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November 15, 2012
Opinion: A Divided Congress Can Be Good for Tax Policy
Joseph J. Thorndike

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Is divided government good for the country?

Americans, it turns out, are divided on that question. In a September poll, 60 percent of respondents said Washington would make more progress on the nation's "major problems" if one party controlled the White House, the Senate, and the House. Only 25 percent thought divided government would do a better job.1

That's a pretty clear majority, but it masks its own kind of division. In an April poll, people were asked a similar question but also asked which party -- if given full control -- would do a better job. Respondents still favored single-party control by 53 percent to 33 percent. But that 53 percent was closely divided between those looking for a GOP sweep (25 percent) and those preferring Democratic control (28 percent).2

Unified government is great, in other words. Just so long as it's my kind of government.

Not so long ago, Americans had a more positive view of divided government. In November 2010, just after the GOP delivered a thumping to Democrats and won control of the House, pollsters found that yet another 60 percent majority believed divided government was "very positive" or "somewhat positive" for the country.3

Apparently, the last two years of President Obama's first term disabused them of that notion.

Of course, divided government is not on the ballot when people walk into the voting booth. And thanks to the vagaries of our political system, our most recent election has delivered yet another two years of divided government. So we've got that to look forward to.

Divided We Fail?

If most people are dubious about the effectiveness of divided government, they're in good company. President Wilson, for instance, famously remarked that "you cannot compound a successful government out of antagonisms."4

Many political scientists have reached a similar conclusion. In his well-regarded study of party control and legislative effectiveness, Yale's David R. Mayhew summarized a broad literature of disappointment. Many of his professional peers consider political parties "the indispensable instrument [that brings] cohesion and unity, and hence effectiveness to the government as a whole by linking the executive and legislative branches in a bond of common interest," he said.5 When more than one party controls the levers of power, that cohesion disappears.

It's tempting to agree with that assessment. After all, who doesn't long for an end to gridlock and the endless bickering that goes with it? But Mayhew resists the impulse and instead tries to develop a measure of governmental effectiveness under divided government. His conclusion? That divided government does not impede legislative productivity (measured quantitatively, in terms of major legislation and important oversight investigations).

In some respects, that is a rather anodyne standard for gauging effectiveness. Laws might get passed, but are they good ones? Mayhew doesn't try to answer that. He's more interested in testing the assertion that divided government creates gridlock or legislative paralysis. In his defense, that's an important question and one more likely to have a clear answer than debatable issues of legislative quality.

Mayhew's study explores the full range of legislative activity. But what does divided government mean for tax policy in particular? And to further refine the question, what does our current form of divided government mean for tax policy? After all, divided government comes in a variety of forms, depending on which institutions are controlled by which parties.

For instance, taking an executive-centric approach to the question, presidents can face a fully hostile Congress, with both houses in the hands of the opposition. Or they can face a more complicated (and possibly more tractable?) form of divided government when only a single house belongs to their antagonists.

That, of course, is the situation we have today as we approach the infamous "fiscal cliff" and will have once again when the new Congress is installed in January. The new divisions won't be quite the same as the old ones. It seems likely, in particular, that the Democrats' new Senate majority will be marginally more cohesive (and liberal) than the current version.

But what does history tell us to expect from that sort of divided government? The data set is rather small, especially when compared with episodes when opposition parties controlled both houses of Congress. (Those periods were fairly common during the Democrats' long congressional ascendancy in the wake of World War II.) But generally speaking, episodes of divided government have been productive ones for tax legislation.

Slow Start

Since 1900 the United States has had six episodes of party division. The first happened from 1911 to 1913, when Republicans lost control of the House but retained both the White House (under President Taft) and the Senate. Those were not important years for the federal tax system, at least in terms of legislation actually passed by Congress. They were years of watchful waiting, as the proposed income tax amendment made its way through state capitols on its way to ratification. That amendment, incidentally, was the legislative product of a unified Republican government. Its initial implementation would fall to a unified Democratic government.

Arguably the next episode of divided congressional government came from 1917 to 1919. Republicans controlled a plurality of the House of Representatives but Democrats kept the speakership and were able to organize the chamber because of the cooperation of Progressive and Socialist party members. Those were productive years for tax legislation, with a series of wartime revenue laws making their way through Congress and winning Wilson's signature. In particular, the revenue acts of 1917 and 1918 helped establish the income tax (both individual and corporate) as a permanent and vital addition to the revenue system. They also introduced an excess profit tax that would remain a topic of debate for decades afterward.

War, of course, has a way of clarifying the mind and blurring party divisions. There tends to be a lot more interparty unity around tax policy while soldiers are fighting on the battlefield -- at least initially. So it might be reasonable to treat the second episode in divided congressional government as an outlier.

The third period with a divided Congress -- and its considerable legislative achievements -- can't be so easily dismissed. The episode came at the tail end of Herbert Hoover's presidency, from 1931 to 1933. The Democrats won control of the House in 1930, and they joined Hoover in creating a revenue response to the Great Depression.

