Six Months to Go Until The Largest Tax Hikes in History

Total federal revenues doubled from just over $517 billion in 1980 to more than $1 trillion in 1990. In constant inflation-adjusted dollars, this was a 28 percent increase in revenue.

As a percentage of the gross domestic product (GDP), federal revenues declined only slightly from 18.9 percent in 1980 to 18 percent in 1990.

Revenues from individual income taxes climbed from just over $244 billion in 1980 to nearly $467 billion in 1990.5 In inflation-adjusted dollars, this amounts to a 25 percent increase.

Federal spending more than doubled, growing from almost $591 billion in 1980 to $1.25 trillion in 1990. In constant inflation-adjusted dollars, this was an increase of 35.8 percent.

As a percentage of GDP, federal expenditures grew slightly from 21.6 percent in 1980 to 21.8 percent in 1990.

Contrary to popular myth, while inflation-adjusted defense spending increased by 50 percent between 1980 and 1989, it was curtailed when the Cold War ended and fell by 15 percent between 1989 and 1993. However, means-tested entitlements, which do not include Social Security or Medicare, rose by over 102 percent between 1980 and 1993, and they have continued climbing ever since.

Total spending on all national security programs never equaled domestic spending, even when Social Security, Medicare, and net interest are excluded from domestic totals. In addition, national security spending fell during the Administration of the senior President Bush, while domestic spending increased in both mandatory and discretionary accounts.

This economic boom lasted 92 months without a recession, from November 1982 to July 1990, the longest period of sustained growth during peacetime and the second-longest period of sustained growth in U.S. history. The growth in the economy lasted more than twice as long as the average period of expansions since World War II.

The American economy grew by about one-third in real inflation-adjusted terms. This was the equivalent of adding the entire economy of East and West Germany or two-thirds of Japan's economy to the U.S. economy.

From 1950 to 1973, real economic growth in the U.S. economy averaged 3.6 percent per year. From 1973 to 1982, it averaged only 1.6 percent. The Reagan economic boom restored the more usual growth rate as the economy averaged 3.5 percent in real growth from the beginning of 1983 to the end of 1990.

In 1991, after the Reagan rate cuts were well in place, the top 1 percent of taxpayers in income paid 25 percent of all income taxes; the top 5 percent paid 43 percent; and the bottom 50 percent paid only 5 percent.13 To suggest that this distribution is unfair because it is too easy on upper-income groups is nothing less than absurd.

The proportion of total income taxes paid by the top 1 percent rose sharply under President Reagan, from 18 percent in 1981 to 28 percent in 1988.

Average effective income tax rates were cut even more for lower-income groups than for higher-income groups. While the average effective tax rate for the top 1 percent fell by 30 percent between 1980 and 1992, and by 35 percent for the top 20 percent of income earners, it fell by 44 percent for the second-highest quintile, 46 percent for the middle quintile, 64 percent for the second-lowest quintile, and 263 percent for the bottom quintile.

These reductions for the lowest-income groups were so large because President Reagan doubled the personal exemption, increased the standard deduction, and tripled the earned income tax credit (EITC), which provides net cash for single-parent families with children at the lowest income levels. These changes eliminated income tax liability altogether for over 4 million lower-income families.

Critics often add in the Social Security payroll tax and argue that the total federal tax burden shifted more to lower-income groups and away from upper-income groups; but President Reagan's changes were in the income tax, not in the Social Security payroll tax. The payroll tax was imposed by proponents of big government over the past 50 years, and it is they, not Ronald Reagan, who should be held accountable for its distributional effects.

Nevertheless, even if one counts the Social Security payroll tax, the share of total federal taxes increased between 1980 and 1989 for the following groups:

For the top 1 percent of taxpayers, from 12.9 percent in 1980 to 15.4 percent in 1989;

For the top 5 percent of taxpayers, from 27.3 percent in 1980 to 30.4 percent in 1989; and

For the top 20 percent of taxpayers, from 56.1 percent in 1980 to 58.6 percent in 1989.

