After a second crushing defeat by Ronald Reagan in 1984 — not to mention the booming economy created by Reagan’s pro-market policies — Democrats started to change.
Started to become less statist.
And strange things started happening.
– In 1986, Democrats agreed to tax reform which lowered the top marginal income tax rate to 28% from 50% and the top corporate rate to 34% from 46%.
– In 1993, President Bill Clinton chucked his “Putting People First” “investment agenda” to become a deficit hawk, betting that lower deficits would mean lower interest rates and higher economic growth. Although he raised taxes, he later admitted that he had raised them too much.
– In 1995, Democratic congressional leader and frequent presidential candidate Dick Gephardt offered his own version of a flat tax:
A sweeping tax reform proposed today by House Minority Leader Dick Gephardt would cut the top income-tax rate for three-quarters of Americans to 10 percent and eliminate all deductions except for mortgage interest. … The tax rate would jump to 20 percent for married couples with taxable income of $40,200 after subtracting personal exemptions, standard deduction and mortgage deduction. The rate would be 26 percent for couples at $90,150, 32 percent at $148,150 and 34 percent at $264,450.
In 1997, as a result of the Balanced Budget Act, Congress organized the National Bipartisan Commission on the Future of Medicare, under the leadership of Democratic senator John Breaux and Republican representative Bill Thomas. The commission’s final recommendation, supported by members of both parties, was that Medicare should be converted to a “market-based Premium Support model” similar to the one used in the Federal Employees Health Benefits Program.
After the commission made its proposal, President Clinton made a counter-proposal, shaped in large part by his Treasury secretary, Lawrence Summers. He proposed “managed competition” for Medicare, in which private insurers would have engaged in competitive bidding for health coverage of the elderly. Retirees who chose plans that cost less than the average bid would have retained three-fourths of the savings. Clinton also proposed new subsidies to encourage employers to retain private-sector health coverage for their retirees, taking some of the burden off of Medicare.
But now Democrats a) support pushing tax rates to levels even beyond what Clinton later regretted, and b) dismiss the Romney-Ryan premium support plan as killing Medicare.