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This article appears in the April 2024 issue of The American Prospect magazine. Subscribe here.

The Power to Destroy: How the Antitax Movement Hijacked America

By Michael J. Graetz

Princeton University Press

When Ronald Reagan accepted the Republican presidential nomination in 1980, he presented himself as a tax magician. “We are taxing ourselves into economic exhaustion and stagnation,” he said before making a tantalizing promise. He would slash income tax rates by 30 percent over three years. Government revenue would miraculously increase, because lowered taxes would foster massive new investment, creating more jobs at higher pay. Libertarian economists Milton Friedman and Arthur Laffer vigorously championed Reagan’s claims, but even many conservatives scoffed. Herbert Stein, President Nixon’s chief economic adviser, remarked that the likelihood that tax cuts increase revenue was about the same as finding “there is human life on Mars.” George H.W. Bush called it “voodoo economics.”

Those on the upper rungs of the income ladder made out well from the Reagan Revolution. They enjoyed significant tax savings in 1981 and 1986 as the top rate was slashed from 70 to 28 percent, a reduction twice as big as what Reagan promised. But the magic didn’t work: Under Reagan, economic growth ran slightly below, not above, the postwar average. Ballooning annual deficits more than doubled the federal debt in eight years. And Reagan didn’t shrink the federal government relative to the economy, as promised: The share of our economy paid in federal taxes was the same when Reagan assumed office and when he left.

Why, then, do such proposals continue to flourish? In his eloquent and absorbing new book The Power to Destroy: How the Antitax Movement Hijacked America, Michael J. Graetz argues that “the modern antitax movement is the most overlooked social and political movement” of the past half-century. This movement once existed on the fringes, as we see with conservative criticism of the Reagan plan. But Graetz writes that it has grown “into a powerful force that transformed American politics and undermined the nation’s financial strength.”

Graetz is not the first to explore antitax political culture, as old a concept in America as Fries’s Rebellion, a 1799 Pennsylvania revolt against a new federal levy on enslaved people and land. Dorothy A. Brown’s trenchant 2021 study The Whiteness of Wealth shows how our tax system “impoverishes Black Americans.” Then there’s sociologist Isaac William Martin’s eye-opening 2013 book Rich People’s Movements: Grassroots Campaigns to Untax the One Percent, which focused on semi-con man J.A. Arnold, who 111 years ago created antitax clubs, often led by bankers, that stirred resentment of the newly imposed federal income tax.

Beginning in the 1940s, Martin showed, antitax ideology moved into mainstream conservatism after Robert Dresser, a Harvard-educated lawyer and New England textile heir, deftly blended anti-communist, anti-union, and racist appeals into tax policy. Graetz tells the next chapter in this story, tracing how modern charlatans duped the middle and upper-middle class into helping the rich shed the burden of taxes, while hurting themselves in the process. It’s primarily a tale of ideological marketing—selling the sizzle so smartly that few notice the overcooked meat is rotten.

Graetz’s title comes from an 1819 Supreme Court decision, McCulloch v. Maryland, which noted that “the power to tax involves the power to destroy.” His great insight is that the power to destroy also applies when our government fails to tax us enough to invest in the future—for education, infrastructure, health, scientific research, and other aspects of modern society—in ways that enable broad prosperity, economic growth, and social stability.

IN THE POSTWAR ERA, HIGH FEDERAL TAX RATES limited top incomes, forcing owners to turn most of their profits over to the federal government unless they reinvested in their businesses, which in turn created jobs. But reliance on local property taxes to finance local and state government, including schools, alarmed many homeowners and renters. In the South, racists opened nonprofit “Christian academies” to ensure that white children didn’t attend school with children of color following the Supreme Court’s 1954 Brown v. Board of Education decision. Congress decreed that charities may not discriminate but left it to the Internal Revenue Service and the Justice Department to enforce the law, creating new opportunities to gin up resistance to taxes, especially property taxes, and demonize the IRS. The 1964 Civil Rights and 1965 Voting Rights Acts united the interests of segregationists and antitaxers. Southern state legislatures tightened spending on underfunded public schools for Black children, prompting legal battles that lasted decades.

Policy entrepreneurs like Paul Weyrich and Richard Viguerie, a pioneer in direct mail fundraising and lifelong fan of Sen. Joe McCarthy, saw opportunity in this economic and social turmoil. In 1973, Weyrich co-founded two of America’s most influential antitax organizations, the Heritage Foundation and the American Legislative Exchange Council (ALEC). Both promote lower taxes, especially on corporations and investors, while pushing right-wing social policies like banning abortion.

