MM#386--Read GOP History and Learn: Get The Tax Cut Done by Memorial Day!

Experience the rise of Reaganomics as we unravel the fascinating tale of Ronald Reagan's Economic Recovery Tax Act of 1981.

Imagine the scene: Reagan, beaming under a sunny Californian sky, signing a tax bill poised to reshape the American economy. Join us for an analytical journey through Stephen Hayward's "The Age of Reagan: The Conservative Counter-Revolution," as we dissect the economic strategies and political maneuvers that defined a transformative era.

We'll delve into the bold tax reforms, including slashing the highest marginal tax rates and the capital gains tax, that marked a significant departure from previous economic policies.

Gain insights into the political lessons from the 1982 midterm elections, where the Republican Party faced a setback despite these groundbreaking tax cuts. We'll explore how the timing of the tax cuts and prevailing economic conditions, such as recession and high unemployment, influenced the loss of 26 Republican seats to the Democrats. Yet, the resilience of the GOP in maintaining a strong presence in the House offers a valuable case study in political strategy.

Join us to discover how these historical events continue to resonate, offering timeless lessons in both economic policy and political foresight.

Key Points from this Episode:

• The Economic Recovery Tax Act signed into law by Reagan in 1981 
• Key features of the tax cut and its implications for the economy 
• The connection between delayed policy effects and the 1982 midterms 
• Historical context of the GOP's losses and the role of economic conditions 
• Lessons for modern GOP concerning timely execution of policies in the 2017 Tax Cut bill.   
• Reflections on the political strategy regarding tax legislation and how it affects the economy and mid-term House races.
• Importance of learning from history to shape future governance


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Transcript

Speaker 1: 0:07

Welcome to the Theory to Action podcast, where we examine the timeless treasures of wisdom from the great books in less time, to help you take action immediately and ultimately to create and lead a flourishing life. Now here's your host, david Kaiser.

Speaker 2: 0:32

Hello, I'm David and welcome back to another Mojo Minute. Let's begin with a quote, as we always do, from our book of the day. One of the most memorable photographs of Reagan shows him at the signing of the tax bill at his California ranch in August of 1981. Seated at an outdoor table, dressed in jeans and a jacket, he was beaming from ear to ear. This was not an unusual continence for Reagan, but this particular scene caught him with his right leg outstretched and his cowboy hat pointed skyward a human exclamation point. He was understandably riding high Bank. Typical warm summer weather on California's central coast descended upon the ranch just as Reagan was putting his signature on the bill. The implication was that Reagan's economic policy was fogged up. A tongue-in-cheek Reagan blamed the media for the fog. In retrospect, the passage of the tax bill was the high watermark for macroeconomic policy reform in Reagan's first term. And that quote comes to us from the Age of Reagan, the Conservative Counter Revolution by Stephen Hayward, which I believe has the best written biography of Reagan, especially his lead up and his presidency Two volumes. You can get it on Audible and you can brush up on your Reaganomics, but we need to get some facts out on the table ASAP.

Speaker 2: 2:15

President Ronald Reagan signed the Economic Recovery Tax Act, erta, into law on August 13th 1981. This landmark legislation, also known as the Kemp-Roth tax cut, was one of the largest tax cuts in US history at the time. The process of passing this bill involved several key steps. The bill was introduced in the House of Representatives on House Resolution 4242 on July 23, 1981. Congressional approval happened by an act passed of Congress on August 4, 1981. A presidential signature was signed, like we said, on August 13 at Reagan's personal retreat, rancho del Cielo near Santa Barbara, california. Now. The IRTA, or the Kemp-Roth tax bill, as we're going to call it from now on, included significant tax reductions and reforms For key points slash the highest marginal rates of tax cut from 70, unbelievable to 50%. The lowest tax bracket was reduced from 14 to 11%. It introduced an accelerated cost recovery system for depreciation, chopped out businesses and also the capital gains tax was reduced from a top tier of 28% to 20%. That was huge. This tax cut was the central part of Reagan's economic policy and it was often referred to after that as Reaganomics. It's based on supply-side economic theories. Not since the Kennedy tax cut in 1963 did we have this significant of a shift in US economic policy and it set the stage for further tax reforms during Reagan's presidency.

Speaker 2: 4:12

Now the history lesson for the GOP is that passing the tax cut in August of 81 and having it go into effect in October of 81 was not fast enough. Knuckleheads the economy a year later. Before the tax cut, passed and implemented in October, began to have effect by October of 82. But that's not fast enough because the GOP did not avoid getting hammered in the off-year elections. The Republican Party lost 26 seats to the Democratic Party. Some of the key points of the 1982 House election results were the Democratic Party, like we said, gained 26 seats. They increased their majority in the House. Republicans went from holding 192 to 165. The loss was considered significant because it represented all the seats that Republicans had gained in the previous 1980 election with Reagan's very big landslide win the elections. The election results were majorly influenced by economic conditions, including a recession and high unemployment rates all the way through early 1982. Despite the loss, republicans maintained a higher floor of seats 166, compared to their performance throughout the 1970s. Now it's worth noting that while the 26-seat loss was substantial, it wasn't as severe as some other previous midterm election results. For example, in the 1974 debacle, republicans lost 48 seats in the House. The 1982 results were unfavorable for Republicans but they still allowed them to maintain a significant presence in the chamber. But they still allowed them to maintain a significant presence in the chamber.

