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Death and Taxes

George H. W. Bush was right about taxes, but he broke the Republican Party

George H. W. Bush’s decision to support a modest tax increase in 1990 was among the more courageous decisions any modern president has made. It likely led to his defeat in 1992. More important, it was a major inflection point in the history of the conservative movement and the Republican Party. Forces within the party intentionally destroyed Bush to advance their own ambitions and agenda. This effort was wildly successful, putting the far right in complete control of the GOP’s ideology.

Bush, who died yesterday at the age of 94, was the last Eisenhower Republican, a conservative in the historical sense of the term, someone who valued continuity, prudence and caution in policymaking. As the philosopher Michael Oakeshott once put it, “To be conservative, then, is to prefer the familiar to the unknown, to prefer the tried to the untried, fact to mystery, the actual to the possible, the limited to the unbounded, the near to the distant, the sufficient to the superabundant, the convenient to the perfect, present laughter to utopian bliss.”

Today, there are no such conservatives. Conservatism has in fact become its opposite, a movement of radicalism that seeks only to destroy—destroy government with misguided libertarianism, destroy the media and the schools so people cannot think for themselves and must accept conservative propaganda at face value, and destroy democracy if necessary to achieve their goals.

Conservatism has in fact become its opposite, a movement of radicalism that seeks only to destroy.

Conservatives thought Ronald Reagan was the agent of their agenda, which in 1980 was not as radical as Trumpism is today. But they were wrong. In contrast to the national leaders of today’s GOP, Reagan governed responsibly, abandoning conservative principles on issues such as immigration, gun control and many others. But his greatest heresy against the party’s conservative wing was supporting eleven tax increases after the 1981 tax cut that added up to $132 billion per year by 1988.

The right was loath to criticize Reagan too openly because of his long service to the conservative cause and the sweetness of his rhetoric, despite his often wayward policies. But Bush had no such base of good will on the right; indeed, he had made his career as a Republican moderate who was critical of the party’s right flank, which he viewed as uncouth, unsophisticated, and borderline delusional.

Taxes were an especially sore point. Despite eight years of loyal service as Reagan’s vice president and Reagan’s endorsement as his Oval Office successor, Bush still stirred ire among rock-ribbed conservatives for his 1980 primary challenge to Reagan. In particular, they remembered Bush’s crack that Reagan’s proposed tax cut was “voodoo economic policy” at a speech in Pennsylvania in April 1980.

Bush knew this would be a problem for him and even tried to deny he had said it. But Ken Bode, then of NBC News, found footage of Bush’s speech and aired it. Original copies of the speech also contained the offending words, indicating that the voodoo crack was no ad lib but an intentional provocation.

As a result, Bush was forced to go overboard in his defense of the Reagan tax philosophy in 1988 in order to maintain party unity and win the general election. In his speech accepting the GOP nomination on August 18, 1988, Bush said the words that would come back to haunt him two years later:

I’m the one who will not raise taxes. My opponent now says he’ll raise them as a last resort or a third resort. When a politician talks like that, you know that’s one resort he’ll be checking into. My opponent won’t rule out raising taxes, but I will, and the Congress will push me to raise taxes, and I’ll say no, and they’ll push, and I’ll say no, and they’ll push again, and I’ll say to them, “Read my lips: no new taxes.”

Many of Bush’s advisers, former deputy Treasury secretary Dick Darman in particular, thought his tax pledge was unwise; that budgetary realities would force him to break it sooner or later, with potentially disastrous political consequences. But Bush’s political and media advisers, including Roger Ailes, later president of Fox News, argued that it was essential to win the election. Bush sided with the latter.

I think Bush believed that his no-new-taxes pledge was just political rhetoric—he was always willing to do whatever it took to do to win an election. He may have also thought that any future tax deal he made wouldn’t cause any more of a rift within his party than Reagan’s many tax increases did. Bush was old enough to remember when many Republicans opposed the Kennedy-Johnson tax cut because it would increase the deficit. Anyway, all sane people could see that balancing the budget was going to require some assistance on the revenue side.

