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
It's a phrase that just popped into my head out of the ether the other day. And, sure enough, Google has a handy reference in a book by a Scottish minister, David Gilkison Watt, who died in London in 1897, after having visited both India and St. Petersburg, Florida. Watt was a missionary, so it's perhaps not surprising that in his writing he promoted the wisdom he found in the Book of Ezekiel -- i.e. long before his time. I don't know if his "Homiletic Commentary on the Book of Ezekiel" was timely when he wrote it, but it sure Read on →
The tragic vehicular pile-up on Interstate 16 near Savannah where five Georgia Southern University nursing students were killed has shocked our state, and has caused concern on the national stage. It may even lead to new legislation regulating heavy transport rigs to push safer highways. The nursing students were driving from college in Statesboro to Savannah (roughly 55 miles) to continue their clinical “rotational” training in order to become nurses. Georgia Southern in the last few years has developed an accredited nursing program, which now counts 185 students, 76 in the RN-BSN program, and 78 graduate students. Each semester, another 50 stu Read on →
When my cellphone rings, the opening notes of The Thrill is Gone signal me. I will have to consider changing that now. The author and singer of that song has moved on to Rock and Roll Heaven. B. B. King died in his sleep Thursday after nearly a year in hospice. I can’t imagine anyone was surprised; death happens to us all and this one has been imminent for quite some time. But hearing him tell me the thrill is indeed gone might be more than I want to hear every time my phone rings. The first time I saw B. B Read on →
New York City was cold and uninviting when the Greyhound bus arrived late in the afternoon. It was two days before Easter and light snow had fallen leaving the streets wet and slippery. On Sunday, the Easter Parade down Fifth Avenue attracted a huge crowd and at night Times Square was alive with flashing neon signs and people celebrating. It was my first visit to the “Island of Many Hills” (Manhattan) and I had a lot to see. I rode the Circle Island cruise boat, took the elevator to the top of the Empire State Building, climbed the stairs into the Read on →