In 1974, Ford White House aides Dick Cheney and Donald Rumsfeld met with economist Arthur Laffer. On a napkin, Laffer drew what came to be known as the “Laffer Curve,” which purported to show that the government collected nothing if the tax rate was either 100 percent or zero, with a smooth curve in between. (Actual results since have shown that the curve is more akin to a ball of yarn after a kitten plays with it—all over the place.) Three dedicated and influential antitaxers promoted the Laffer Curve: longtime Wall Street Journal editorial page editor Robert Bartley, his subordinate Jude Wanniski, and Republican congressman and former Buffalo Bills quarterback Jack Kemp. Their writings and speeches made the Laffer Curve a centerpiece of tax policy debates to this day.

Racial animosity helped the antitax movement gain traction when economic statistics were less than promising.

Reagan’s antitax message, eventually wrapped in his hopeful “Morning in America” theme, changed the nature of tax policy debates. Instead of asking what can be done with taxes to build a more perfect union and promote the general welfare, the debate shifted to what you could do with more of your money in your pocket. In this political drama pitting fears against hopes, Republicans and many Democrats went along with Reagan as his tax cuts stuffed hundred-dollar bills into the deepening pockets of the already rich, while tossing nickels and dimes to most Americans.

Graetz traces the modern antitax movement to the only political victory of Howard Jarvis, a prosperous Los Angeles landlord and perennial antitax candidate for state and local office. Jarvis wrote Proposition 13, which California voters passed by a two-thirds majority in 1978. His proposition made 1975 property values permanent for those holding their real estate. It capped property tax rates at 1 percent of these values plus any existing bonded debt owed by schools and municipal governments. It barred any property tax rate increases unless a supermajority approved. California property tax revenues have since increased by only about a third of inflation. Owning a home in California for 50 years means you pay little in property tax today, while the folks who just bought the house next door may pay 30 times as much, because taxable property values reassess after sale to reflect the purchase price.

As time passed, more savings flowed to industrial, retail, and commercial property because corporations, unlike people, don’t die, so sales forcing revaluations are rare. California homeowners saved about $30 billion in 2018 thanks to Proposition 13, while commercial and industrial owners saved more than $11 billion. Renters were promised that landlords would pass their savings to tenants, but there’s no evidence of that. California schools, especially in poor and most nonwhite communities, remain badly underfunded because of Proposition 13.

Embedded in Reagan’s 1980 campaign was the role of tax cuts in maintaining white dominance. Reagan launched his campaign near a small Mississippi town known for nothing except local police murdering three civil rights workers—James Chaney, Andrew Goodman, and Michael Schwerner. It was a signal to racists, as were Reagan’s speeches about a mythical welfare queen with “80 names, 30 addresses, 12 Social Security cards” and a Cadillac. Kevin Phillips, a perceptive Republican political commentator, was one of the first to recognize that shifting the focus of tax debates from broad social benefits to “welfare” encouraged “Negrophobe” Southern whites to switch to the GOP, a Southern strategy that would ensure Republican dominance in Washington. “The whole secret of politics is knowing who hates who,” said Phillips.

Racial animosity helped the antitax movement gain traction when economic statistics were less than promising. “Racial dog whistles have been common in antitax movements,” Graetz writes, “except when, as with Donald Trump, they are in a register everyone can hear.”

DURING THE LAST 45 YEARS, AMERICA ENJOYED only one period of economic growth that converted the red ink on government ledgers to black. Economic growth accelerated after Bill Clinton persuaded Congress to raise tax rates in 1993. Clinton’s second term then produced four successive budget surpluses. (His critics credit those surpluses to antitax House Republicans holding down spending.)

The turn-of-the-millennium opportunity to pay down the federal debt was squandered when antitaxer George W. Bush became president. Bush followed Reagan’s borrow-and-spend playbook. Later, Donald Trump slashed tax rates on wealthy business owners, including himself, by 40 percent, while everyone else’s income tax burdens have changed little. He let companies pay as little as 8 percent on an estimated $3 trillion of untaxed profits that had been tucked away overseas. A 1986 Reagan tax policy change that the press missed allowed multinational companies to defer tax payments by moving profits offshore. By investing the untaxed money, companies convert the burden of taxes into profits. When I revealed that in The New York Times, readers told my editors I must be crazy. Congress ordered a study. The 1,800-page, three-volume Joint Committee on Taxation report showed that I was right, and that Enron stamped “profit center” on some internal tax records, as I had predicted.

