Bruce Bartlett: Tax Increases and Bull Markets – NYTimes.com
Tax Increases and Bull Markets
By BRUCE BARTLETT
Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of “The Benefit and the Burden: Tax Reform – Why We Need It and What It Will Take.”
Many years ago, I was talking to Jack Kemp, for whom I worked in the 1970s. He told me that just before George H.W. Bush signed into law the 1990 tax increase, which Kemp strenuously opposed, he made an appointment to see Bush and made a last-ditch effort to get him to reject the legislation. Kemp was then serving as secretary of housing and urban development.
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Kemp told me that Bush told him the legislation would stimulate the economy, which was then suffering from a recession that began in July 1990. The expansion of the 1980s, Bush said, didn’t begin until Ronald Reagan signed the Tax Equity and Fiscal Responsibility Act of 1982. Kemp was incredulous.
Tefra, as the Reagan tax increase was called, remains the largest peacetime tax increase in American history. Kemp, despite his love for Reagan, opposed it in Congress, asserting that it would tank the economy, which was still in recession.
I laughed when Kemp told me his Bush story, because that was what he expected me to do. But in the back of my mind, I thought Bush was right.
The economic recovery did begin almost exactly when Tefra took effect.
I recalled this incident last week when the stock market rose sharply after the passage of the tax deal, which raised the top income tax rate and the rate on capital gains and dividends. This is the opposite of what should have happened according to Republican doctrine, which holds that the tiniest increase in tax rates, especially on the rich, is economically devastating.