"I'm not the first President to call for this idea that everybody has got to do their fair share. Some years ago, one of my predecessors traveled across the country pushing for the same concept. He gave a speech where he talked about a letter he had received from a wealthy executive who paid lower tax rates than his secretary, and wanted to come to Washington and tell Congress why that was wrong. So this President gave another speech where he said it was "crazy" -- that's a quote -- that certain tax loopholes make it possible for multimillionaires to pay nothing, while a bus driver was paying 10 percent of his salary. That wild-eyed, socialist, tax-hiking class warrior was Ronald Reagan.
"He thought that, in America, the wealthiest should pay their fair share, and he said so. I know that position might disqualify him from the Republican primaries these days but what Ronald Reagan was calling for then is the same thing that we're calling for now: a return to basic fairness and responsibility; everybody doing their part. And if it will help convince folks in Congress to make the right choice, we could call it the Reagan Rule instead of the Buffett Rule."
— President Obama, remarks on the Buffett Rule, April 11, 2012
The world has gone topsy-turvy when a Democratic president approvingly cites Ronald Reagan on tax policy — and even suggests naming his legislative proposal after the Republican icon, since, as Obama put it, he "traveled across the country pushing for the same concept."
Obama is talking about the so-called "Buffett Rule," which seeks to raise the taxes of the super wealthy so they don't pay less than middle-class Americans. We have examined this concept earlier and concluded it was more of a "political argument" than an actual problem. (White House documents show just 22,000 wealthy households make more than $1 million and pay less than 15 percent of their income in taxes.) But no matter — a version is coming up for a vote next week in the Senate, though it has little chance of becoming law.
(As our colleague Ezra Klein has noted, the actual proposal is much more complicated than Obama suggests in his speeches. The Obama campaign's "Buffett Rule calculator" does not get it right either — the full 30-percent rate does not kick in until after a taxpayer has much more than $2 million in adjusted gross income.)
YouTube clips of Reagan complaining about corporate executives paying less than secretaries or bus drivers have circulated on the Internet for a while. But are Reagan and Obama really talking about the same thing when they used similar anecdotes? As always, context is important.
The Facts
President Obama cited two specific Reagan speeches — one (June 28, 1985) in which Reagan quoted from a letter he had received from a wealthy executive and another (June 6, 1985) in which he said it was "crazy" for some multimillionaires to pay zero in taxes.
Why did Reagan give those speeches? Contrary to Obama's suggestion that he was specifically arguing for a new tax provision aimed at the superwealthy, Reagan was barnstorming the country in an effort to reduce taxes for all Americans, mainly by cutting rates, simplifying the tax system and eliminating tax shelters that allowed some people to avoid paying any taxes at all.
In other words, Reagan was pushing for a tax cut for everyone, not just an increase on a few. (The highest tax bracket at the time was 50 percent.) He even wanted to cut the tax rate on capital gains from 20 percent to 17.5 percent.
As Reagan put it in his May 28 address to the nation:
"We want to cut taxes, not opportunity. As you can see, the percentage of income tax owed would come down, way down, for those earning less than $15,000, down for earnings between $15,000 and $30,000, down for earnings between $30,000 and $50,000, and down for those earning more than $50,000…. By lowering everyone's tax rates all the way up the income scale, each of us will have a greater incentive to climb higher, to excel, to help America grow."
In the speeches that Obama highlighted, Reagan did include an anecdote about some wealthy individuals paying less in taxes than some working Americans. (No such reference was in his speech to the nation.) The anecdote was used to illustrate a tax system that had gone haywire with tax shelters and investment schemes that, as Reagan put it, made "some business districts more like ghost towns, with building after building constructed primarily for tax reasons and never occupied."
Here's what Reagan said in his June 28 speech right after he mentioned the letter from the executive:
"It stands to reason that the more complex our tax code is, the more open it is to abuse. So, we're making it simple to make it fair. America's tax plan will do away with special breaks for a few so we can lower the tax rates for all. Our simpler, three-bracket design will assure that no American pays one penny more than his fair share."
