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Budget stalemate: Why America won't raise taxes

Budget stalemate has many on Capitol Hill crunching numbers. With any new budget, taxes may be the real third rail of politics. Can the U.S. solve its fiscal woes without more revenue?

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The single biggest change in the postwar era came during the Reagan administration, with the Economic Recovery Act of 1981 – which slashed the top marginal tax rate by more than half. It was a hinge moment for the conservative antitax movement.

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"[Reagan] was clearly a passionate tax-cutter, and a little of a devil-may-care tax cutter, at least in the beginning," says Mr. Thorndike. But it didn't last. Just one year after pushing massive tax cuts through Congress, as his advisers grew nervous about spiraling deficits, Reagan agreed to a tax hike, followed by another in 1983, and another in 1984 – restoring roughly 40 percent of the taxes he'd originally cut.

By the time of Reagan's reelection, in 1984, inflation had finally been conquered and the economy was mending. Some former Reagan advisers argue that Republicans internalized the wrong lesson from the period.

"[T]he new tax-cutters not only claimed victory for their supply-side strategy but hooked Republicans for good on the delusion that the economy will outgrow the deficit if plied with enough tax cuts," wrote David Stockman, Reagan's director of the Office of Management and Budget, in The New York Times last summer.

But perhaps an even more critical factor for lawmakers in the years since has been a lack of immediate consequences of deficits on consumers. During the Reagan-Bush years, big deficits still had the power to create a sense of fiscal emergency: They were seen as a drag on the economy and, coming at a time of high inflation and high interest rates, they added to the pressure to control budgets in whatever way possible. Today, that's not the case.

"In the last 25 years or so, we've had relatively low interest rates," says Mr. Bartlett. As a result, "whatever logical linkage people had in their minds between deficits and things that affect things in their lives has been broken." Without that direct link, even lawmakers who might be somewhat sympathetic to fiscal arguments for raising taxes have had far less incentive to risk the political consequences of such a move.

And lately, the likelihood of political consequences has only increased. As tea party and other activist groups target Republican members who fail to uphold conservative economic principles, they are making lawmakers less willing to stray from fiscal orthodoxy.

"The members who try to approach this thing intellectually and honestly – they get called out," says political analyst Charlie Cook of the Cook Political Report. "More traditional, mainstream Republicans – they are being terrorized, and it is affecting behavior."

The defeat last spring of Utah Sen. Bob Bennett was a case in point – and one that reverberated through Republican circles. Many activists saw Mr. Bennett, despite an American Conservative Union ranking of 84 percent, as insufficiently committed to smaller government, as evidenced by his support for the Wall Street bailout and his unapologetic use of earmarks. The Club for Growth, a small-government, antitax group in Washington, decided to try to pick him off.

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