In December 1991, Donald Trump said: “What caused the savings and loan crisis was the 1986 tax law change. It was a disaster. It took all of the incentives away from investors.”
He expanded his criticism in November 1991 when he spoke at a House hearing on U.S. Economic Recovery: “I truly feel this country is right now in a depression … and one of the reasons we’re there is what happened in 1986… This tax act was just an absolute catastrophe for the country, for the real estate industry, and I really hope that something can be done.”
Eight years later Donald Trump’s opinion was the same. He said in the Wall Street Journal in 1999: “We lost the jobs. We lost the taxes. They closed the buildings. They closed the plants and factories. We got nothing but unemployment. We got nothing.”
And yet President Trump said this week: “In 1986, Ronald Reagan led the world by cutting our corporate tax rate to 34 percent … under this pro-America system, our economy boomed. It just went beautifully right through the roof. The middle class thrived, and median family income increased.”
So which was it? Did Reagan’s 1986 tax reform make the economy catastrophically crash or boom beautifully? Perhaps economists and politicians can disagree on interpretations, but the President’s “hope that something can be done” did come true. Congress had already raised the highest income tax rate from Reagan’s 28% to 31% in 1990. Then, after Trump spoke at the House hearing on U.S. Economic Recovery, Congress raised it again, to 39.6%–where it remains right now. Trump spoke and Congress listened.
President Trump would now like to drop it to 35%, contradicting his own advice to Congress. He would also like to drop the Capital Gains tax to 20%. When Reagan took office, the Capital Gains rate was 28%. Reagan’s first tax plan lowered it to 20% in 1982, but the 1986 law actually raised it back up to 28%. President Bush allowed it to rise to 28.9% in 1990, and it peaked at 29.2% in 1996. It’s currently at only 23.8%. If Reagan’s 1986 tax plan is President Trump’s model as he (currently) claims, then the Capital Gains rate should not be cut. It should be raised to 28% where Reagan set it in 1986.
When Reagan took office, the corporate rate was 46%. Congress dropped it to 34% in 1986 and then adjusted it slightly to 35% in 1994—where it has remained since. Again, if Reagan is President Trump’s model, why does he want to lower the corporate tax rate from its Reagan level all the way down to 20% or even 15%?
The Trump plan doesn’t follow the Reagan plan. It destroys it. If you want to uphold Ronald Reagan’s tax legacy, you and the rest of the GOP will reject the Trump tax plan.