Conservative wing-nuts harbor any number of vaguely homoerotic notions about Ronald Reagan's Administration: that Reagan single-handedly defeated communism; restored honesty to government; was a champion for the working man; etc.
This diary examines a very particular myth of this genre: that in the 1980s, tax revenues increased when tax rates were lowered. Another diary today looks at this matter from a more theoretical perspective.
Anyway, among people in the know, this is obvious rubbish, and it isn't taken seriously (except possibly for the purpose of lying or countering lies). But it has an insidious longevity because a sloppy consideration of the relevant statistics might tend to obscure the truth.
More beyond the fold.
Here, then, is the tax history in figures of the United States in the 1980s:
Year | GDP | Total Revenues |
Social Insurance Taxes | Non-SI-Revenues | CPI | Real GDP | Real Total Revenues | Real Non-SI Revenues |
OASDHI Tax Rates | Income Tax Laws |
| | | |
1980 | 2,788.1 | 517.1 | 157.8 | 359.3 |
82.4 | 3,383.6 | 627.6 | 436.1 | 6.13% | |
1981 | 3,126.8 | 599.3 | 182.7 | 416.6 |
90.9 | 3,439.8 | 659.3 | 458.3 | 6.65% | |
1982 | 3,253.2 | 617.8 | 201.5 | 416.3 |
96.5 | 3,371.2 | 640.2 | 431.4 | 6.70% | ERTA 1981 |
1983 | 3,534.6 | 600.6 | 209.0 | 391.6 |
99.6 | 3,548.8 | 603.0 | 393.1 | 6.70% | |
1984 | 3,930.9 | 666.5 | 239.4 | 427.1 |
103.9 | 3,783.3 | 641.5 | 411.1 | 7.00% | |
1985 | 4,217.5 | 734.1 | 265.2 | 468.9 |
107.6 | 3,919.6 | 682.2 | 435.8 | 7.05% | |
1986 | 4,460.1 | 769.2 | 283.9 | 485.3 |
109.6 | 4,069.4 | 701.8 | 442.8 | 7.15% | |
1987 | 4,736.4 | 854.4 | 303.3 | 551.0 |
113.6 | 4,169.4 | 752.1 | 485.1 | 7.15% | TRA 1986 |
1988 | 5,100.4 | 909.3 | 334.3 | 575.0 |
118.3 | 4,311.4 | 768.6 | 486.0 | 7.51% | |
1989 | 5,482.1 | 991.2 | 359.4 | 631.8 |
124.0 | 4,421.0 | 799.3 | 509.5 | 7.51% | |
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Depending upon the mendacity of whomever is making the argument, conservatives tend to argue that lower tax rates increased government revenues based upon either the third ("Total Revenues") or eighth ("Real Total Revenues"). The difference between these two columns is inflation, which is the first of two main sources of obfuscation.
Looking just at "Total Revenues," the evidence for the lie looks pretty good: after a dip (largely due to recession) in 1982-83, government revenues were off to the races after ERTA 1981 (which became effective in 1982 and 1983), growing by 9.2% per year for the next four years, and never really falling below 1981's mostly pre-recession numbers.
If we correct for inflation ("Real Total Revenues"), the numbers don't look so robust, but are still awfully good: 5.7% annual growth for four years, and recovering to 1981's figures by 1985.
But something else was going on concurrently, and its effects were included in total government revenues: the 1983 Amendments to the Social Security Act. These Amendments raised the tax rates applied to wages for the purpose of funding Social Security and Medicare.
If we exclude these social insurance taxes -- the rates of which were going up over the period; see the tenth column of the table ("OASDHI Tax Rates") -- and we correct for inflation, we get a much more accurate look at the effects of ERTA 1981 in the ninth column of the table, "Real Non-SI Revenues." Here we see that real non-social insurance revenue fell sharply in 1982-83, and had barely recovered to 1982's recession levels by 1985. In fact, it was not until after the Tax Reform Act of 1986 took effect in 1987 that real non-social insurance taxes recovered to their pre-ERTA levels of six years before. (The Tax Reform Act of 1986, by the way, was a tax increase, albeit mainly by eliminating taxable income reductions and exemptions; it actually lowered nominal income tax rates.)
And for those of us who lived through the 1980s, this should come as no surprise: the country was pretty clearly going broke through 1984-85, and the Tax Reform Act of 1986 was enacted almost in desperation.
But, possibly for the purpose of preying upon younger people who don't remember the Republican Party's first recent effort to destroy the country, the canard gets repeated more and more in recent days: "Reagan was able to raise government revenues by lowering tax rates."
Thing is, it just isn't true.