The National Catholic Review

Much talk these days swirls around the impending crisis over the national debt ceiling. That’s certainly true within the friendly (mostly) confines of America’s Web site. It’s too bad there’s no painless way around the debt crisis. It looks like the U.S. middle and upper class will have to pay more in taxes, and social, defense and all other fed spending must endure some cuts if we want to get serious about closing the deficit and preventing our great grandchildren from a hat-in-hand relationship with China.

But wouldn’t it be great if we could cut taxes and raise as much money, no wait, even more money, as we raised before?

It’s the self-financing tax cut, the golden chalice (fleece?) of American tax policy, and it’s the oft-repeated contention of some Conservatarian politicians. My father always told me if it seems too be good to be true, it probably is (it’s amazing how much smarter he gets as I get older) and sad to say I suspect that’s the case when it comes to launching an offensive on annual deficits by outflanking them with tax cuts.

The tax cuts=more federal revenue formula has evolved from a notion scribbled on a napkin to something close to an unshakable article of faith among a certain breed of American fiscal conservative. But it’s far from an easily demonstrable historical reality, though I doubt even a thorough debunking will do much to dissuade its enthusiastic repetition (probably the opposite will ensue). But as several posters at our venerable site have repeatedly thrown down this assertion as if it were an uncontested historical fact, I feel obliged to at least attempt to set the fiscal record straight on behalf of site visitors who have not whiled away their weekends poring over O.M.B. revenue records.

Famous one-time believers have turned harsh critics of the idea, most famously Reagan budget director David Stockman who still finds time to try to tear down the rhetorical battlement he helped construct. And here’s former domestic policy adviser to President Reagan Bruce Bartlett, one of the original supply-siders, writing in the New York Times in 2007: “[S]upply-side economics has become associated with an obsession for cutting taxes under any and all circumstances … The original supply-siders suggested that some tax cuts, under very special circumstances, might actually raise federal revenues. For example, cutting the capital gains tax rate might induce an unlocking effect that would cause more gains to be realized, thus causing more taxes to be paid on such gains even at a lower rate.

“But today it is common to hear tax cutters claim, implausibly, that all tax cuts raise revenue. … This is a simplification of what supply-side economics was all about, and it threatens to undermine the enormous gains that have been made in economic theory and policy over the last 30 years.”

Supporters of the less tax, more revenue thesis typically elevate the Kennedy, Reagan and Bush tax cuts as exemplars of the phenomenon. Trouble is, despite what the Heritage Foundation or Cato Institute might say, the numbers don’t hold up under scrutiny. In fact, many economists point out the tax cuts/revenue outcomes can only look remotely favorable if you ignore inflation, population growth, economic growth owing to other factors, the normal vicissitudes of the business cycle, etc. For instance, in inflation-adjusted dollars, Reagan’s 1981 tax cuts reduced federal revenue until late in his second term. Does that mean that the tax cuts finally did the trick or did something else that happen in those ensuing years to make the difference? A couple of variables that have to be considered is the nation’s population expansion over his two terms and the inescapable fact that in responding to dramatic revenue shortfall’s, Reagan’s administration raised taxes 11 times after his famous tax cuts started off his presidential watch. An increase in Social Security taxes also made a significant contribution to the improved revenue profile by the end of Reagan’s second term, hardly the unqualified outcome a supply-sider might hope for; finally in fiscal carousel fashion, Reagan’s (un)healthy appetite for deficit spending supercharged the economy and in a painfully roundabout manner delivered more revenue (and long-term debt). That Reagan debt-spending precedent also gets at one of the major flaws in the behavior of the supply-siders. Whether or not the theory of revenue-generation they espoused was completely bunk was pretty much beside the point as the vastness of their increased spending and other loosey-goosey fiscal habits, say, funding a war with off-budget supplemental spending requests, tended to overwhelm whatever good—or not—their tax philosophy was up to.

