Michele Bachmann Proposes Tax Hikes for Everyone -- Reagan Style

On Thursday morning, presidential candidate Michele Bachmann may have inadvertently made one of the boldest moves of the 2012 GOP primary campaign. Speaking on Fox News, the Minnesota congresswoman stated that she wants to adopt Ronald Reagan's tax plan, a rate structure that is much higher than current tax rates.

Criticizing Herman Cain's catchy-sounding 9-9-9 tax plan, Bachmann offered her own economic proposal, which she emphasizes has "not only a tax plan in it, but has a jobs and economic recovery plan." After sending viewers to her website, she explained the inspiration for her proposal: "For my tax plan, I take a page out of one of my great economists that I admire, Ronald Reagan. And under my tax plan, I want to adopt the Reagan tax plan. It brought the economic miracle of the 1980s." A few moments later, she reiterated her point, emphasizing, "I want to re-institute the Reagan tax model from the 1980s."



Within hours, Talking Points Memo and other media outlets across the country were reporting her apparent break with the Republican mainstream on taxes. The Bachmann campaign has not replied to repeated requests for clarification.

It's not hard to understand why Bachmann repeatedly invoked the Gipper: Among contemporary Republicans, Reagan's massive 1981 tax cut is legendary. When he came into office, the top tax rate of 70% kicked in at $108,300 and the median household paid 34%. Within a year, he had dropped taxes sharply: The top rate -- which fell on people who made $41,500 or more -- was down to 50%, and the tax rate paid by median households had dropped to 31%. By the end of the Reagan presidency, the wealthiest taxpayers and median households were paying the same rate: 28%.

But while Reagan's tax initiatives have gained near-totemic power among conservatives, the truth is that most taxpayers now pay even less than they did in the eighties. A single payer making the median household income of $49,445 pays 25%, and a payer in the highest tax bracket -- which kicks in at $373,650 -- pays 35%. On the surface, Bachmann's proposal to revert to the Reagan-era tax code would translate into a 3% to 9% tax increase on median households, while the richest taxpayers would face a tax change ranging from a 7% drop to a 35% rise.

The Big Picture: Even The Rich Would Pay More

But the basic tax rate only tells half the story. While cutting income tax, Reagan also raised taxes by closing loopholes and ending many tax breaks; for that matter, he increased levies on many consumer products, including gasoline and cigarettes.

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To get a more complete picture of the tax structure, both under Reagan and in our own time, it's helpful to look at the total effective tax rate, a measure of the complete tax levy on most taxpayers.

Through this lens, Bachmann's tax boosting proposal seems even more impressive. During the Reagan years, the total effective tax rate ranged from 29.2% to 30.7%. By comparison, today's rate is 27.7%. In other words, depending upon which year of Reagan's presidency one considers, Bachmann's proposal would raise taxes by between 1.5% and 3%, across the board.

Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.