Taxes: What Will Reagan Do about Taxes?

The aftershocks and reverberations from the "November Surprise" have settled. On January 20, the long-shot, conservative hero Ronald Reagan, formally became the 40th president of the United States. Now is the time to examine what this could mean for millions of hard-pressed American taxpayers.

Although Ronald Reagan speaks of the conservative ideal of "less government is best," it is just as certain that California tax collections—and spending—more than doubled during his tenure as governor. From a libertarian standpoint, his social stands were awful, and economic policies were mixed at best. Yet even so, the former California governor should be given his due: state bureaucracy growth was held to only 6 percent, when population increased by 11 percent; he returned $5.7 billion to California taxpayers with three different rebates, and he vetoed literally hundreds of proposed new laws.

One thing that Governor Reagan tried to do and failed on, however, may have made him a kind of father to the tax rebellion—Howard Jarvis notwithstanding. I'm talking about 1973, when Reagan initiated a titanic struggle with the spending lobbies, in a state with a spendthrift Democrat-controlled legislature. Proposition 1—a then-radical proposal to stop the growth of California income tax receipts and reduce them to a permanent, constitutional ceiling of no more than 7 percent of the aggregate earnings of Californians—went down to defeat, 54 to 46 percent.

The political in-fighting and hysterical denunciations were just as loud and insistent then as during the unreal Proposition 13 battle of 1978, with the difference that they worked. Postelection polls found that two-thirds of the people who voted against the tax-limitation proposal thought they were voting against higher taxes. In the years following, of course, state taxes exploded. And when the same techniques were used against Proposition 13, they failed, no doubt in part because the California electorate had already been "stung" once.

So, while Ronald Reagan is certainly no libertarian, he has in the past occasionally demonstrated healthy attitudes toward reducing taxation. No doubt this has something to do with his almost constant struggle with IRS harassment since the end of World War II, not to mention his experience of having been in the 91 percent tax bracket during the late 1940s.

But even so, the question is, Will he come through with meaningful tax reductions on the federal level while he is president? I am very guardedly optimistic. Here's why:

• The Kemp-Roth tax cut plan to reduce federal personal income taxes by 10 percent a year for three years in a row was a centerpiece of the Republican campaign. It is in the party platform. Tax reduction, along with inflation and national defense, was one of the overriding issues of the campaign. Now, people are watching, and waiting.

• People supporting the reduction in size and scope of the federal government surround Reagan. Their ideas pervaded his campaign. Jack Kemp, the New York congressman. Milton Friedman, free-market, Nobel Prize-winning economist and best-selling author. Thomas Sowell, free-market economist mentioned as a possible cabinet head. Lyn Nofziger, Reagan's press aide during the campaign. Outright, activist libertarians even held important positions on the transition staff, and Reagan is at least conversant with libertarian ideas.

• The new president has a longstanding hostility toward Social Security and the ever-rising taxes it forces from most workers. Although during his campaign he retreated on much of his criticism of the Social Security system, it is indeed true that in the past he suggested participation in the program could be made voluntary. Let's hope he remembers that one.

• After years of struggle to force Congress to either pass a balanced-budget amendment to the Constitution or call a constitutional convention for the purpose of drafting such an amendment, it may finally come to pass. While conservative Republicans have consistently supported a balanced-budget amendment, and polls have shown overwhelming public support (75 to 85 percent), Democratic statists have just as consistently controlled Congress and prevented the measure from even being debated. But now Republicans—overwhelmingly conservative—control the Senate. And a coalition of conservative Republicans and Democrats can control the House. I predict that a balanced-budget amendment will pass both Congress and the requisite number of states within the next four years.

• Lastly, and perhaps most importantly of all, taxpayer hostility and resistance to all forms of taxation are at the highest levels of this century. Radical tax-cut initiatives are proposed and qualified in every election now. Some of them pass, not to mention the timid and attention-diverting measures pushed by the incumbent powers, which almost always pass.

The subterranean economy, now conceded by many to equal ten percent of the economy—or about $250 billion—continues to grow. And some observers think the dimensions of such resistance could equal even as much as half the GNP. Reagan has come to office at a time when people seem to be demanding a sweeping reassessment of the entire government burden. His election is generally interpreted as being a mandate to take the necessary actions.

And yet…the heart trembles at the opportunities. And at the possibility that it could all be for nothing. In 1932 Franklin Roosevelt was presented with just such an opportunity. He quickly set in motion those forces that have brought us what we have today. Now, Pres. Ronald Reagan has won office at a similar historical cusp. If he holds true to his own past beliefs, we will indeed see some changes for the better.

Timothy Condon, a member of the Florida bar, is a tax specialist with the Condon & Vollrath Tax Service in Tampa, Florida.