The Tax Policy Center had this unflattering assessment of the Bush tax cuts:

“The Bush tax cuts contributed, along with underlying economic conditions, to a historic decline in federal tax revenue. In 2000 total federal tax revenue was as high in proportion to the U.S. economy as it had ever been. By 2004 federal tax revenue in proportion to the economy had fallen to its lowest level in almost fifty years.” And more bad news on the effect of the Bush tax cuts is courtesy of the nonpartisan Congressional Budget Office, which in 2001 projected a $5.6 trillion surplus for the 2002-2011 time frame, but the U.S. ended up instead with a $6.2 trillion additional debt—a swing of $11.8 trillion from the January 2001 projections with substantial annual revenue shortfalls.

So two rounds of Bush tax cuts = less revenue = bigger deficit/debt, a clear-cut answer? Well, yes and no. Obviously those Bush years include the 9/11 terrorist attacks and the beginning of the war on terror, which naturally had an impact on the performance of the economy and tax revenue. But that’s part of the general problem with the tax cuts = more revenue formula. There are a lot of variables affecting revenue besides tax rates. Bill Clinton raised taxes in 1993, the economy boomed and federal revenue went up because of the higher rates and personal income. So does that mean that raising taxes helped the economy? (Some say yes.)

Have cuts in capital gains increased tax revenues? Yes, they have. But capital gains cuts often provoke a rush of tax settling stock sales as investors reckon the break may only be short-term. That leads to a revenue spike that does not last. Would a combination of lower taxes and closed loopholes produce more revenue? Now we’re getting to the interesting challenge for the years ahead. Advanced studies in human nature, like Arthur Laffer’s best conduced over drinks, suggest raising taxes encourages dodging and deters consumption. The trick is finding the taxable sweet spot, the point of optimal taxation, that will get the government the most before discouraging income growth and encouraging scamming. No one today is seriously arguing for a top rate like 90 percent (under Eisenhower) or 70 percent (under Kennedy-Carter); the current discussion centers around moving the top rate back to a Clintonian 39 percent.

And no one who has ever wrestled through tax season, even girded with Turbo Tax and an array of Internet resources, can argue that our excruciating tax code couldn’t use with a thorough house cleaning that, if done fairly and well, could—perhaps—mean lower tax rates and more revenue. But blanket cuts do not appear to automatically mean more dough. That’s just the way the federal pie chart crumbles.

Here’s more on this subject for those suffering from insomnia:

Believers:
Cato Institute
Heritage Foundation

Skeptics:
Time
CBPP
Brookings
Curious Capitalist
Paul Krugman

Comments

Anonymous | 5/27/2011 - 3:16pm
The problem with medicaid is the fundamental disconnect between client, provider of service, and payer.... all the schemes in the world that keep client and provider of care apart, including the Ryan plan - are doomed to failure.

Look at the analogy to food. We all need food to live. But who has an insurance policy to cover food? No one. How is it possible for the poor to afford food without a goverment program? Uh, because food sources are so ubiquitous, the cost to deliever food so low...that not only can the poor afford food, we have an obesity problem.

Until the government tax code got rolling with those high tax rates liberals claim to love, employers didn't offer tax exempt pension plans or think of tax exempt medical plans - they just paid their people and the people paid cash for whatever health care they actually needed. And doctors, because they were dealing with the paying client directly did not charge crazy fees (because they couldn't!).

But as the tax code forced companies to find other ways of compensating employees besides direct cash payments (so as to get around crushing tax rates), the simple system was distorted into insurance companies doing the paying and doctors working for the insurance companies first and actual sick person second.

Ergo, our problem.

Solution is neither to create vouchers nor hike taxes more to pay into either private or government "insurance" companies, but to de-link everything back to the way it was and is now in other areas of life: the doctor and the patient.

If you want to help the poor - then call for state hospitals where the poor (and only the poor) can go!
ed gleason | 5/26/2011 - 10:01pm
Jeff; my question is, if as you claim  the rich pay most of the taxes why not a rate increase on them in order to increase revenue. Your give an answer  that the rich will invest and create jobs and profits if we leave the tax rate as is.. Clinton years tax rates which the 2012 Dem congress will go back too, will increase revenue as it did with surpluses in 1998  without the vain hope that the rich will pay more taxes if we let them make/keep more profits. Your posts can be summarized as "trust me  that the rich will pay more taxes if we would only let them make/keep more money by keeping the low rates'
The American people will not buy that even if you keep posting links to the usual ideologue authors  from now until 2012. . You don't like the word  wacko so I'll revert to Bush I words  and say voodoo economics. [ P.S.  Newt's 500k investment at Tiffany's helped only diamond cutters in Amsterdam Netherlands.]
As for Medicare, Miami has twice the Medicare dispersement per patient than San Francisco. 15k Miami 7.5 K for SF. San Francisco doctors and nurses make twice the salaries of those jobs in Miami. In SF, Offices, Buildings, land, Hospitals are three times more costly than Miami. why the discrepancy???? =fraud. Say hello to the GOP Gov. Of Florida..
Anonymous | 5/26/2011 - 3:04pm
''Please don't tell me that lower rates bring in more taxes''


