How Tax Cuts Became Central to the Republican Party

March 7, 2016

This feature is part of an ongoing RSF blog series, Work in Progress, which highlights some of the research of our current class of Visiting Scholars.

While the race for the Republican presidential nomination has intensified between leading candidates Donald Trump, Ted Cruz, and Marco Rubio over the last few weeks, all three candidates have at least one thing in common: a plan to cut taxes. For decades, Republican policymakers across the nation have championed tax cuts for individuals and businesses alike as a means of invigorating a sluggish economy. But at what point did this ideology become central to the GOP’s platform?

Visiting Scholar Monica Prasad (Northwestern University) is working on a book that explores the origins of the tax-cut movement, looking at how the decline of progressive taxation in the U.S. contributed to the revitalization of the Republican Party in the aftermath of Watergate. She is researching how the decline of progressive taxation and an unwillingness on the part of the political system to tolerate high tax rates on the wealthy has contributed to rising inequality. Using recently released archival sources, she will focus on the importance of tax cuts to the conservative resurgence, an issue that has been understudied in previous literature.

In a new interview with the Foundation, Prasad explained the historical factors that led to the Republican Party’s modern-day embrace of tax cuts.

Q. Your current research examines the historical factors that led to the Republican Party making tax cuts a central part of their economic platform in the 1980s, a position that continues to this day. How did Republicans tend to address taxes prior to this point? Were business elites influential in pushing tax cuts to the fore of the GOP agenda?

Prasad: Tax cuts have become such a central part of the Republican agenda that it's hard to believe that up until the late 1970s, Republicans did not favor tax cuts. They were the party of budget balance, the deficit hawks. When John F. Kennedy wanted to cut taxes in the 1960s, the Republicans were against the idea, because they worried that tax cuts would lead to deficits.

Surprisingly, business elites opposed the largest part of the tax cut, the 10% across the board individual income tax cuts that would go on to blow up the deficit. Reagan was not led by business to cut taxes. Rather, he had to persuade business elites to support the tax cut.

Q. What role did internal GOP policy play in prompting the party to take up the issue of tax cuts? How did Republican rhetoric shift with the rise of Jack Kemp and Ronald Reagan?

First Jack Kemp, and then Ronald Reagan, realized the potential of tax cuts as a political issue. This was a moment when inflation was increasing the felt tax burden on many families, and opinion polls showed higher numbers of respondents claiming their taxes were "too high" than has been seen before or since. Reagan's pollster Richard Wirthlin picked up this sentiment during the polling he conducted for Reagan throughout the 1980 primary. This is not quite the same as saying that the American public wanted tax cuts; in fact, if you asked whether respondents wanted a tax cut if it would lead to less spending or a higher deficit, the tax cut was not popular. The key for Reagan and his camp was to convince others (by first convincing themselves) that tax cuts would not lead to lower spending or a higher deficit.

Q. What are some explanations for why tax cuts seem to be central to conservative groups in the U.S., but not in other similar countries?

The U.S. collects proportionately more of its tax revenue in highly visible taxes, such as income taxes and property taxes. Other countries rely to a greater extent on sales taxes, which scholars argue are less visible (because they are collected in small increments over a long period of time) and better for the economy. This keeps tax opposition lower in other countries. Ironically, because sales taxes are more regressive than income and property taxes, this means the welfare states of Europe rely on forms of taxation that are relatively regressive. This is the hidden side of the welfare state that Bernie Sanders and his supporters don't talk about--if you want social spending for the middle classes, the middle classes end up being the ones who pay for it.

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