Reagan's 'revenue' increases

An hour or two before I sat down to talk, I thought to myself 'Suppose this was a day in November, December 1929. What would I be saying?'

This strange impulse is simply a response to the extraordinary convulsion of the stock market during the past week. Suddenly, out of the blue, the largest volume of trading ever known, two days later the record volume surpassed again and a bull market, the like of which very few of us can remember. Up 40 points, then up 19 points, then on Tuesday a noisy plunge down 16 points. How to explain it?

Old men and scholarly maidens will wonder what November 1929 has to do with all this. Well, let me remind you that in that year, after a succession of booms which has the President of the United States predicting that poverty was about to be abolished once for all, there came the awful day of 29 October when the stock market crashed and $14 billion were gone for good. The next day there was another terrific tumble but the New York Times reported, 'Rally at close, cheers brokers'. If I'd had to do a talk then, I would have been unlikely to guess at what every historian, every schoolchild, today will tell you was bound to happen, I'd have done what good reporters do at once – consult the experts, the men who've spent 30 or 40 years of their lives watching booms and busts, hard times and lush times and learned as much as anybody about the behaviour of such things.

Very well, then. A month after the Wall Street Crash, we should certainly have consulted Henry Ford, the reigning wizard of American industry. 'Things,' he said, 'are better today than they were yesterday.' If that sounds cryptic, how about Charles M. Schwab, the chairman of the board of Bethlehem Steel, 'Never before', he said, 'has American business been as firmly entrenched for prosperity as it is today.'

The man who wrote a regular survey of banking for the Guaranteed Trust Company of New York addressed himself to the stock crash itself. 'Viewed in the longer perspective,' he wrote, 'the collapse of the inflated price structure may be correctly regarded as a favourable development from the point of view of general business.' The president of the National Association of Manufacturers saw 'little on the horizon today to give us undue or great concern' – and so on and on.

It's almost tasteless to remind ourselves today that they were all disastrously wrong but the memory of this cheerful stumble into the pit of Depression should warn us against any dogmatic view of what has happened, is happening or is about to happen. The most popular expert view of the sudden boom is that it was a healthy response to the president's getting his 90-odd billion dollar tax bill passed by both Houses and to the Federal Reserve and the banks lowering their prime interest rates, something that two or three schools of experts have been saying for a couple of years simply had to happen if this country were to pull out of the recession.

Once again, I went to an expert, a man who has spent over 50 years on the STREET (in capital letters). He was neither bullish nor bearish, not exhilarated and not depressed, he said he simply didn't know. 'All I do know,' he confessed, 'is that I've been predicting for the past year that as soon as interest rates really started moving down, making borrowing easier for everybody, from importers to bankers, from people wanting to buy a house or a motor car, I predicted that we'd have another big surge of inflation and that it would go on and on.'

So what happens? The annual growth rate of inflation has now dropped to 5.4 per cent, something even Lyndon Johnson might have boasted about.

Now when President Reagan came in and boasted, or rather proclaimed, that he was going to cut taxes, increase defence spending, balance the budget and puncture inflation, only his own pet school of economists, the so-called 'supply-side boys' thought it was even remotely possible and once the estimates of the government's staggering deficits began to go up and up, not even Mr Reagan thought it possible. Of course, like any other good politician, certainly one who was elected in a landslide like Franklin Roosevelt, for instance, he was not going to say, 'I was elected on one programme and I've succeeded by doing the opposite'.

Some of you may have thought I stumbled back there when I mentioned Mr Reagan's success in getting a tax bill passed by both Houses. A tax bill? Isn't he the man who was never going to raise taxes but rather cut them at the rate of ten per cent in each of the next three years? That's right! But he was talking about income taxes. Somebody lately must have convinced him that the threat of huge and rising deficits through those years simply could not be allowed to happen, that they must be offset now by a big transfusion of new revenues. Revenues, that was the word the president preferred to use. But where are these new revenues to come from?

Well, if you'll excuse the expression, from new taxes or what the president called 'closing the loopholes'.Let's look at the bill. It is frankly called on Capitol Hill 'a tax increase bill' and amounts to $98.3 billion. It mostly comes from business, which the president said a year ago must be the chief beneficiary of the tax cuts so as to encourage investment, new factories, more jobs. Well, under the new bill, business will no longer be able to sell unused tax benefits or accelerate their depreciation claims years ahead. The oil companies will no longer be allowed to count their losses in one country against the tax bill they pay on profits in another country. Businesses and banks must henceforth withhold ten per cent of the interest and dividends they pay to individuals.