Why make such a statement?  It reflects a rigidity and not an openness to what is reality.  I would have no problem with raising tax rates if I thought they would work.  I do not have any ideological thing to push on this.   But there is good evidence that increasing taxes slows economic activity and there are times when that is desirable.  Right now we have a unemployment problem so we should be looking at those policies that have traditionally increased employment.


Fiscal stimulus by the government has never really worked.  It didn't work in the depression.  It didn't work under Jimmy Carter.  It didn't work just three years ago under Obama.  So what should we do?  One answer is to keep taxes as low as possible and see if this can generate investment.  Because that is what you want, investment.  Investment is what creates jobs.  Not everyone whose taxes are not raised will use the money in a way that promotes investment but a lot will.  It is those we are interested in.  And there is evidence that it has done that in the past.


What Paul Ryan showed is that we are spending 50 times as much now on medical care as we did in 1960 in constant dollars.  That is what is going to kill us as that trend keeps on going up as new medicines and new treatments are developed.  If we agreed to live on 1960's medical technology each family would have $25,000 more each year to spend.  Were we all miserable in 1960?  Even so, no one wants to do that and I am certainly not recommending it.  Ryan is advocating a market approach as opposed to a bureaucratic solution.  That is what should be debated not the using of  words such as ''whacko.''
ed gleason | 5/26/2011 - 12:22pm
"As BOTH sides agree, true entitlement reform requires BOTH revenue increases AND benefits reductions'
You and I agree that is the way to go. What GOP leader agrees to revenue[tax] increases.? [ BUT...Please don't tell me that lower rates bring in more taxes.] GOP claims that the wealthy pay most of the taxes and at the same time if you raise their rate it won't matter at all in increased revenue... and then we get a lecture on math.
A Dem house in 2012 will raise the rate on 500K incomes. nobody on Commonweal blog hurt! 500k income people have no time for this 'stuff'
Anonymous | 5/26/2011 - 9:40am
"Spending problem not taxing problem is THE GOP talking point. Do you not recall a few months ago  the Congress and Executive did spending reforms with NO taxing increase. So that wacko talking point is moot. Dem talking point now is NY 26 voted NOT to end Medicare. That one is true too."

With respect, both POVs are wrong; the budget busters are the three entitlement programs (in order of seriousness): Medicare, Medicaid, & Social Security.  Medicare has $35 Trillion in unfunded commitments currently (and that's just the beginning); people say Social Security is fiscally sound, but in fact as Bowles-Simpson shows, its cash bankrupt now, and raking up foreign debt to be "sound".  Cutting the relatively paltry 18% of the budget is discretionary spending is like using a bucket to empty to the Atlantic; both sides have demagogued the issue because, as NY-26 shows, Americans are freaked out by the real entitlement reform that is requried.  So we get the GOP harping on about NPR funding, and the Dems going on about "the poor", but in truth, no side is on the side of angels becaues they're both trying to score points and get to the next election.  I liked Arch. Dolan's letter, not because he endorses Ryan's budget, but because he recognizes the serious moment the country faces with respect to entitlement reform.

As BOTH sides agree, true entitlement reform requires BOTH revenue increases AND benefits reductions.  The devil is of course in the detials.  Liberals believe that revenue can ONLY be increased through a tax rate hike on a small set of taxpayers (which is of course a complete joke as a matter of pure arithmetic) and conservatives think that you can just monkey with the benefits and solve the problem (another joke).  Until someone decides to stand up and lead, we won't get a true deal, but let's not lose sight of the fact that no one is leading on this issue right now, and no one is without blame.
Anonymous | 5/25/2011 - 2:14pm
Ed,

Can you summorize the Democratic budget and plan for Medicare and Social Security?