Reagan added:
"By closing the loopholes, we can bring tax rates down for the vast majority of Americans. Our tax proposal is the opposite of trickle down; it's bubble up.
"Most important of all, America's long suffering families will get dramatic tax relief. The fair share plan gives all of America's families a much-needed break by lowering the tax rates, increasing the standard deduction, making tax deductible IRA's equally available to homemakers, and best of all, nearly doubling the personal exemption so that you can deduct $2,000 for yourself and every one of your dependents."
In the June 6 speech, Reagan immediately followed his comment about the "crazy" tax system with this series of quips:
"And the way I see it, if our current tax structure were a TV show, it would either be 'Foul-ups, Bleeps, and Blunders,' or 'Gimme a Break.' If it were a record album, it would be 'Gimme Shelter.' If it were a movie, it would be 'Revenge of the Nerds' or maybe 'Take the Money and Run.' And if the IRS, Internal Revenue Service, ever wants a theme song, maybe they'll get Sting to do, 'Every breath you take, every move you make, I'll be watching you.'"
In other words, Obama and Reagan did use similar anecdotes—and even the phrase "fair share"—but in service of different goals.
Reagan was calling for a broad-based tax cut, in a period when there was rampant abuse of the system and some wealthy individuals were paying little or no taxes. Obama, by contrast, has focused most of his rhetorical attention on a provision that would raise taxes on the super-wealthy. The tax data show such individuals generally are already paying substantial taxes — the effective tax rate for the top one percent of taxpayers was 29.5 percent in 2007, according to the Congressional Budget Office — though there are some cases in which they may pay a lower average rate than middle-class Americans.
Obama, in his budget, has vaguely called for "reform of the tax system" that would include simplifying the tax code and lowering tax rates, but the White House has offered few details, in contrast to the detailed plan laid out by Reagan. Thus Obama's primary focus on boosting the taxes paid by the rich is completely different from Reagan's notion of a "fair share."
The Buffett Rule is not aimed at tax shelters per se, but instead seeks to go after people who earn most of their income from investments, which are taxed at a lower rate (15 percent) than ordinary income. In effect, it is a tax surcharge that adds to the complexity of the tax system. Reagan, by contrast, wanted to lower tax rates for the wealthy and even lower the capital gains rate, while ensuring the notorious tax shelters of the early 1980s were eliminated.
Thus, someone like presumptive GOP presidential nominee Mitt Romney, who gets virtually all of his income from investments and paid an effective rate of 14.5 percent in 2010 and 2011, would pay more taxes under Obama's proposal. But Romney would have gotten a tax cut—of at least 12 percent — under Reagan's plan, assuming he was not using tax shelters to reduce his tax burden.
White House officials said they were quoting Reagan correctly. "The policies are identical," said one official, on condition of anonymity. "The only difference is we are talking about loopholes/dodges that exist in 2012 and he was talking about loopholes/dodges that existed in 1986."
Historical note: The 1986 tax act, which dramatically cut taxes for most Americans while boosting corporate taxes, was an historic achievement but it emerged from Congress in a different form than Reagan's original concept. There were only two tax brackets created—15 percent and 28 percent—and there was no lower rate established for capital gains, which were treated the same as ordinary income. Rates on capital gains and dividends later were uncoupled from ordinary income by George H.W. Bush and then reduced under Bill Clinton and George W. Bush.
The Pinocchio Test
On a superficial level, Obama is echoing Reagan's anecdotes when he speaks of the Buffett Rule and tax fairness. But it is misleading for Obama to suggest that Reagan was "pushing for the same concept" — and to label the Buffett Rule the "Reagan Rule"-- when the former president actually barnstormed the country to argue on behalf of a broad-based tax cut that reduced taxes for the wealthy, the middle class and the poor while greatly simplifying the tax system.
