Republicans point to the back-to-back terms of President Ronald Reagan as a huge success for supply-side economics. Reagan received much applause from supply-siders because of his tax cuts for the rich, and big business, of course.
Yes, revenues did increase, but so did deficits – so much so that Reagan had to agree to tax increases in his second term The Tax Reform Act of 1986 – TRA86, PL 99-514.
Apparently Republicans are so anxious to shed a positive light on their party they seem to lose track of the facts on their path to glory.
The following excerpt from a WSJ article written by Stephen Moore is a prime example of Republican tunnel vision when it comes to supply-side economics.
"In the 1980s, President Ronald Reagan chopped the highest personal income tax rate from the confiscatory 70% rate that he inherited when he entered office to 28% when he left office and the resulting economic burst caused federal tax receipts to almost precisely double: from $517 billion to $1,032 billion."
Ronald Reagan signed The Economic Recovery Tax Act of 1981 (PL 97-34) into law on August 13, 1981. PL97-34 contained 300 tax provisions and took three years to implement. Tax laws are extremely complex and simply stating the highest personal income tax rate was cut from 70% to 28%, without listing the lowest and highest tax bracket or tax base, is somewhat misleading.
Stating federal tax receipts almost doubled from $517 billion to $1,032 is not accurate. As you can determine by a review of the following chart, Stephen Moore is using the beginning tax receipt number from 1980 and the ending tax receipt number from 1990, a 10-year period. You cannot use 10-year tax data for an 8-year term of office.
What is disturbing about the Moore article is he isn't some rookie reporter out on his first assignment. His bio states, "Mr. Moore is a member of The Wall Street Journal's editorial board and author of "Bullish on Bush: How the Ownership Society Will Make America Richer (Madison Books, 2004)."
Was the use of the wrong revenue numbers simply an error, or was it an intentional ploy to make supply-side economics look good? Maybe a question to Mr. Moore should be is he a fan of supply-side economics because he believes it works, or is he a fan of supply-side economics because the tax cuts implemented by Reagan applied directly to his pocketbook?
The fact of the matter is "Reaganomics" was a dismal failure for the country. Yes, revenues did increase by $474.1 billion dollars during the Reagan 8-year term of office, but each and every year resulted in a budget deficit and by the end of his 8-year term Ronald Reagan had increased the federal debt by almost $1.7 trillion dollars – 3.5 times the amount the revenues increased.
1790 was the first year the United States faced a debt – the total was $75 million dollars, which has grown considerably to the $9 trillion federal debt currently owed. From 1790 until now, there have only been two years in our history when the U.S. did not carry a debt - 1834 and 1835.
During this 200 plus period of years, the federal debt saw a high of 108.6 percent of GDP at the end of WWII, followed by a low of 23.8 percent of GDP in 1974.
Historically, the national debt has risen in periods of war when the costs of war have generally been financed by borrowing rather than raising taxes. The entire Reagan presidency was during peacetime so there was not any war cost involved.