When Reagan Raised Taxes

[Frankie117]

Inflation adjusted revenue rose by 40% between 1983 and 1989 vs. the comparable period from 1975-1981 where revenue rose by 32%. An 8% increase after a 25% across the board cut.

Reagan was not the first president to cut taxes, either. Kennedy proposed an across the board tax cut in 1961 and brought it up again in 1963. Johnson took over the crusade and passed a 20% rate cut in early 1964. This one is easier to measure because it took effect immediately, whereas the 1981 cut was a 3 year plan.



During the 5 year period from 1960 to 1964, tax revenue rose a weak 10.3%. The economy was in a slight recession for half of 1960 and 1961, but was fully recovered by the end of 1961. During the comparable post-tax cut 5 year period from 1965-1969, tax revenue grew by 43.9%. So, under the reduced income tax rates, inflation adjusted income tax revenue increased 4 fold.

However, Johnson also enacted a temporary income tax surcharge to cover his Vietnam War deficits, hence the abnormally high years in 1969 and 1970. Even if we stop at 1968, the year before the surcharge, revenue grew by 18.6% from 1965, or 8.3% more than it did in the years prior under the significantly lower tax structure.

http://usgovernmentrevenue.com/downc...ocal=s#usgs302

[MTAtech]

Originally Posted by Frankie117

Inflation adjusted revenue rose by 40% between 1983 and 1989 vs. the comparable period from 1975-1981 where revenue rose by 32%. An 8% increase after a 25% across the board cut.
...
During the 5 year period from 1960 to 1964, tax revenue rose a weak 10.3%. The economy was in a slight recession for half of 1960 and 1961, but was fully recovered by the end of 1961. During the comparable post-tax cut 5 year period from 1965-1969, tax revenue grew by 43.9%. So, under the reduced income tax rates, inflation adjusted income tax revenue increased 4 fold.

Professor Krugman answers your question:

I couldn’t have asked for a better example of why it’s important to correct for both inflation and population growth, both of which tend to make revenues grow regardless of tax policy.

Actually, federal revenues rose 80 percent in dollar terms from 1980 to 1988. And numbers like that (sometimes they play with the dates [notice the 1983 and 1989 cherry picking?]) are thrown around by Reagan hagiographers all the time.

But real revenues per capita grew only 19 percent over the same period — better than the likely Bush performance, but still nothing exciting. In fact, it’s less than revenue growth in the period 1972-1980 (24 percent) and much less than the amazing 41 percent gain from 1992 to 2000.

Is it really possible that all the triumphant declarations that the Reagan tax cuts led to a revenue boom — declarations that you see in highly respectable places — are based on nothing but a failure to make the most elementary corrections for population growth? Yes, it is. I know we’re supposed to pretend that we’re having a serious discussion in this country; but the truth is that we aren’t.

Update: For the econowonks out there: business cycles are an issue here — revenue growth from trough to peak will look better than the reverse. Unfortunately, business cycles don’t correspond to administrations. But looking at revenue changes peak to peak is still revealing. So here’s the annual rate of growth of real revenue per capita over some cycles:

1973-1979: 2.7%
1979-1990: 1.8%
1990-2000: 3.2%
2000-2007 (probable peak): approximately zero

Do you see the revenue booms from the Reagan and Bush tax cuts? Me neither.