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ANTITAX NATION  
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David Cay Johnston
April 5, 2024
The American Prospect
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_ Michael Graetz’s new book explains how clever marketing duped
America into shoveling more tax breaks to the wealthy and
corporations. _

Due to excessive tax cuts, ordinary Americans are subsidizing big
companies and wealthy families, while making do with fewer government
services., Al Grillo / AP Photo

 

_This article appears in the__ April 2024
[[link removed]] issue of_ The American
Prospect _magazine. Subscribe here
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_THE POWER TO DESTROY: HOW THE ANTITAX MOVEMENT HIJACKED AMERICA
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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
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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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