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Tax reform proposals today prompt reflection

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Arthur I. Cyr
October 7, 2011

“A Bridge Too Far” may prove the telling title for President Barack Obama’s photo-op stop at a dilapidated river bridge linking Kentucky and Ohio, home states of Republican congressional leaders Mitch McConnell and John Boehner. Both disdain current White House budget and tax proposals as dead on arrival.


Congressman Paul Ryan’s budget proposals are arguably the most detailed and so far have defined the debate.


The rancorous Washington debate has contemporary elements but is also congruent with history. Americans address income-tax shifts on a quarterly basis—meaning about every quarter-century.


In 1913, the 16th Amendment to the Constitution made the income tax permanent. There was a federal income tax during the Civil War, but only temporarily.


Principal incentives for the constitutional amendment were not civil war but rather economic crisis and the expanding federal government policy responsibilities. The financial panic of 1907 and resulting recession brought the nation’s commercial system to the brink of collapse.


Under this economic pressure, President Theodore Roosevelt turned to New York mega-banker J.P. Morgan, who controlled enormous financial assets and influenced other banks. Gigantic Morgan money and clout worked like magic. However, the danger of relying essentially on one enormously powerful man to underwrite the stability of America’s economy was self-evident.


Meanwhile, the role of the federal government was expanding greatly. Anti-monopoly regulations, worker and child protection, wilderness maintenance and other reform legislation were hallmarks of Theodore Roosevelt’s administration.


The next wave of change began during the Great Depression. Franklin D. Roosevelt captured the White House in 1932 after running as a conventional, rather vaguely defined Democrat. There was no indication of the radical reforms to come.


However, FDR’s New Deal over time drastically increased taxes on the highest income sectors of the population, while instituting additional taxes to pay for the new Social Security and unemployment insurance programs. Early in World War II, top individual income tax rates rose above 80 percent. The Korean War brought further increases.


Let’s fast forward again to the early 1960s. President John F. Kennedy delivered a steady stream of reform bills to Congress. The vast majority was stymied, though President Lyndon Johnson rescued most.


JFK did have a few congressional successes, including significant tax reductions. Along with the 1963 atmospheric nuclear test ban treaty, these stand as concrete positive legacies. The top individual income tax rate, which was over 90 percent for those earning more than $400,000, was cut to about 70 percent.


Under President Ronald Reagan, an initial tax cut was followed by initiatives that by 1986 brought rates down to 28 percent. Republican Reagan also worked effectively with Democrats.


While Reagan achieved broad tax cuts early in his White House tenure, he also raised taxes in more specific terms several times.


These earlier presidents could be pugnacious partisans but also understood the value of pragmatic compromise.


Arthur I. Cyr is Clausen distinguished professor at Carthage College and author of “After the Cold War.” Readers can contact him at acyr@carthage.edu.

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