Howard Jarvis, right, was the author of Proposition 13, which capped property taxes in California and was a major victory for the antitax movement.

Borrowed money financed the Reagan, George W. Bush, and Trump tax cuts, not the illusory cornucopias of additional revenue. That means what looks like a tax cut is, in truth, a tax increase pushed into the future. In other words, ordinary Americans are subsidizing big companies and wealthy families, while making do with fewer government services.

If you take into account payroll taxes for Social Security and Medicare, raised at Reagan’s request in 1983, the bottom 90 percent face essentially the same total federal tax burden as they did a half-century ago. My analysis of the 400 highest income tax returns for 1961 and 2006 showed those at the top enjoyed a 60 percent drop in their tax burden, even as their after-tax incomes grew 28-fold.

Nowadays, cheating is almost impossible for workers because taxes are taken out before they collect what’s left of their pay. However, wealthy business owners operate under separate and unequal rules. A vigorous Internal Revenue Service surveillance could stop the tax avoidance, but antitax lawmakers so restricted the IRS budget that for decades it struggled just to process tax returns. The number of taxpayers reporting $1 million or more in income grew by close to half from 2012 to 2021. However, audits of these high-income Americans plummeted 86 percent, and additional tax recommended by auditors fell even more, down 99 percent. With the corporate tax rate at just 21 percent, antitaxers know there isn’t a lot to gain from further rate reductions. So, Graetz notes, they are turning instead to further restricting audits and quietly adding legal rules that insulate wealth from scrutiny—complex policy issues unlikely to arouse visceral opposition from voters.

THE NEWS MEDIA IS PARTLY RESPONSIBLE for today’s state of affairs, as journalists have often failed to explain tax policy in plain English. Few people know that in 1982 Reagan signed the biggest tax increase in American history, because the Great Communicator’s White House persuaded the Washington press corps to euphemize tax hikes as “revenue enhancers,” including a boost to the federal gasoline tax by a nickel a gallon. Reagan’s 1981 tax cuts equaled 2.9 percent of the gross domestic product. The five tax increases he signed, plus one each by the first President Bush and President Clinton, equaled—drum roll—2.9 percent of the gross domestic product. Reagan basically shifted the tax burden from the already rich few down to those less able to pay.

The antitaxers inflicted the pain from lost property tax revenues on children attending money-starved public schools, on users of libraries that closed or halted book-buying, on visitors to parks where weeds proliferated and water fountains failed, and on motorists who had to shell out cash for frequent wheel alignments as California developed something previously known only in colder climates—potholes.

Only in the last three years have we seen glimmers of a shift away from antitax policy. Leveraging decades of experience on Capitol Hill and in the White House, Joe Biden won passage of the Inflation Reduction Act and other significant legislation to spend taxpayer money in areas that foster economic growth: education, high-value domestic manufacturing, infrastructure, and scientific research. The IRA also included $80 billion in IRS funding; the agency recently announced that, thanks to increased staff, it will pursue an estimated 125,000 high-income Americans who didn’t even file tax returns, despite making $800,000 on average.

Surveys show that millennials, facing ruinous debts to get an advanced education, jobs paying less than grandpa and grandma earned, and aware of disclosures that multibillionaires pay little to no taxes, aren’t buying into the antitax movement the way their parents did. More than 40 percent of millennials don’t believe American capitalism is working well, Wake Forest University researchers found, and other surveys have shown for a decade, that half of young adults favor socialism over capitalism.

For all his cogent insights, Graetz surprisingly adopts the antitaxers’ use of the misleading term “deregulation.” There is no such thing. We have experienced re-regulation, under new rules that favor the wealthy and corporations at the expense of everyone else. That is, to be sure, mere lint on Graetz’s beautifully woven story of how the antitaxers hijacked our nation. Tax, like death, is a subject many prefer not to consider. But if we change our perspective from how badly designed taxes can destroy individual prosperity to how well-designed tax systems can finance commonwealth goods, we can then realize, as Graetz has, that taxing too little destroys society while smartly taxing can enrich us all.

David Cay Johnston is a Pulitzer Prize–winning investigative reporter, formerly with The New York Times, who has written three best-selling books on tax and economic policy. He teaches at Syracuse University College of Law.

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