The inside story of how the Republicans abandoned the poor and the middle class to pursue their relentless agenda of tax cuts for the wealthiest one percent
The nation is still recovering from a crushing recession that sent unemployment hovering above nine percent for two straight years. The president, mindful of soaring deficits, is pushing bold action to shore up the nation's balance sheet. Cloaking himself in the language of class warfare, he calls on a hostile Congress to end wasteful tax breaks for the rich. "We're going to close the unproductive tax loopholes that allow some of the truly wealthy to avoid paying their fair share," he thunders to a crowd in Georgia. Such tax loopholes, he adds, "sometimes made it possible for millionaires to pay nothing, while a bus driver was paying 10 percent of his salary – and that's crazy."
Preacherlike, the president draws the crowd into a call-and-response. "Do you think the millionaire ought to pay more in taxes than the bus driver," he demands, "or less?"
The crowd, sounding every bit like the protesters from Occupy Wall Street, roars back: "MORE!"
The year was 1985. The president was Ronald Wilson Reagan.
Today's Republican Party may revere Reagan as the patron saint of low taxation. But the party of Reagan – which understood that higher taxes on the rich are sometimes required to cure ruinous deficits – is dead and gone. Instead, the modern GOP has undergone a radical transformation, reorganizing itself around a grotesque proposition: that the wealthy should grow wealthier still, whatever the consequences for the rest of us.
Modern-day Republicans have become, quite simply, the Party of the One Percent – the Party of the Rich.
"The Republican Party has totally abdicated its job in our democracy, which is to act as the guardian of fiscal discipline and responsibility," says David Stockman, who served as budget director under Reagan. "They're on an anti-tax jihad – one that benefits the prosperous classes."
The staggering economic inequality that has led Americans across the country to take to the streets in protest is no accident. It has been fueled to a large extent by the GOP's all-out war on behalf of the rich. Since Republicans rededicated themselves to slashing taxes for the wealthy in 1997, the average annual income of the 400 richest Americans has more than tripled, to $345 million – while their share of the tax burden has plunged by 40 percent. Today, a billionaire in the top 400 pays less than 17 percent of his income in taxes – five percentage points less than a bus driver earning $26,000 a year. "Most Americans got none of the growth of the preceding dozen years," says Joseph Stiglitz, the Nobel Prize-winning economist. "All the gains went to the top percentage points."
The GOP campaign to aid the wealthy has left America unable to raise the money needed to pay its bills. "The Republican Party went on a tax-cutting rampage and a spending spree," says Rhode Island governor and former GOP senator Lincoln Chafee, pointing to two deficit-financed wars and an unpaid-for prescription-drug entitlement. "It tanked the economy." Tax receipts as a percent of the total economy have fallen to levels not seen since before the Korean War – nearly 20 percent below the historical average. "Taxes are ridiculously low!" says Bruce Bartlett, an architect of Reagan's 1981 tax cut. "And yet the mantra of the Republican Party is 'Tax cuts raise growth.' So – where's the ****ing growth?"
Republicans talk about job creation, about preserving family farms and defending small businesses, and reforming Medicare and Social Security. But almost without exception, every proposal put forth by GOP lawmakers and presidential candidates is intended to preserve or expand tax privileges for the wealthiest Americans. And most of their plans, which are presented as common-sense measures that will aid all Americans, would actually result in higher taxes for middle-class taxpayers and the poor. With 14 million Americans out of work, and with one in seven families turning to food stamps simply to feed their children, Republicans have responded to the worst economic crisis since the Great Depression by slashing inheritance taxes, extending the Bush tax cuts for millionaires and billionaires, and endorsing a tax amnesty for big corporations that have hidden billions in profits in offshore tax havens. They also wrecked the nation's credit rating by rejecting a debt-ceiling deal that would have slashed future deficits by $4 trillion – simply because one-quarter of the money would have come from closing tax loopholes on the rich.
The intransigence over the debt ceiling enraged Republican stalwarts. George Voinovich, the former GOP senator from Ohio, likens his party's new guard to arsonists whose attitude is: "We're going to get what we want or the country can go to hell." Even an architect of the Bush tax cuts, economist Glenn Hubbard, tells Rolling Stone that there should have been a "revenue contribution" to the debt-ceiling deal, "structured to fall mainly on the well-to-do." Instead, the GOP strong-armed America into sacrificing $1 trillion in vital government services – including education, health care and defense – all to safeguard tax breaks for oil companies, yacht owners and hedge-fund managers. The party's leaders were triumphant: Senate Minority Leader Mitch McConnell even bragged that America's creditworthiness had been a "hostage that's worth ransoming."
It's the kind of thinking that only money can buy. "It's a vicious circle," says Stiglitz. "The rich are using their money to secure tax provisions to let them get richer still. Rather than investing in new technology or R&D, the rich get a better return by investing in Washington."
It's difficult to imagine today, but taxing the rich wasn't always a major flash point of American political life. From the end of World War II to the eve of the Reagan administration, the parties fought over social spending – Democrats pushing for more, Republicans demanding less. But once the budget was fixed, both parties saw taxes as an otherwise uninteresting mechanism to raise the money required to pay the bills. Eisenhower, Nixon and Ford each fought for higher taxes, while the biggest tax cut was secured by John F. Kennedy, whose across-the-board tax reductions were actually opposed by the majority of Republicans in the House. The distribution of the tax burden wasn't really up for debate: Even after the Kennedy cuts, the top tax rate stood at 70 percent – double its current level. Steeply progressive taxation paid for the postwar investments in infrastructure, science and education that enabled the average American family to get ahead.
That only changed in the late 1970s, when high inflation drove up wages and pushed the middle class into higher tax brackets. Harnessing the widespread anger, Reagan put it to work on behalf of the rich. In a move that GOP Majority Leader Howard Baker called a "riverboat gamble," Reagan sold the country on an "across-the-board" tax cut that brought the top rate down to 50 percent. According to supply-side economists, the wealthy would use their tax break to spur investment, and the economy would boom. And if it didn't – well, to Reagan's cadre of small-government conservatives, the resulting red ink could be a win-win. "We started talking about just cutting taxes and saying, 'Screw the deficit,'" Bartlett recalls. "We had this idea that if you lowered revenues, the concern about the deficit would be channeled into spending cuts."
It was the birth of what is now known as "Starve the Beast" – a conscious strategy by conservatives to force cuts in federal spending by bankrupting the country. As conceived by the right-wing intellectual Irving Kristol in 1980, the plan called for Republicans to create a "fiscal problem" by slashing taxes – and then foist the pain of reimposing fiscal discipline onto future Democratic administrations who, in Kristol's words, would be forced to "tidy up afterward."
There was only one problem: The Reagan tax cuts spiked the federal deficit to a dangerous level, even as the country remained mired in a deep recession. Republican leaders in Congress immediately moved to reverse themselves and feed the beast. "It was not a Democrat who led the effort in 1982 to undo about a third of the Reagan tax cuts," recalls Robert Greenstein, president of the nonpartisan Center on Budget and Policy Priorities. "It was Bob Dole." Even Reagan embraced the tax hike, Stockman says, "because he believed that, at some point, you have to pay the bills."
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