That was a period of real legislative success on the tax front. The Revenue Act of 1932 was a bipartisan achievement -- if that's the right word for a law that almost certainly worsened the Depression by raising taxes dramatically. In fact, however, it was regarded as a triumph for legislative cooperation. Hoover urged Congress to shore up the national credit by stanching the flow of red ink brought on by the Depression. Democrats responded cooperatively, even pursuing a new federal sales tax (long a GOP priority) until an intraparty rebellion forced them to backtrack.

In retrospect, the regressive tax increase of 1932 was a bad idea. But judged in the context of its times, it was a notable triumph for legislative cooperation in the face of national emergency.

Reagan's Record

The next episode of divided congressional government was a long time coming, chiefly because Democrats developed a strong grip on both houses of Congress after 1932. There were periods of GOP resurgence, first between 1947 and 1949 and again between 1953 and 1955. Both times, Republicans managed to win brief control of both houses of Congress, only to lose them in the next election.

Not until 1981 would the United States again see a divided Congress. And the record here is clear: Lots of important things went on. Love 'em or hate 'em, the tax laws of the early 1980s were important. Indeed, it seems fair to say they fundamentally and durably restructured the federal tax system.

President Reagan's 1981 tax cut brought an end to the high statutory rates first enacted during World War II (and only partially reduced in the 35 years after) -- which is not to say that rates weren't still relatively high after the Reagan cuts, at least by today's standards. But that's the point. The Reagan cuts changed the way Americans thought about tax rates. Numbers that seemed plausible in the late 1970s (like a top rate of 70 percent) were banished from political discussion.

Democrats -- long the legislative patrons of that rate structure -- cooperated in revising it. Indeed, as several scholars of the period have noted, they competed vigorously with Republicans to claim the mantle of tax reduction.

Similarly, the Tax Reform Act of 1986 was a signal achievement of divided congressional government. The story has been told so often that it doesn't need repeating here. But suffice it to say that 1986 was a triumph for bipartisanship in tax legislation (albeit one liberally greased by the usual politics of tax policy formulation).

The last two episodes of divided congressional government came recently, first from 2001 to 2003 and then again in 2011, when Americans elected the Congress we have today. For those with a short memory, 2001 seems like it might be another example of legislative productivity in the face of partisan division. But of course, the Economic Growth and Tax Relief Reconciliation Act of 2001 was the final enactment of a (barely) unified Congress. Control of the Senate belonged to the Republicans until just after passage of the tax cut, when Sen. Jim Jeffords of Vermont abandoned the GOP to become an independent and caucus with the Democrats.

The actual period of divided congressional government during George W. Bush's presidency was not marked by meaningful bipartisan cooperation on tax policy. Similarly, it seems hard to peg the second half of Obama's first term as a period of tax productivity. In a stretch, it might be fair to say that lawmakers avoided some bad things (like wholesale expiration of the Bush tax cuts in the middle of a recession). But it's hard to support the claim that much affirmative progress was made on the nation's "major problems," as the pollsters put it.

Past Performance

As they say on Wall Street, past performance is not an indicator of future results, so this capsule history of tax policy amid congressional division may not tell us much about the future.

After all, things change. Parties change. The parties of 2012 -- both or at least one of them -- might not be the kind of parties that actually play well with one another. Indeed, I'm partial to that sort of pessimistic assessment of our predicament. But the history of tax policy in a divided Congress can tell us that gridlock is not inevitable. It is not baked into our constitutional structure.

To be sure, some of the tax legislation passed by divided congresses has been suboptimal. The deflationary Revenue Act of 1932 was especially misguided. But that's largely an ahistorical assessment. At the time, tax increases in the face of recession were not crazy. There were naysayers, especially among a new breed of economists. But the law itself represented a triumph of bipartisan cooperation and legislative civility (after a fashion).

Likewise, the tax cuts of 1981 and the tax reform of 1986 were major bipartisan achievements -- markers for what might be achieved in the face of division and dissent. In retrospect, some might judge the tax cuts too big or the reform too compromised. But viewed in the context of their times, they were reasonable responses to national circumstances.

We could do worse.


1 Quinnipiac University poll, Sept. 2012. Retrieved November 14, 2012, from the iPOLL Databank, the Roper Center for Public Opinion Research, University of Connecticut.

2 United Technologies/National Journal congressional connection poll, Apr. 2012. Retrieved November 14, 2012, from the iPOLL Databank.

3 NBC News/Wall Street Journal poll, Nov. 2010. Retrieved November 14, 2012, from the iPOLL Databank.

4 Quoted in David R. Mayhew, Divided We Govern: Party Control, Lawmaking, and Investigations, 1946-2002, 2nd ed., New Haven: Yale University Press, 2005.

5 Id. Mayhew is actually quoting here a formulation from James L. Sundquist, "Needed: A Political Theory for the New Era of Coalition Government in the United States," Political Science Quarterly (Winter 1988-1989), p. 614.