We are non-commercial, all volunteer and supported by our readers. Please help sustain the Dew by making a donation.
It's the Economy, Stupid
Tax Cuts Do Not Equal Increased Revenue
Let me begin this column by apologizing to my readers. Normally, in an opinion column the writer presents the highlights of an issue without needing to present, in detail, the facts underlying the issue being discussed. However, this column is going to go back and demonstrate that my opinions do not come from either pure ignorance or deceit but, instead, are informed by creditable sources. In this case, my figures are coming from the Congressional Budget Office (CBO); Office of Management and Budget (OMB). The apology is because of the data-laden presentation that may put some people to sleep. The issue being discussed is the relationship between tax cuts, deficits, and revenue.
The benchmark that will be used is a percentage of the gross domestic product (GDP). This allows one to compare relevant figures, such as revenue and spending, in relation to the overall growth of the economy and allows for apples to apples comparisons. Since Reagan lowered taxes and Clinton raised them on the top 2%, I will use these two Presidents to illustrate my points
The claim was made that Reagan tax cuts almost doubled federal revenue over the following decade. When Reagan took office in 1980, individual tax revenue stood at 9% of GDP. That fell to 8% by 1988 when he left office. Corporate tax revenue fell from 2.4% of GDP to 1.9% during the same period. Total revenues for the government fell from 19% to 18.2% of GDP. Even though GDP grew from almost $3 to $5 trillion, government debt grew from 26.1% of GDP to 41%. What actually happened was that federal debt almost doubled, not revenue. The moral of this story: A thriving economy plus tax cuts equals less revenue and increased debt.
On the other hand, Clinton raised taxes on the top 2% of the population. In 1992, individual tax revenues were 7.6% of GDP and grew to 10.2% by 2000. For corporations, it was 1.6% and 2.1% respectively. Total revenues grew from 17.5% of GDP to 20.6%. GDP grew from $6 to almost $10 trillion but total government debt dropped from 48.1% of GDP to 34.7%. Taxes went up, revenue went up, and national debt went down. A thriving economy plus tax increases equals more revenue and less debt.
Revenue is one side of the coin, spending is the other. So how do these Presidents stack up on the spending side of the equation? The charge was made that spending tripled under Reagan because of the Democrats. At first blush, you must wonder if they held a gun to Reagan’s head to force him to sign all of that spending legislation. But what do the facts tell us? Did spending increases cancel the effect of Reagan’s tax cuts? Well, discretionary spending dropped from 10.1% of GDP to 9.3% under Reagan and from 8.6% to 6.3% under Clinton. Mandatory spending dropped from 10.7% of GDP to 10.1% under Reagan and from 11.5% to 10.5% under Clinton. Total spending dropped from 21.7% of GDP to 21.3% under Reagan and from 22.1% to 18.2% under Clinton. In other words, total spending dropped under both Presidents but only under Clinton did tax increases on the top 2% produce enough revenue to reduce the national debt — significantly.
Under both Presidents there was a thriving economy as measured by GDP growth. Both Presidents reduced both discretionary and mandatory spending. One cut taxes and one raised them. One President almost doubled the national debt and one actually reduced it. One President proved that tax cuts along with spending cuts do not reduce the debt. Conservatives can continue to spout the tax cut equals increased revenue manta all they want but they lack an understanding of economic reality. They can continue to beat the drum that tax cuts coupled with reduced spending will reduce the debt but economic history is not on their side. Chambliss (R-GA) and Ryan (R-WI) are beating this drum right now. Beware.
Worthy of Comment
Also on the Dew
My friend Tom says most, if not all, great writers are fractured individuals. I hope he’s wrong about that; I’ve always been a happy, well-adjusted guy. I plan to achieve Great Writer status one day and would hate to think lack of a tortured soul, along with precious little talent, will prevent such dreams. The only thing even remotely dark about me is my middle name. If I had been a girl, none of this would have happened. I would have been Betty Louise. At least that’s what my mother said. The Mike part of my name originated with an old Army Read on →
In her autobiography A Backward Glance (1934), Edith Wharton wrote: “In spite of illness, in spite even of the archenemy sorrow, one can remain alive long past the usual date of disintegration if one is unafraid of change, insatiable in intellectual curiosity, interested in big things, and happy in small ways.” I like that concept which I stumbled upon this morning in a delightful newsletter called Dr. Mardy’s Quotes of the Week — Jan 18-24, 2015. Wharton was a great stylist of the late nineteenth and early twentieth century whose books on the conflicts between societal mores and the pursuit of happiness are sti Read on →
Have you noticed the changes that are taking place at funerals these days? There are several ways that the funerals are not what they once were. The first I noticed it was about 15 years ago, when I was at a graveside funeral for a former boss of mine at Riverside Cemetery in Macon. I arrived just as the service began. The funeral home had set perhaps 50 chairs about, and the minister had just started the service. At first, I didn't realize it. But soon I found that there was no casket present. This may have been the first funeral that I Read on →
"It makes no sense to invest in companies that undermine our future. To serve as custodians of creation is not an empty title; it requires that we act, and with all the urgency this dire situation demands." -- Desmond Tutu The climate battle is heating up. At a January 16 press conference, NASA and NOAA (The National Oceanic and Atmospheric Administration) jointly released independent analyses that confirm 2014 as the hottest year on record. Last year broke records set previously in 1998, 2005 and 2010. Except for 1998, the 10 hottest years have all occurred since 2000. The press release followed a week Read on →