Reagan’s record on raising taxes began almost the moment he entered politics. Elected governor of California in 1966, he inherited a large budget deficit from his predecessor, Pat Brown. Although a conservative, dedicated to shrinking government, Reagan nevertheless found the magnitude of spending cuts that would have been necessary in 1967 to be beyond reach. This led him to endorse a $1 billion per year tax increase, equivalent to a $17 billion tax increase today – an enormous sum equal to a third of state revenues at that time. Journalist Lou Cannon recounts the circumstances:
“No amount of budget reductions, even if they had been politically palatable, could have balanced California’s budget in 1967. The cornerstone of Governor Reagan’s economic program was not the ballyhooed budget reductions but a sweeping tax package four times larger than the previous record California tax increase obtained by Governor Brown in 1959. Reagan’s proposal had the distinction of being the largest tax hike ever proposed by any governor in the history of the United States.”[1]
The top income tax rate was raised from 7 percent to 10 percent, the sales tax rate went from 3 percent to 5 percent, the cigarette tax was increased from 3 cents to 10 cents per pack, the alcohol tax was raised from $1.50 to $2 per gallon, the bank and corporate tax rate went up from 5.5 percent to 7 percent, and the inheritance tax rose from a range of 2 percent to 10 percent to a range of 3 percent to 15 percent.[2] According to Cannon, this was essentially the Democrats’ wish list of tax initiatives, with the sole exception that it did not institute tax withholding, which Reagan adamantly opposed. In Cannon’s words, “An economist who analyzed the tax bill without knowing its political background might conclude that it had been crafted by a New Deal Democrat.”[3]
In 1970, Reagan proposed yet another big tax increase of $1.1 billion, which would have been used to finance property tax relief. Incomes above $32,000 would have been subject to a new 11 percent tax rate, and three years later a new 13 percent bracket would have applied to those with incomes above $36,000. The bill would have also instituted tax withholding, which ironically led to its defeat in the Senate by a single vote. However, many of these provisions were enacted the following year.[4] The 1971 legislation raised taxes by $508 million (about $6 billion today), including an increase in the top income tax rate to 11 percent, a rise in the bank and corporate tax rate from 7 percent to 7.6 percent, and institution of an alternative minimum tax and tax withholding.[5] State taxes were raised another $1.1 billion in 1972 (about $12.5 billion today). This legislation included another increase in the sales tax rate from 5 percent to 6 percent and a further rise in the bank and corporate tax rate from 7.6 percent to 9 percent.[6]
