Why Democrats Should Fear Inflation

Inflation changed American politics in a more lasting way as a result of the 1978 property-tax revolt in California. Spiraling inflation pushed up property taxes, prompting a Republican activist named Howard Jarvis to wage a successful campaign for Proposition 13, a measure that lowered property tax assessments and limited future tax increases. “The urgency and the desperation of the California tax revolt were virtually without modern parallel,” the journalist Robert Kuttner observed in his 1980 book, Revolt of the Haves. “As much as any other event, it seemed to signal an abrupt end to the era that had begun in 1933.”

The tax revolt spread eastward, merging with rising pressure on Congress to index income tax brackets to inflation to curb the “bracket creep” that raised taxes on people whose standard of living remained the same. The California-led movement caught the attention of the former California governor. During Reagan’s 1976 campaign for president, tax cuts had not been a major theme. In 1980, they were. Inflation made them so.

One of the first things Reagan did as president was to end bracket creep. Alas, he didn’t stop there. He also slashed the top marginal income tax rate, first from 70 percent to 50 percent, and eventually all the way down to 28 percent. How Reagan’s “morning in America” economic recovery could be achieved when the top tax rate, at 50 percent, was 10 percentage points higher than it ever would be again is not a mystery supply-siders have ever chosen to address.

No subsequent president, not even Democratic ones, dared raise the top marginal rate above 40 percent. President Biden’s grand ambition is to raise it to the same 39.6 percent it was under Obama, and then only for households earning in excess of $400,000. It’s become a given in American politics that no Republican member of Congress will support an increase in income tax rates, and no Democrat will do so without great trepidation. This 40-year status quo damages our politics, increases income inequality, and limits the exercise of imagination about what new steps the government can take to improve the common welfare. You can blame inflation for that. If you’re a liberal, that’s reason enough to fear its return.

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