. Most Republican officials have gone so far as to sign a formal pledge vowing never to raise taxes for any reason. GOP officials and strategists not only raise the specter of higher taxes to undermine support for a host of Democratic reform proposals, but also see tax cuts as a kind of “one-size-fits-all” policy fix.

The strategy has paid off. For decades, the Republican Party has benefitted from its reputation as what Wall Street Journal writer and early tax-cut apostle Jude Wanniski approvingly dubbed the “Santa Claus of Tax Reduction.” Since rebranding itself as the tax cut party in the mid-seventies, the GOP has successfully challenged Democrats’ mid-century control over American politics.

That Republicans have used tax cuts to win elections is hardly news. What is perhaps more surprising how much the Democratic Party has done to reinforce Americans’ hostility toward taxes on all but the wealthiest members of society. In the initial campaign to build support for the ACA, President Barack Obama went out of his way to insist that the law was “absolutely not a tax increase.” Indeed, Obama and the majority of the Democratic Party have pledged to hold the line on taxes for 98 percent of American taxpayers. As political analyst Ezra Klein rightly points out, the difference between Republicans and Democrats -- at least on the tax issue -- is pretty small. “Republicans,” Klein writes, “don't want to raise taxes on anyone. Democrats don’t want to raise taxes on almost anyone.”

When did this happen? How did the party of so-called tax and spend liberals become the party of tax cuts?

History offers an unexpected answer. The fact is Democrats’ allergy to tax hikes is nothing new. Despite their party’s reputation, Democratic liberals have long been reluctant to raise taxes on the majority of Americans -- even to pay for politically popular programs.

This aversion to tax hikes stretches back to the birth of modern American liberalism in the 1930s. Franklin Roosevelt’s New Deal is rightly remembered as one of the high water marks of liberal reform in the United States. But the Democratic liberals of the 1930s were no more immune to anti-tax sentiment than their twenty-first century counterparts. Eager to manage popular opposition to new taxes, New Dealers time and again rejected proposals to expand the income tax base into the ranks of the middle and working classes. Instead, these liberals chose to rely on indirect or hidden taxes -- including regressive consumption taxes and payroll levies -- to offset the costs of new economic security programs.


FDR signs the Social Security Act. Credit: Social Security Online

What this means is that New Dealers never asked ordinary citizens to pay for the economic security many would soon come to expect as a matter of right.

In fact, it was not until World War II that most Americans even owed income taxes to the federal government. In 1942, to help pay for the war, Congress passed a law which transformed the federal income tax from a “class tax” -- paid by only the wealthiest citizens -- to a “mass tax.” The Treasury Department did its part to promote the new tax by coordinating an intensive public relations campaign to encourage all Americans to pay their “taxes to beat the Axis.” The campaign, which featured pop culture icons like Danny Kay, Irving Berlin and even Donald Duck, worked, but only at a price. The campaign to explain the new tax, and the government’s insistence that the “real authors” of the nation’s tax burden could be found in Berlin and Tokyo -- and not in Washington D.C. -- suggested that only a national emergency could justify new taxes.

After the war, lawmakers worked to shore up the New Deal and WWII social compact and to make good on the twin promises of low individual tax rates and economic security. Postwar liberals both improved the welfare state institutions built during the Depression and shared New Dealers’ aversion to raising taxes on everyone but the super-rich. Indeed, liberals avoided tax increases like the plague. President John Kennedy, for example, promised to take the nation to the New Frontier at the same time as he slashed corporate taxes. His successor, Lyndon Johnson launched the Great Society and the War on Poverty while pushing a massive tax cut through Congress. Some 1960s poverty warriors even promised that the new anti-poverty programs would eventually save taxpayer dollars transforming parasitical “tax eaters” dependent on “the dole” into socially and economically productive taxpayers.

For a time, the postwar economic boom allowed liberals to make good on the deal struck in the 1930s and 1940s. But when the economic collapse of the 1970s revealed the irreconcilable tension between low tax rates and a robust regime of middle-class economic security, liberals fell into a trap of their own making. With the cost of living going up, the economy stagnant, and joblessness on the rise, the GOP found itself well positioned to use liberals’ commitments to low individual tax rates to capture the allegiance of voters who felt themselves the overburdened victims of the liberal state. Despite the many benefits they received from the federal government – from Social Security and Medicare, to tax deductions for homeownership and health and retirement security – many middle-class voters seemed to agree with President Ronald Reagan’s 1981 observation that the government was the problem, rather than the solution, the nation’s economic, social and even cultural problems.

History matters. Decisions made in the 1930s and 1940s had far reaching consequences. The anti-tax logic first articulated by liberal statebuilders in the New Deal and World War II years continues to shape politics today. The GOP’s anti-tax fundamentalism, its opposition to any and all tax hikes, and its adherence to a discredited supply-side doctrine, bears much of the blame for the nation’s current debt and deficit crises. But, the Democrats too have been, and continue to be, complicit in the United States’s dysfunctional tax politics.


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