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View Diary: The National Debt: Taxes and the Economic Lessons Even a Dummy Like I Have Learned (58 comments)

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  •  Um, a few facts wrong (13+ / 0-)
    What happened?  Well, one thing that happened was that the highest marginal tax rates dropped a bit.  Quite a bit.The top marginal income tax rate in 1980 was 70% on income over 108,000 for a single individual ($319,060.87 in 2010 dollars). The top marginal rate in 1984 was 50% for income over 81,800 for a single individual ($176,127.64 in 2010 dollars).  So, tax revenues declined relative to spending.

    Contrary to what you said, revenue to the federal government INCREASED over Reagan's term.  Historical data can be found here.  Despite the drop in top marginal rates from 1980 - 1989, revenue INCREASED.  

    Note especially the significant increase in 1987, 1988.  
    That's because of what Reagan Tax Reform -- including the Tax Reform Act of 1986 -- did.  Yes, it lowered top marginal rates (which are MEANINGLESS if you look at those alone) but it significantly eliminated exemptions/deductions/shelters (Passive activity losses, anyone?)  which resulted in a significant increase in revenue to the federal government AFTER those top marginal rates were lowered.  That's because (as Simpson Bowles and President Obama recognized) you can lower top marginal rates, close what they call "loopholes" and thereby increase revenue to the federal government.  

    The reason for deficits during the Reagan years is simple:  Although revenues increased, spending also increased (especially defense spending).  It was not

    Right now, we have BOTH a revenue and a spending problem.  Revenues as a % of GDP are low, and spending as a % of GDP is high.  We need to bring up revenues as a % of GDP and decrease spending as a % of GDP.  

    •  Reagan rolled back corporate and (12+ / 0-)

      individual income tax cuts as early as 1982 and raised the FICA tax in 1983.

      The result of his tax policy was to raise taxes on the middle class, particularly those with children whose federal taxes (income and FICA) went from 17.7% of their income to 18.4%

      You can't scare me, I'm sticking to the Union - Woody Guthrie

      by sewaneepat on Mon Aug 08, 2011 at 04:38:01 AM PDT

      [ Parent ]

    •  Uhh... (10+ / 0-)

      Did you also forget that after Reagan cut the top marginal tax rates on income, he then increased the regressive payroll tax rates?

      •  Uhh . . . Look at the facts. (2+ / 0-)
        Recommended by:
        bubbanomics, VClib

        Even if you look at individual income tax receipts alone,  Table 2.1 of this document,  individual income tax revenue in 1980 was about $244 billion.  In 1989, it was $445 billion.  (Corporate income tax receipts increased over that same period from $64 billion to about $103 billion.)

        I'll say it again, by lowering top marginal rates and eliminating deductions/exemptions/loopholes, Reagan INCREASED revenue from individual income taxes.  

        I'm old enough to remember that, by the way.  And I remember a lot of what I'll call the upper middle class, college educated working professionals (like my dad) ended up paying a whole lot more in income taxes after the Tax Reform Act of 1986 than he did in 1980.  

        •  I know all about.... (9+ / 0-)

          ....the claim that cutting the top tax rates on income are supposed to work some kind of special magic that causes more tax revenue to be generated, but it's no mystery and the reason for it is not good news.

          First of all, tax revenues increase in spite of lower tax rates only because total income has increased.

          The crucial part of the Supply-Side argument is that the cause of the increase in income is assumed to be due to the increase in disposable incomes of the wealthy, following their tax cuts, but there is no evidence to support this claim.

          What can be seen from reviewing the historical economic facts of that period is that government spending increased dramatically under Reagan, almost all of it financed by borrowed money.  Money spent is money earned by those it was spent on, and that earned money was taxed.

          So, money was borrowed to increase aggregate spending, and therefore national income, and tax revenues increase because of this.

          The lowering of the top marginal tax rate had nothing/little to do with the increase in national income (and therefore tax revenue).  If the top tax rates had remained in place, or even increased then even more tax revenue would have been generated, not less.

          The argument is spurious because it conveniently ignores other economic variables that accounted for the increase in aggregate spending.

          •  Right (7+ / 0-)

            Per this table (same site as linked above), in millions of current dollars:

            Total personal income, 1980: 1,642,346
            Total personal income, 1989: 3,280,931

            Total personal tax liability, 1980: 256,251 (eff rate 15.6%)
            Total personal tax liability, 1989: 451,873 (eff rate 13.8%)

            Total income increased by 100%; total tax increased by 76%.

