Income Tax Receipts: Even income tax revenues grew substantially in the 1980s. In 1981 income tax receipts totaled $347 billion; in 1989 they totaled $549 billion, a 58 percent increase. In fact, income tax collections grew only slightly slower in the 1980s than in the 1990s despite income tax rate reductions in the Reagan years and increases in the Bush-Clinton years. Real income tax revenues rose by 16.3 percent from 1982 to 1989 after the top income tax rate had been reduced from 70 percent to 50 percent in 1983, and then to 28 percent in 1986. According to the latest (August 1996) Congressional Budget Office (CBO) forecast, real income tax revenues will have grown by 17.9 percent from 1990 to 1997, following the raising of the top income tax rate from 28 percent to 31 percent in 1990 and then to 39.6 percent in 1993. [19] On a purely static basis, the 1990 tax increase raised $380 billion less in income tax revenues from 1991 to 1995 than had been predicted. [20]
Fable 6: The 1980s Expansion Was a Classic Keynesian Economic Recovery Driven by the Stimulative Effects of High Deficits
Reagan's economic program actually amounted to the longest and most successful Keynesian recovery the world has yet seen. [39]
If the 1980s expansion had been a classic, demand-driven Keynesian recovery, nominal demand should have grown rapidly in the 1980s. However, as Figure 9 shows, over the course of the 1980s the rate of nominal demand growth fell.
The Keynesian explanation of the economic recovery in the 1980s is also fundamentally inconsistent with the sharp fall in inflation throughout that decade. If the recovery had been driven by a hike in the demand for goods and services rather than by a supply-side effect of greater output, inflation would have risen rather than fallen. But it did fall. This is why the near-universal predictions by Reagan's opponents from 1979 to 1981 of higher inflation from tax cuts proved to be entirely misguided.
Finally, if budget deficits are highly stimulative, the post-Reagan period of 1990-95 should have produced strong economic growth. The budget deficits of that period were very nearly of the same magnitude as the deficits of 1982-89 (4.2 percent of GDP versus 3.9 percent of GDP); in the 1980s, however, we had rapid growth and in the 1990s we have had anemic growth. The answer seems to be the supply-side effects of tax and regulatory reductions in the 1980s versus the tax hikes and reregulation in the 1990s.
cato.org
I'll have to get back to you on deregulation. I am leaving to do an errand soon....... |
