Friday, June 17, 2011
Former Minnesota Gov. Tim Pawlenty, a candidate for the Republican presidential nomination, supports a balanced budget amendment to the Constitution but also wants an $8 trillion tax cut. He rationalizes this contradiction by asserting that his tax cut will not actually lose any revenue. As Pawlenty told Slate reporter Dave Weigel on June 13:
“When Ronald Reagan cut taxes in a significant way, revenues actually increased by almost 100% percent during his eight years as president. So this idea that significant, big tax cuts necessarily result in lower revenues – history does not [bear] that out.”
In point of fact, this assertion is completely untrue. Federal revenues were $599.3 billion in fiscal year 1981 and were $991.1 billion in fiscal year 1989. That’s an increase of just 65%. But of course a lot of that represented inflation. If 1981 revenues had only risen by the rate of inflation, they would have been $798 billion by 1989. Thus the real revenue increase was just 24%. However, the population also grew. Looking at real revenues per capita, we see that they rose from $3,470 in 1981 to $4,006 in 1989, an increase of just 15%. Finally, it is important to remember that Ronald Reagan raised taxes 11 times, increasing revenues by $133 billion per year as of 1988 – about a third of the nominal revenue increase during Reagan’s presidency.
The fact is that the only metric that really matters is revenues as a share of the gross domestic product. By this measure, total federal revenues fell from 19.6% of GDP in 1981 to 18.4% of GDP by 1989. This suggests that revenues were $66 billion lower in 1989 as a result of Reagan’s policies.
This is not surprising given that no one in the Reagan administration ever claimed that his 1981 tax cut would pay for itself or that it did. ...
Republicans also assert that the tax cuts of the George W. Bush years paid for themselves. On July 13, 2010, Senate Minority Leader Mitch McConnell said that there was no net revenue loss from any of the Bush tax cuts ... This is a view not shared by economists who worked for Bush. ... For the record, the CBO recently concluded that the Bush tax cuts reduced federal revenues $2.8 trillion between 2002 and 2011.
In short, there is no evidence whatsoever supporting Gov. Pawlenty’s view of the Reagan tax cuts or Sen. McConnell’s view of the Bush tax cuts. They didn’t pay for themselves and there is no reason to think that further tax cuts will, either. Republican economist Alan Greenspan confirmed this fact last year on “Meet the Press.” Asked whether he thought that tax cuts pay for themselves, as Republican leaders had said, Greenspan replied, simply, “They do not.”