Information Please... Peter...? Anyone...?
Andrew Klavan ·
Mar 1, 2011 at 12:38pm
So I was just on the phone with the booker for a lefty TV show who was asking me my opinions on this and also that. And when I said that Ronald Reagan's tax cuts had helped America grow, she countered that Reagan hadn't really cut taxes but had taken away with one hand what he had given with the other. I have heard this argument before and given the immensity of the Reagan cut in tax rates, I find it hard to believe. But knowing how figures can be jiggered, I was wondering if anyone has an authoritative answer. Did Reagan cut taxes overall or not?
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Jul '10
Re: Information Please... Peter...? Anyone...?
Sounds like a liberal filter on the fact that his tax cuts increased revenues.
Dec '10
Re: Information Please... Peter...? Anyone...?
1981: tax cut.
1982: tax hike and (Congress-promised, never achieved) spending cuts.
1986: more tax cuts.
Net: greater tax revenues, more tax relief for the middle class.
Jun '10
Re: Information Please... Peter...? Anyone...?
We also need to thank Reagan for the 20 years that we didn't have to spend a fortune, in both arms and manpower, fighting the Cold War. Imagine having to fight the Cold War AND international terrorism at the same time.
As for the basics:
Conclusion: No matter how advocates of big government try to rewrite history, Ronald Reagan's record of fiscal responsibility continues to stand as the most successful economic policy of the 20th century. His tax reforms triggered an economic expansion that continues to this day [3/1/2001]. His investments in national security ended the Cold War and made possible the subsequent defense spending reductions that are largely responsible for the current federal surpluses. His efforts to restrain the expansion of federal government helped to limit the growth of domestic spending. If Reagan's critics had been willing to work with him to limit domestic spending even further and to control the growth of entitlements, the budget would have been balanced five to ten years sooner and without the massive tax increase imposed in 1993.
From: http://www.heritage.org/research/reports/2001/03/the-real-reagan-economic-record
Edited on Mar 1, 2011 at 1:20pmDec '10
Re: Information Please... Peter...? Anyone...?
"If Reagan's critics had been willing to work with him to limit domestic spending even further and to control the growth of entitlements, the budget would have been balanced five to ten years sooner and without the massive tax increase imposed in 1993."
Hoist with his own petard. The success of tax cuts in growing the economy led to higher tax revenues, which took pressure off the Democrats in Congress to impose actual spending cuts.
Think how much better off we are now: the recession is driving tax revenues down as the deficit looms ever larger, creating massive political pressure for spending cuts. Not that the Democrats won't try to resist that pressure with every fiber of their being.
Re: Information Please... Peter...? Anyone...?
Stay away from hookers connected with lefty TV shows.
May '10
Re: Information Please... Peter...? Anyone...?
Was that change intentional or not?
Either way, I'd agree.
May '10
Re: Information Please... Peter...? Anyone...?
David Stockman, who served as Reagan's director of the OMB (1981-85), disagrees with the prevailing narrative coming out of places like ATR and Heritage Foundation. Reagan, he says, was a pragmatist who raised taxes when he had to. Of the talking points from Grover Norquist, Stockman says: "I wouldn't call it merely airbrushing. I would call it outright revisionism if not fabrication of history." Stockman also says the notion that tax cuts will enable the economy to grow fast enough to pay off the deficit is a delusion.
Oct '10
Re: Information Please... Peter...? Anyone...?
Most of the tax cuts were lowering marginal rates; I'm not sure how much real revenue reduction was done.
Sky-high marginal rates can kill the economy (I once sketched out a business plan, and marginal tax rates made it seem impossible to pay any decent wages. They don't just discourage the rich, you know). It actually has nothing to do with how much people really end up paying.
Oct '10
Re: Information Please... Peter...? Anyone...?
I'm not implying no revenue reduction happened, I just don't know how much.
May '10
Re: Information Please... Peter...? Anyone...?
Bruce Bartlett lays out the math here. Reagan cut taxes to the tune of $275 billion over 8 years, but raised taxes 11 times for a cumulative increase of $133 billion. In other words, a net result of $142 billion in cuts for 8 years.
Hardly the messianic tax-cutting crusader of right-wing lore.
Jan '11
Re: Information Please... Peter...? Anyone...?
It's not a question of revenue numbers. If that were the case the economic advisor to the finance minister of Iceland would be correct when he says that because tax revenues have fallen no tax increases have taken place (almost every single tax rate has risen in the last two years and a myriad of new taxes have been imposed - slowing economic activity and more unemployment have led to lower revenues).
Re. Reagan - I speak from a place of massive ignorance, but from what I've read is that while he may not have lowered taxes overall very much, he lowered them where they most mattered - marginal income taxes being the most important as others have mentioned. Some taxes have more economic impact than others and few things are more likely to induce economic lethargy than high marginal income tax rates, be they for personal or corporate income.
Sep '10
Re: Information Please... Peter...? Anyone...?
This is a little off topic, but my wife was at the post office today and bought some Reagan stamps. When she asked for them the woman behind the counter said, "Really? I don't know anyone who liked him."
My wife replied, " I don't know anyone who didn't like him."
The USPS lady seemed rather uncomfortable after that so the net impact of tax cuts never came up.
Jan '11
Re: Information Please... Peter...? Anyone...?
