A story in the Washington Post has reported that the “Treasury Secretary…called on the Senate yesterday to shunt aside about $8 billion worth of pending tax reform proposals, saying they could cause an economic slowdown and might aggravate inflation.
“The proposals,” the Post continued, “have been introduced by various Senate Democrats as companion legislation to a tax cut plan that may come up on the floor next week….[This is] the Democrats’ tax cut plan [and it] would cost the Treasury about $6 billion a year.”
The Post quoted the Council of Economic Advisers chair from the previous Democratic administration who said, “the proposed tax cut would be socially, economically, and fiscally responsible.”
This reporting occurred in the spring of 1974, during the Republican Richard M. Nixon administration, and the tax cuts put forward were sponsored by Democrats Edward M. Kennedy of Massachusetts and Walter Mondale of Minnesota. These tax cuts were of the Keynesian variety, of increases in deductions and exemptions for lower earners, and the companion reforms were reductions in business write-offs.
When Democrats introduced tax reductions in 1974, whatever their Keynesian design, they drew on an extensive history of tax-cut precedents within their own party. President John F. Kennedy championed the huge income-tax rate reduction that became law in 1964, the epic story of which is the content of my and Larry Kudlow’s book of last year, JFK and the Reagan Revolution: A Secret History of American Prosperity.
Prior to JFK, Democrats held to tax reduction, specifically cuts in tax rates, as the central element of party identity. After helping to raise rates during World War I, officials in the Woodrow Wilson administration recoiled at progressive taxation and urged big reductions in rates. Here is a remarkable audio recording of Wilson’s Treasury Secretary William McAdoo admonishing the Republican Congress to bring down tax rates, especially the “surcharges” on high earners, in 1919.
The chief reason Democrats supported the very creation of the income tax in 1913 was that it would permit a radical reduction in the main form of tax at the time, the tariff, the tax monster that Democrats had opposed continually since the party’s inception in the 1820s.
In 1888, the Republicans (the tariff-friendly party) tried to sell that year’s bill on the grounds that the rates would be so high that they would reduce government revenue, guaranteeing small government. Democrats preferred a “revenue tariff” whose rates were so low that they would reel in revenue. The Laffer curve showing that high tax rates can be cut for more tax revenue was a mainstay, avant la lettre, in the tax debates of yore, held aloft by Democrats as their central point of contention.