Monday, June 07, 2004

The Myth of the Reagan Tax Cuts

I don't have the official figures in front of me. But I would take a very good guess that revenues in 1989 were much higher than in 1981, even with tax cuts. So should we blame the massive deficits on the tax cuts? That doesn't make sense if you understand math. Shouldn't you blame excessive spending instead for deficits. Of course.

So you want to blame military spending? Well, you can. Cold War issues aside. I would blame excessive domestic spending. Reagan had his priorities. And he made a deal with the Democratic Congress. Give me a military and I'll give you a lot of what you want domestically.

A balanced budget would have to wait for Newt.

That might be because in between 81 and 89, Reagan raised taxes. The highest tax increase in history at the time.

I'm not sure how big that increase was, but I would guess that the marginal rates were still much lower. The "biggest tax increase in history" stuff is usually a true lie. In 1993 it was used against Clinton. Marginal rates were increased, but let's be honest. Clinton's increase wasn't huge in percentage terms. Real dollars, probably. And I'm not minimizing the impact that would have. The same canard was used against Bush's tax decreases. Using absolute dollars is a poor way of judging tax cut/increases. In 2309, a minimal increase would be the biggest in history for the time. JFK's decrease of the top rate from 90 percent to 70 percent was significant in terms of percentage, but Bush's most recent cut gets the biggest title. That's why I like viewing the rates instead of the total amount.
Well, okay, let's use rates then. GDP has grown with almost every President since the turn of the 20th century. So the fact that tax revenues were greater in 89 than in 81 is like saying the sun was brighter at noon than at 7 pm.

There are two questions then, I would ask:

First, did the rate of revenue increase match or exceed GDP? Second dit the rate of revenue increase match or exceed the rate of inflation?

Of course, the real problem with your argument is that you're saying because revenue increased, the tax cuts didn't cause the deficits. The problem is, deficits are the governmental equivalent of profit. You can increase your revenues all you want. If you increase your spending at an equal or greater rate, you're not increasing profits. I'll concede that tax revenues were higher in 81 than in 89. I'll concede it because you'll find that to be the case during most 8 years spans in the past 100 years. However, the problem is that spending increased at a much higher rate, leading to massive deficits.

People always talk about tax and spend liberals, but what do you call two of the last three Republican administrations who cut taxes and increase spending. Can you really say that this is a better strategy?

I'm not happy with the Bush administration's excessive spending. Clinton, God bless him, found a lot of success supporting conservative programs with a Republican congress. Working and butting heads with the Republican Congress, and not the 1993 stuff, balanced the budget in the 90's. Clinton's early 1995 plan (I actually remember this) never had the budget being balanced. And you can't discuss deficits in the 80's without mentioning the Democratic Congress which was in charge.
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