You are right about Bush. I failed to think through the revision of the dates of the recession. I apologize.
In constant dollars, there was a dip in federal receipts during the recession, then a return to normal. There was somewhere around 80 billion dollars in annual increase for a few years, give or take 10 billion, until '98, when receipts jumped to over 100 billion.
taxpolicycenter.org
But I was more referring to the take off in GDP growth, not receipts. Here is a comment on Clinton's record as of '95:
The growth rate under Clinton has been 2.7 percent, half a percent below the 3.2 percent growth rate under Reagan and a full percentage point below the 3.8 percent growth rate during the 1983-89 expansion. Standard government forecasts predict a 2-2.5 percent growth rate through the end of the decade. Yet, if even the high end of that forecast proves to be accurate, the 1990s will be the lowest economic growth decade since the Great Depression and the second lowest in the 20th century.
cato.org
As for Reagan, here is one take on it:
Fable 2: The Reagan Tax Cuts "Caused" the Budget Deficit to Explode in the 1980s
Fifteen years ago, marginal tax rates and the progressivity of the tax system were dramatically reduced. Some suggested that these policies would so spur economic growth that tax revenue would actually increase. The outcome of that experiment is now a matter of record: not only did this response not occur, but the national debt quadrupled in the span of a dozen years. [25]
This is the most common and overly simplistic interpretation of the budgetary events of the 1980s. Further, it is factually untrue that the Reagan tax cuts were a major cause of the budget deficits of the 1980s and the "quadrupling" of the debt. (In the 1980s the real debt doubled; it did not quadruple.) Real federal revenues grew at a faster pace after the Reagan tax cuts than after the Bush and Clinton tax hikes. From 1982 to 1989, they expanded by 24.1 percent. Over a comparable seven-year period, 1990-97, a period that accounts for both the Bush and the Clinton tax increases, real federal revenues will have grown by 19.3 percent (see Table 5). The lesson of the 1980s and 1990s is consistent with the supply-side theory that there are behavioral and investment responses to changes in tax rates.
Figure 8 shows that, as a share of GDP, federal revenues fell from 20.2 percent in 1981 (the peak year for taxes as a share of GDP in the post-World War II period) to a low of 18.0 percent of GDP in 1984, and rose back up to 19.2 percent by 1989. This would suggest that the Reagan tax cuts were a small contributing factor to the increase in the budget deficit over the course of the 1980s. From 1950 to 1995, federal receipts have averaged 18.4 percent of GDP. Hence, throughout most of the Reagan years and clearly by the end, taxes as a share of national output were substantially above the postwar average.
If the Reagan tax cut was not the major contributing factor to the increasing deficit in the 1980s, what was? There were two primary explanations: (1) a large and sustained defense build-up; and (2) the unexpected rapid decline in inflation and the recession in the early 1980s.
The Defense Buildup and the Deficit. Table 6 shows that the cumulative increase in defense spending from 1981 to 1989 ($806 billion) was larger than the entire cumulative increase in the budget deficit ($779 billion) in those years. That is, if defense spending had been held to the rate of inflation from 1981 to 1989, the total real deficit would have fallen in the 1980s rather than risen. It is also true that the decline in the military budget accounts for almost the entire fall in the deficit from 1988 to 1996. [26]
cato.org
The issue is not predominantly aggregate tax revenues. For xupply- siders, the main issue was marginal tax rates, which, incidentally, remained historically low under Clinton, despite a slight bump up. Also, supply siders do not object to the elimination of tax preferences, for the most part, since they distort investment decision. Of course, the reduction of loopholes was a major means of revenue enhancement during the Reagan Administration.
In constant dollars, receipts fell sharply for one year. By '84, they had rebounded sharply, and steadily increased thereafter. The thing that I am puzzling over is how Reagan could be the irresponsible tax cutter, responsible for all these deficits, and the Big Taxer. Either he lowered taxes, net, or raised them, net. Now, given supply side theory, it is possible that growth and therefore receipts would have greater if he had not been forced to sign some tax hikes. But the main thing is that receipts were on the rise, as predicted by the supply siders, even after the principal cut. |