Bush might have gotten away with it except for two things. First, Darman, from his perch at the Office of Management and Budget, where Bush had named him director, made it practically impossible for Bush to avoid breaking his pledge. Darman did this during his confirmation hearings when he said the pledge applied to anything that even looked like a tax, such as higher fees. Indeed, under his “duck test”—i.e., if it looks like a duck, walks like a duck and talks like a duck, it’s a duck—Bush’s pledge would even prohibit something like the Tax Reform Act of 1986, which raised taxes in some ways to pay for revenue-neutral tax rate reductions.

In other words, Darman dug Bush into the ground even more deeply in opposition to new taxes than the original pledge. I think Darman did this intentionally because he thought the pledge was stupid and needed to be gotten out of the way as quickly as possible to enable a budget deal with Democrats who controlled Congress. Rip the Band-Aid off quickly, Darman thought, and it will hurt less.

What ultimately forced Bush’s hand was the First Gulf War, which Bush saw coming and knew would put further pressure on the budget deficit. There was also considerable domestic pressure, courtesy of Federal Reserve chairman Alan Greenspan’s adamant refusal to cut short-term interest rates, which Bush’s economic advisers believed was critical to getting the economy moving before the election in 1992. Greenspan made it clear that deficit reduction was the prerequisite for monetary easing. (I was a Treasury official in the Office of Economic Policy at the time.)

Conservatives were apoplectic that Bush had given away the store by agreeing in advance to raise taxes.

On June 26, 1990, Bush issued a statement saying that he and congressional leaders had agreed to continue previously stalled budget negotiations. Because Democrats were adamant that higher revenues be on the table, they insisted that Bush acknowledge the prospect of a modest tax hike publicly so that he could not later use it against them. The statement said simply that “tax revenue increases” would be at least one required component of a final deal.

Conservatives were apoplectic that Bush had given away the store by agreeing in advance to raise taxes. Bush’s advisers thought they had only agreed to discuss the issue. In fact, Treasury secretary Nicholas Brady’s closest adviser told me that Brady was contemplating only that the natural rise in revenues from a growing economy would contribute to deficit reduction. I thought that was extraordinarily naïve; it was obvious that conservatives in Congress would interpret Bush’s concession exactly the way they did—as a betrayal of his tax pledge.

At this point, Bush’s second major problem with the pledge came into play. For years, many conservatives had been upset by both Reagan’s and Bush’s unwillingness to stand firm for conservative principles; that is, by their penchant for lapsing into responsible governance.  Closed door meetings were held during which Newt Gingrich, then the House Minority whip, together with other conservative firebrands such as Trent Lott and Vin Weber, plotted to use the tax issue to overthrow the Republican leadership in Congress and take control themselves. They succeeded in getting a majority of Republicans in both the House and Senate to vote against the budget deal.

These revolutionaries understood that their actions would almost certainly result in Bush’s defeat in 1992 and accepted that this was a necessary price to pay to get full conservative control of the Republican Party. They believed this would pay future dividends, although I don’t think any of them really thought Republican control of Congress could be achieved as soon as 1994. But Gingrich, at least, could see that the movement of conservative Southern Democrats into the GOP, which had been ongoing at least since South Carolina senator Strom Thurmond switched parties in 1964, was approaching critical mass. The tax issue would help complete the transition.

It’s hard to quantify the conservative effort against Bush and say it was decisive. But recall that Ross Perot ran a strong race to Bush’s right in the general election and was an easy vote for many dissident Republicans. Although Bush later regretted abandoning his tax pledge, he ultimately blamed Greenspan for his defeat. Quicker and more aggressive Fed easing would have stimulated the economy and won the election, he told David Frost in a 1998 interview.

In 2014, the John F. Kennedy Library awarded Bush its “Profile in Courage” award for the 1990 budget deal, which would have been impossible without the small tax increase it contained. (The top statutory income tax rate was raised to 31 percent from 28 percent.) Democrats, who controlled Congress, never would have supported the deal otherwise. Robert Reischauer, director of the Congressional Budget Office in 1990, later told me that the budget controls contained in that legislation deserve much of the credit for budget surpluses that emerged during the Clinton administration.

Bush will always be a pariah to the Republican right. But the rest of us owe him a debt of gratitude for avoiding the easy way out of a political dilemma—and for being the last Republican leader on the national scene to show some backbone against the nihilistic right-wing GOP base that now controls the party.