Reagan's Taxes and Deficit Spending
08 August 2017 | Pago Pago, American Samoa
On matters economic, where everyone is now an expert, conservatives are the dumbest and most dishonest of the lot.They fly their claims most ingloriously over Reaganomics and what they contend caused the boom during his tenure.
They claim straight facedly that Reagan tax cuts caused that boom, but they are simply and provably wrong. I have heard it so many times -- and I heard but again today -- that I need to set the record straight. What I heard today was this:
"Thoughtful, pragmatic people will tend to value real world outcomes over the theories of various persons in the field of social sciences such as economics. They'll note, for instance, that the sizable JFK and RR tax cuts were followed by solid economic growth figures. . ."
That is a lie by clear implication, but less onerous that what is sometimes heard on the matter from conservatives. The truth is different, especially among economists who tend to be the thoughtful and pragmatic people here, and those who know how to analyze such things. Here is the truth of the matter.
Reagan gave us unprecedented amount of government debt. Reagan tripled the gross federal debt, from $900 billion to $2.7 trillion. The deficit was nearly as large, approaching $3 trillion. It was the largest Keynesian stimulus in US history. Not even the Obama stimulus for the Great Recession was so great, a mere $0.8 trillion. The result was the economy took off coming out of the '81 recession and boomed for a decade.
Reagan's tax cuts had nothing to do with it. Here is why.
If we look at government revenues as a percentage of "national income," we find little change during Reagan's tenure from the Carter days, despite heralded "tax cuts." In 1980, revenues were 25.1% of "national income." In the first quarter of 1988 they were 24.7%.
Reagan came into office spouting supply side economics and the conservative agenda, including a proposed big cut in personal income and business taxes. The Economic Recovery Act was supposed to reduce revenues by $749 billion over five years. But this was quickly reversed with the Tax Equity and Fiscal Responsibility Act of 1982. TEFRA—the largest tax increase in American history—was designed to raise $214.1 billion over five years, and took back many of the business tax savings enacted the year before.
But this was just the beginning. In 1982 Reagan supported a five-cent-per-gallon gasoline tax and higher taxes on the trucking industry. Total increase: $27.5 billion over five years. In 1983, on the recommendation of his Social Security Commission— chaired by the man he later made Fed chairman, Alan Greenspan—Reagan called for, and received, Social Security tax increases of $165 billion over seven years. A year later came Reagan's Deficit Reduction Act to raise $50 billion.
Even the heralded Tax Reform Act of 1986 is more deception than substance. It shifted $120 billion over five years from visible personal income taxes to hidden business taxes. It lowered the rates, but it also repealed or reduced many deductions.
According to the Treasury Department, the Reagan big 1981 tax cut reduced revenues by $1.48 trillion by the end of fiscal 1989. But Reagan's tax increases since that cut and soon after it increased revenues by $1.5 trillion by 1989. Virtually a wash and involving many of the very same taxes, too.
Taxes cuts had next to nothing to do with the boom during the Reagan years and after. It was the huge and continuing Keynesian stimulus of approaching a $3 trillion dollar deficit over Reagan's tenure that did it and several economic studies agree. Reagan talked conservative principles and supply side economics to the public but acted like a Keynesian through and through. Trump has no lies to match these by Reagan.