On the other hand, the share of total federal taxes, if one includes the Social Security payroll tax, declined for four groups:

For the second-highest 20 percent of taxpayers, from 22.2 percent in 1980 to 20.8 percent in 1989;

For the middle 20 percent of taxpayers, from 13.2 percent in 1980 to 12.5 percent in 1989;

For the second-lowest 20 percent of taxpayers, from 6.9 percent in 1980 to 6.4 percent in 1989; and

For the lowest 20 percent of taxpayers, from 1.6 percent in 1980 to 1.5 percent in 1989.

Supply-Side Tax Cuts and the Truth about the Reagan Economic Record

William A. Niskanen and Stephen Moore
October 22, 1996

Bob Dole's proposal for a 15 percent income tax cut has reignited the long-standing debate about the economic impact of Reaganomics in the 1980s. This study assesses the Reagan supply-side policies by comparing the nation's economic performance in the Reagan years (1981-89) with its performance in the immediately preceding Ford-Carter years (1974-81) and in the Bush-Clinton years that followed (1989-95).

On 8 of the 10 key economic variables examined, the American economy performed better during the Reagan years than during the pre- and post-Reagan years.

* Real economic growth averaged 3.2 percent during the Reagan years versus 2.8 percent during the Ford-Carter years and 2.1 percent during the Bush-Clinton years.

* Real median family income grew by $4,000 during the Reagan period after experiencing no growth in the pre-Reagan years; it experienced a loss of almost $1,500 in the post-Reagan years.

* Interest rates, inflation, and unemployment fell faster under Reagan than they did immediately before or after his presidency.

* The only economic variable that was worse in the Reagan period than in both the pre- and post-Reagan years was the savings rate, which fell rapidly in the 1980s. The productivity rate was higher in the pre-Reagan years but much lower in the post-Reagan years.

This study also exposes 12 fables of Reaganomics, such as that the rich got richer and the poor got poorer, the Reagan tax cuts caused the deficit to explode, and Bill Clinton's economic record has been better than Reagan's.

William A. Niskanen is chairman and Stephen Moore is director of fiscal policy studies at the Cato Institute

TexasBlue wrote:You can't forget the failed stimulus bill. A lot of money went to places it had no business going to.

As for business, i agree except the part of them not paying their fair share. Corporate tax is passed onto the consumer. Make it higher and we pay more. Maybe if the looters in Washington would lower the corporate tax rate, you'd see some of those jobs come back. Maybe we'd see a reduction in the price of goods.

TexasBlue wrote:Get real. The corporate taxes here high.

American businesses pay from 35% to 41.6% of their income in combined state and federal taxes! The 41.6% maximum rate is scheduled to rise to 46.2% in 2010 when Obama's promised tax increases are implemented.

The_Amber_Spyglass wrote:How else would you suggest your enormous deficit ought to be cut? We are facing the same problems here and at the moment, most people aren't grumbling too much about public service cuts and tax increases because they are being realistic.

i_luv_miley wrote:I totally agree that the stimulus was mishandled. There was no accountability for where the money went! And that's really at the crux of my point - greed. When money is involved, there should always be accountability. But at the same time, I do agree with the bailout. Our economy was already in the tank (caused by years of mismanagement, lack of oversight, greed, etc) and something drastic had to be done. But no, Obama's handling of the bailout wasn't an improvement over what Bush had been allowed to do. But the bailout itself probably saved our economy from completely collapsing... So when I hear the "right" calling Obama a socialist, I just have to laugh (and scream). The man is big business all the way - just like Bush, Clinton, Bush, Reagan were. IMO, the de-regulations during the Reagan years are what began the process of the economic collapse that we see today. And the outsourcing of all our jobs during the Dubya years only made things worse.

BubbleBliss wrote:That may have been the reason they left, but think about it.

Why would they pay John Miller $8 an hour if they could pay Jose Sanchez $3 a day? That's a HUGE profit gain, especially with NAFTA. But even without NAFTA the import costs, transportation costs, relocation costs, etc. are NOTHING compared to the millions of dollars they'd save in salaries ever year. Not to mention the fact that in developing countries, there are no safety regulations and other such things.

Outsourcing is going to happen no matter what.

BubbleBliss wrote:So what? What you've been telling me has nothing to do with the subject at hand. I said that corporations would never move manufacturing back to the US because they'll always get a better deal offshore and now you're telling me about who benefits from corporate tax, even though it has nothing to do with it.

BubbleBliss wrote:
And I've told you that they make a much bigger profit abroad, so why would they move back?