These are moves you'd expect from a Democratic president, from a Senator Kennedy, say, and the right wing of Mr Reagan's party, the die-hard conservatives who boasted that they put him in, they've not been slow to say so. They are wincing where it hurts most, in the Senate which is now under the control of the Republicans because these men ran as Reaganomics men and were elected. Understandably the vote on the tax bill in the Senate was very close, 52 for, 47 against.

Now, how about taxes on individuals, on what condescendingly used to be called 'the little people', Abraham Lincoln's common men whom God must love so much because he made so many of them? They're certainly not going to bellyache at the new restraints on corporations and oil companies. Well, the first of the little people who are going to howl are waiters and waitresses. The new bill will compel all restaurants with more than ten employees to report ten per cent of their earnings as tips received by the staff and it's surely not an exclusively American foible to have waiters pocket cash tips and not report them as income. Or is this a practice that shocks listeners, restaurant owners, waiters and waitresses in London, Hong Kong, Sydney or Edinburgh?

Only about one-fifth of the entire bill will bring in revenues from individuals, including the newly penalised waiters, and that money will come from stiffer taxes on cigarettes, on telephone bills and on airplane tickets.

The more you look into this tax bill which Mr Reagan begs us all to think of as a 'revenue increase bill', the more adroit it appears. There are only nine weeks or so till the November elections when one-third of the Senate and the whole House of Representatives will be up for re-election. It is a political axiom that barely requires repeating that you do not introduce a tax bill in an election year, yet the president has done it and won it and entirely – mainly anyway – with the enthusiastic help of the Democrats in Congress. They may lose some of their enthusiasm for him in November if, as now seems certainly possible, lots of voters of both parties decide that they misjudged him, that in the pinch he would crack down on big business just as if he had seen the light and thought again of Franklin Roosevelt, the man that he, himself, voted for four times.

The only individuals who may nurse a new grudge against him are those citizens wealthy enough to be able to travel frequently on airplanes and those miserable citizens who insist, against all the evidence, on smoking cigarettes.

Well, the only people I've met who are not at all amazed at the president's performance are one or two old California politicians I ran into in my stay out in San Francisco.

One of them was most illuminating. He said, 'So far the country has seen the ideological Reagan and they either admire his courage or deplore his mulishness but if they watched him in his eight years as governor of California, they'd know that the man is as bland as Roosevelt was at making big, throbbing, ideological speeches and seeming to stick with them until the crunch comes. In the crunch, he's a pragmatist of the first water. He will pant and speechify around the country as he used to do around his state saying that the Republic will topple into ruination if he doesn't get the loaf he's begging for.

'And then he saw, or perhaps he knew along, he was never going to get it. He became affable and attentive to the opposition. He yielded them most of what they wanted. Then he would be loud in singing their praises not as Democrats but as men and women decent and loyal enough to put the national interest above party. He would telephone them and tell them he was proud that they thought and acted first as Americans, and not as Democrats. Often these guys simply didn't know what was going on, but when it was all over, he'd get his majority and when his old buddies, his ideological disciples screamed that they'd been robbed, he'd say, "Only of half a loaf!" He'd then call up the Democrats who'd made the bill's passage possible and say, "Bless you and thank you for accepting my half of the loaf." We call this Reagan "the flexible Reagan", that's what you've been seeing in the tax bill.'

Well, I suppose there must be 40 or 50 Democrats in both Houses who have accepted his word that they're splendid Americans since they got most of what they wanted – a whopping tax increase that steers clear of the sainted income tax – they naturally feel a new respect for him.

If inflation keeps falling and interest rates and – a bigger if – if it becomes easier for the little people to buy an automobile or buy a house, then November could reverse all the conventional wisdom which says that the incumbent always takes a beating in the congressional elections in the off-, the non-presidential, year.

This transcript was typed from a recording of the original BBC broadcast (© BBC) and not copied from an original script. Because of the risk of mishearing, the BBC cannot vouch for its complete accuracy.

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