Taxes: Year of Betrayal

It's been over three months now since the mislabeled "biggest tax hike in history" was passed, rammed through by President Reagan, Sen. Robert Dole, and every big-spending politician in Congress. But the $98.3-billion tax increase wasn't the biggest in history. It was merely the second-largest.

Even now, the whole fantasy-land happening boggles the mind. Here we have a president who went up against the massed opposition of the dominant welfare-statist ethic in America, the national media, the majority political party…and whipped them all! He did it by campaigning upon explicit promises of reduced taxation and reduced government interference in our lives. Then, after epochal battles to get bills passed that merely slowed increases in taxes and spending, he fights all-out to get a vicious monstrosity of a tax hike passed—which additionally guts some of the most important reforms in the original tax cut and which virtually unleashes the IRS in the fight against the American taxpayer.

And get this: to do it all, this man who was elected with his promises goes on national television days before the congressional vote and appeals to the American people upon the precise same basis that statists, socialists, and collectivists of all stripes have always appealed for more taxation and less freedom: envy, jealousy, greed, covetousness. In his nationally televised address, Reagan asked that taxes be raised against "those who are not paying their fair share" (as if the obscene tax load Americans now bear can in any sense be called fair). He called for "closing off special-interest loopholes" (as if he were not arguing for enrichment of the largest, most vicious, most all-encompassing "special interest" of all, the government itself). He argued: "Simple fairness says that we should collect from those who are freeloading" (as if every single human being who is a tax consumer and lives off of government payments is not a freeloader).

This is insanity. Reagan, in effect, has abandoned "Reaganomics." "This is not the same man we elected," said University of Southern California supply-side theorist Arthur Laffer. "This tax package is obnoxious."

The tax bill penalizes people with high medical bills and medical insurance (the 3 percent threshold is raised to 5 percent, and the $150 maximum insurance premium deduction is abolished), people with uninsured casualty losses (now you can only take as a deduction that amount which exceeds 10 percent of your gross income), people who smoke (federal cigarette tax doubled), people who use telephones (federal tax tripled), people who receive interest or dividend income (financial institutions and corporations now must generally withhold 10 percent of such payments), people who fly in airplanes (federal excise tax up 60 percent, a new international-flight tax, a new air-freight tax, a new noncommercial jet fuel tax, a tripled noncommercial aviation fuel tax), people who pay unemployment benefits (the employer tax is increased), people who receive unemployment (more of it will now be taxable), people who wisely plan their tax situation (the special "minimum tax" for those who normally wouldn't have to pay is expanded), people who have corporate retirement plans (some advantages are lost for professionals), etc., etc., etc. Most of all, taxpayers in general are victimized by the new bill: tremendous new weapons have been given to the IRS (mostly, greatly increased fines that can be levied) in an effort to smash the expanding subterranean economy.

Through the whole litany, the question keeps recurring: Why? When Reagan and the supply-siders were winning, how could they possibly have resorted to this? The "inside" reason for Reagan's betrayal of the taxpayer is that "revenue enhancement" would be a necessary compromise with the Big Spenders in order to gain additional cuts in 1983. Reagan apparently bought that line, hook and sinker, but sought to stay technically with supply-side theory by not disturbing marginal tax rates (that is, the highest tax rate you pay for each additional dollar earned, which is still a whopping 50 percent).

The very essence of supply-side theory says that when people are taxed too much, they will stop producing, stop working. Thus Reagan's eagerness to leave marginal tax rates alone. What he fails to understand is that all taxes must eventually be paid by individuals. That is the only place the final impact will be felt, because taxes are merely another cost of doing business for private commercial enterprises, a cost for which prices are adjusted, whether the enterprise is a corner restaurant or General Motors. The result is that any and all taxes further impoverish society, further slow the natural individual desire to produce and be rewarded for it. In the meantime, oppressive, antiproductive government gets fatter and fatter, the wheels of industry and productivity grow even more sluggish, the incredible bread machine grinds closer to an eventual halt.

Are there any winners in this whole scandalous affair, other than those who have always lived on the backs of the taxpayers? Oddly enough, perhaps the Libertarian Party will profit most of all. Many libertarians felt it necessary to vote for Reagan in 1980, both for his tax and government-cutting promises and to help save the country from Carter and the Democrats. I doubt there will be any question about that in 1984.

Similarly, it may be that supply-side economic theory will be saved—in the public's eye—for another administration (like Jack Kemp's, in 1988, after the Democrats win in 1984). After this, only drooling morons are going to argue that "supply-side economics has been tried, and it didn't work." On the contrary, the doctrine was abandoned by Reagan before it was even fully in place, much less "tried."

I wrote that "cautious optimism" was in order on the eve of Reagan's proposed tax cuts. They now mean nothing: a mere decrease in the rate of increase in taxes has now been wiped out by the second-biggest tax hike in history. I can only thank whatever gods may be that in 1980, when faced with the choice of voting for Republican Ronald Reagan or Libertarian Ed Clark, I voted for Clark.

Tim Condon is an attorney and a tax specialist practicing in Florida.