I don't know much about history, but I do know Jack about economics. Jack Kemp, that is. He was the author of Reaganomics and his was a philosophy of fiscal responsibility coupled with low taxes to bring about higher tax revenue. The low taxes happened. So did the higher tax revenue. The fiscal responsibility? Not so much. Which leads us to Paul Ryan who was mentored by Jack Kemp. Seems like we have the potential to repeat history...if we can just find a president with even half the heart and half the brains of Ronald Reagan and can match him this time with a fiscally hawkish Congress.
Ronald Reagan. Jack Kemp. Big sigh. I just made myself feel homesick.
Edited on Mar 1, 2011 at 5:09pmJan '11
Re: Information Please... Peter...? Anyone...?
How about we do some research? Let's look at two sets of eight years of data:
~~~~~~~
x1: GDP = $6,000 ; Fed spending = $1,300 ; Revenue = $1,950 ; Nat'l debt = $2,600
x2: GDP = $7,900 ; Fed spending = $1,650 ; Revenue = $2,600 ; Nat'l debt = $5,300
~~~~~~~
y1: GDP = $4,900 ; Fed spending = $850 ; Revenue = $1,450 ; Nat'l debt = $2,300
y2: GDP = $6,000 ; Fed spending = $1,250 ; Revenue = $1,950 ; Nat'l debt = $2,600
~~~~~~~
Which set of numbers would you rather be responsible for?
*These numbers come from usgovernmentspending.com and usgovernmentrevenue.com. Numbers are in $billions 2005.
Jan '11
Re: Information Please... Peter...? Anyone...?
Continued from post #14:
In the first set (x), GDP increased 33%, spending increased about 25%, Revenues increased by 25% and the Debt increased 100%.
In the second set (y), GDP increased 20%, spending increased 50%, Revenues increased 33%, and the Debt increased about 15%.
I hope you guys are sitting down. Set x is 1981 to 1989, the reign of our beloved Ronald Reagan. Set y is 1973 to 1980, the reign of the Great Trifecta (Nixon, Ford, Carter).
It looks like Reagan did get the economy rolling at a much better clip, 50% increase in rate of GDP growth. But the eye opener here should be the Revenue question. There was no increase in the rate of revenue collection between Reagan and The Trifecta. In fact, revenue growth was negative by about 25% (sorry, guys). And the debt tradeoff I won't even talk about.
This analysis isn't perfect, but it's a pretty good place to start analyzing the economic policies of the day.
Oct '10
Re: Information Please... Peter...? Anyone...?
fullfrontal:
It looks like Reagan did get the economy rolling at a much better clip, 50% increase in rate of GDP growth. But the eye opener here should be the Revenue question. There was no increase in the rate of revenue collection between Reagan and The Trifecta. In fact, revenue growth was negative by about 25% (sorry, guys). And the debt tradeoff I won't even talk about.
This analysis isn't perfect, but it's a pretty good place to start analyzing the economic policies of the day. · Mar 1 at 5:40pm
Well, Reagan used defense spending to amp up productivity growth, while simultaneously driving the Soviet Union into collapse from the resulting arms race. A very effective strategy at the time, though it's run out of steam in recent years (there are limits to the productivity gains you can wring from defense spending; it inevitably slides into crony capitalism).
To cut inflation, you hike interest rates while increasing the government deficit; this prevents a depression, and gives a huge boost to growth once the anti-inflationary recession ends. That made a lot of sense in the 80s; not so much today.
Jan '11
Re: Information Please... Peter...? Anyone...?
Joseph, I don't see how defense makes your economy more productive, nor do I understand the diminishing returns on those productivity gains. I also don't believe that the USSR was in good shape until Reagan bankrupted them by building bombs and researching laser satellites. I don't think it mattered what we did, we weren't going to beat them militarily. Reagan himself acknowledged this in his diary.
Inflation is a monetary phenomenon, so adjusting the monetary supply is what you do to control it. It should work as well today as it did then.
But the point of my post was to validate the idea that the Reagan cuts increased revenues. I found no evidence that it did, at least during his administration. I understand that it's going to take time, but there seems to be no reliable way to measure the relationship between cutting taxes and increasing revenues. Too many moving parts.
Sep '10
Re: Information Please... Peter...? Anyone...?
Your question intrigued me and I spent a little time crunching numbers to no end. Then from the world wide web (perhaps you've heard of it) I found this.
The source attributed was the OMB from the 1990 Budget.
Legislated Tax Changes by Ronald Reagan as of 1988
So net tax cutter but it is complicated.
Oct '10
Re: Information Please... Peter...? Anyone...?
fullfrontal:
Inflation is a monetary phenomenon, so adjusting the monetary supply is what you do to control it. It should work as well today as it did then.
Inflation has three causes: domestic credit, foreign borrowing, and commodity prices. "Adjusting the money supply" is dangerously simplistic. Some types of inflation require money manipulation, while others are more effectively handled through fiscal tightening (back when that was on the table, at least).
The interest rate is what controls inflation. Basically, you want everything to be consumed that is produced, as high a share as possible by business investors. Central banks (try to) accomplish this by tweaking short-term interest rates. The money supply (by itself) has much less of an effect then you would think.
[edit: I forgot to explain how fiscal policy fits into this. the budget deficit (usually) has more influence over long-term rates then monetary policy. so if you want to, say, lower mortgage rates, one way is to tighten fiscal policy. the exception is deflationary periods, like 2001 or 2008-2010. central banks cannot sustainably lower long-term rates; fiscal policy can]
Edited on Mar 6, 2011 at 10:31pm