          •  Increased spending? (0+ / 0-)

            One of the more neglected episodes of the Reagan presidency was his disastrous idea of deregulating the Savings and Loan industry without removing the insurance system that covers their losses and protects the deposits of the homeowners.

            The result was entirely predictable.  Any so-called Conservative can tell you about "moral hazard."  The S&L managers made the riskiest investments they could find, knowing that they would be able to skim off the returns if the investments paid off big, and stick the government for the bill if the investments went belly up.

            Which is exactly what they did, at a huge cost to the federal government and the economy.  Yes, there was still enough of a judicial system at the time to send a few S&L managers to jail, but the Republicans have spent the intervening 30 years taking care of that, which is why none of the crooks who caused the economic collapse and raid on Treasury this time around have even been asked to pay back the money they stole.

            In so many ways, Bush II was simply Reagan redux, only bigger, stupider, and more disastrous.

            And, as we have seen, the current campaign slogan of the Republicans, which is being accepted by the American people, is:  "Let's do the same thing again, only even worse."

            "... there is no humane way to rule people against their will." Naomi Klein, The Shock Doctrine

            by Noziglia on Tue Aug 09, 2011 at 04:30:22 AM PDT

            [ Parent ]

        •  Looking at those dollar amounts... (2+ / 0-)
          Recommended by:
          Gustogirl, neroden

          ...isn't instructive, due to the high rate of inflation during the first part of the eighties.

          Of more significance would be to look at those amounts in inflation adjusted dollars.

          Better yet would be to look at it as a percentage of GDP, and then compare the net change in GDP during the Reagan years with historical norms.

          I'm at work so I don't have access to the data -- but I would suspect that these characterizations would back up the diarist's contention that the Reagan tax cuts did not increase revenue.

          Political Compass: -6.75, -3.08

          by TexasTom on Mon Aug 08, 2011 at 10:41:54 AM PDT

          [ Parent ]

    •  Two things: (3+ / 0-)
      Recommended by:
      Steven D, jm214, cpresley
      1. We can both raise top marginal rates and cut loopholes. Corporate preferably.

      2. We are in a 'war spending' posture and it's driving up the debt. The MIC aside, everything else the federal government spends its money on is easily affordable.

      It's the out of control spending on military expenses that has massively increased the country's debt.

      The nation's debt is so easy to fix without touching entitlement programs or the middle class by just addressing those two points. Anything else the White House or some pundit has to say about cutting spending is bullshit.

      •  That first one is not going to happen. (1+ / 0-)
        Recommended by:
        VClib

        Especially on the corporate side.  Corporate statutory rates are pretty high compared to other nations, and the thing that keeps our corporate tax system fairly competitive for attracting business are the many deductions, etc. that account for a much lower effective tax rate.  If you raised the corporate rates to one of the highest in the world, AND eliminated deductions so that the effective rate came close to the statutory rate, capital would really flee overseas.  It is much, much better to lower the statutory rate and eliminate deductions so that the effective tax rate stays competitive, and you don't have some corporations paying close to the statutory rate and some paying almost nothing.  You can increase revenue that way as well.  

        And the second one -- you are not going to cut defense spending enough.  Not going to happen.  Yes, there's room to cut, but there's not going to be the huge cuts that would be necessary to "fix" the nation's debt.  (And even if you did those huge cuts, it would not be enough to address the structural long-term problem).  

        Do the math.  It doesn't add up.

        •  Do the math? I've seen the math. (5+ / 0-)
          Recommended by:
          Steven D, jm214, Gustogirl, mithra, neroden

          It adds up. Corporations in this country pay less on their earnings then corporations in any other first-world country in the world.

          And secondly, rescinding the Bush/Obama tax cuts/holidays along with ending the occupations and closing a substantial number of overseas bases will drive revenues way up. Up enough to avoid any other spending cuts.

          I'm not sure who you are protecting by insinuating more cuts to social spending are needed, but it's false. What stake do you have in protecting the structure that would be assuring the continued success of our oligarchical, crippling system?

          It's about time we started taxing our way into a first-world future once again.

          •  Because you can't just look at (0+ / 0-)

            the corporate income tax rates.

            Lots of other countries have a VAT - and corporations pay that, as well as other employee taxes, in addition to whatever the corporate income tax is.

            They might pay little in corporate income tax, but lots in VAT, employee taxes (which often fund healthcare), property taxes, etc.

            Their total tax bill is very likely to be at least as much, if not more, than here.

            Unless they're in some 3rd world country, where all bets are off.

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