Speaker 2: 6:10

But let's get back to our book of the day for a major, key nugget of political wisdom. Go on to the book. To understand the entire arc of the Reagan presidency it is necessary to perceive the full causes of the recession of 1982, including especially the role of monetary policy under the Federal Reserve. But starting with the heretical idea that the tax cut wasn't large enough or implemented soon enough, keep in mind that the first year tax rates cut was only 5% and it took effect for just the last three months of 1981, rather than being retroactive to January 1st as Reagan had originally wanted. On an annual basis it was worth only 1.25% then, not enough to be a meaningful stimulus in Keynesian terms, nor enough on supply side incentive to spur large changes in savings or investment. Economist Lawrence Lindsay concluded delaying the tax cuts almost certainly contributed to the very severe recession of 1981 and 1982. While the tax cut was too small and came too late to have much effect, in 1981, it was running into the teeth of the Federal Reserve's increasingly tight monetary policy, much tighter than the Reagan plan expected or desired. Expected or desired, ah, okay.

Speaker 2: 7:51

First key takeaway is that the GOP both in the House and the Senate in 1981, moved way too slow. They dithered the 1981 tax cut needed to be passed by Memorial Day or even July 4th and and it needed to be made retroactive back to the previous fiscal year to have an immediate effect. It wasn't Again. It was delayed from the 1981 passage until the new fiscal year, october of 1981, thus delaying the real relief that was coming for slow implementation timelines. The GOP needs to learn the 1981 lesson Today's GOP does Because, not to be outdone in 2017, donald Trump was urging a passage of the Trump tax cuts.

Speaker 2: 8:52

And what did the GOP do? Again, they dithered. They love to dither. They finally passed the tax cut in December of 2017. And guess what? The implementation took a full calendar year for the Americans to begin to feel the tax cut.

Speaker 2: 9:12

And what happened? In the 2018 midterm elections? The Republican Party, under President Trump's leadership, lost an astounding, horrific 41 seats in the House. The significant loss resulted in Democrats gaining control of the House for the first time in eight years, gained 41, a net total of 41 seats in the House. The 41-seat gain was the largest for Democrats since the post-Watergate 1974 elections, which we just talked about, where they got 48 seats. It actually marked the first time since 1954 that the Democrats flipped a chamber of Congress in a Republican president's first midterm Loss was substantial 23 of the 30 Republican incumbents who lost their re-election campaigns were considered more moderate than the median Republican in the chamber. The defeat was particularly pronounced in the oh-so-famous suburban districts and among the more moderate wishy-washy Republicans. Wishy-washy Republicans. While President Trump claimed his campaigning efforts prevented even larger losses, historical contexts suggest otherwise. Since World War II, the President's party has indeed lost an average of 25 seats in midterm election and, compared to recent midterms, the 41-seat loss in 2018 was significant, but it was not unprecedented. It's worth noting that while Republicans lost control of the House, they maintained and even strengthened their majority in the Senate during the same election. Kind of crazy there. But? And in fact, some senators one aforementioned, mr Senator Cruz from Texas, who I really like was part of the problem in 2018, holding up the 2017 tax cut for an educational amendment rider. So there is that educational amendment rider. So there is that.

Speaker 2: 11:38

But in today's Mojo Minute, the GOP needs to learn from history. We need to get the tax bill done before Memorial Day or at the latest by July 4th, and do not delay the implementation Period. Plain and simple, that's what we have to do. You can do border and immigration later. You need to get the economic plan implemented ASAP.

Speaker 2: 11:58

If you don't do these two things, we don't get the tax bill done before Memorial Day, released by July 4th, and we don't delay the implementation. If you don't do these two things, americans will believe you lied, they'll believe President Trump lied and they will return radical Democrats led by AOC back to the House chamber and you will lose an average of 25 seats. When you have a five-seat majority, that's going to be reduced down to three seats shortly. The Trump long promised economic miracle will then be lost to history Because, frankly, the GOP never reads or learns from history. Two times this has happened. So memo to the GOP Read your own dang history. Show some leadership for once and get the tax cut done by Memorial Day. And for the rest of us, keep fighting the good fight.

Speaker 1: 13:03

Thank you for joining us. We hope you enjoyed this Theory to Action podcast. Be sure to check out our show page at teammojoacademycom, where we have everything we discussed in this podcast, as well as other great resources. Until next time, keep getting your mojo on.