I can.  "We won't take your Medicare away from you".

Sounds like empty promises but people can go on smoking that Democatic weed if it makes them happy!
Anonymous | 5/25/2011 - 2:13pm
Wow, Ed, you must have written that ad playing that shows Paul Ryan literally throwing Granny off a cliff!  Effective scare tactic...if totally wrong and demeaning.

Meanwhile, let's keep whistling Dixie and pretend that talking all the millionaire's money will solve the problem.
Anonymous | 5/24/2011 - 11:42am
"Sorry you did not like the headline. My hilarity is sometimes only obvious to myself, especially late in the day."

The headline was funny, I wasn't expecting to be as edified by the post as I was.  I read a few other policy-oriented blogs daily, and I like that they're all usually in some kind of conversation with each other (perhaps especially when they disagree), but I haven't encountered that kind of interactiveness on the Catholic blogs, especially on the deficit issue.  So it was nice to see someone alluding to the larger debate, even acknowledging that conservatives have some viable arguments re: tax policy that go beyond just wanting to "hurt" (for polite society) poor people.
Tom Maher | 5/24/2011 - 11:24am
JR Cosgrove (# 3)

It is surprising that you, who are always very accurate in your economic and financial assessments,  demonstrating how abusive and misitaken singling out specific groups for higher taxation can be.

 Generally this selection of who should pay is avery bad idea that creats a polarized society with arbitrary and capricious rules.   But you really picked the wrong group for the wrong reason by targeting Wall Street as if investment banking industry does not have a critical, large and important role in mainatinaing and growing the American economy.  Investment banking is hugh economic force that tremendously benefits society.  These of the guys who's deal making raise billions for new industries all the time.  We the United States would be a very poor country without investment bankers and we would have way fewer people to tax and employee other industies. How do you think Microsoft or any other advanced company employing thousands got started?  No regular bank would touch a new company with new technoogy.  They could not evaluate the rtisk or potentail at all. But that is what Wall Street does uniwquely it spots promising companies, analyzes their ususally great potential and funds them.  This is exteremly valuable and uniques in society and history.  It is the very skill that government planners and imagination no one else has. The effort to find and analyse new econioomic industries is super valuable.  So of course you want to pay these guys if and when they spot and develop a comapny with great economic promise and then issue equity (stock) to fund them to allow them to grow.  They are the prime job creaters and industry creaters in the UNited States. 

Where you out sick the whole week from your economic couses when they covered investment banking or "Wall Street" ?

Sad to report that taht some of these firms are thinking of leaving (and have left) due to the unfavorable often hostile business bashing going on in the UNited Staes.  The talk is these firms have or may move to the Neatherlands including the Neew York Staock exchange iitself.

Wouldn't that be a great tax policy.  A special tax on Wall Street and the whole industry moives off-shore and resulting in a immeadiate and permanent net loss of jobs and very high skilled people whom you can tax.    and make t.   stocv uPeople who el who devel And  beaucrats lack neth   .eluate   iwhoulkd  o frowith g and  cal role ithey contributed nothing to the economy and get paid a lot for doing nothing. 

Think about it. Do people in private industry get paid a lot of money for doing little or nothing?  Really? Where does that ever happen? 

Your assumptions about Wall Street are very flawed. 
Anonymous | 5/24/2011 - 10:09am
"Much talk these days swirls around the impending crisis over the national debt ceiling. That’s certainly true within the friendly (mostly) confines of America’s Web site."

This is a very good post, although I cringed when I saw the title.  Sometimes the insuarlity of the whole "conversation" is stifling, and I've begun to think contributes to the endless recriminations, particularly on topics political on IAT.  So I'm excited to see a post that looks "outward" to various policy proposals that does a good job balancing various arguments.  Might I add a few more, largely concerned about the (negative) economic affects of raising marginal rates (alone), that are generally not considered "supply siders" (which I fear has become as much a caricature of the Right as "tax-and-spend" of the Left)?  I might call these the "Third Way".  I think they represent a view that suggests that while cutting taxes does not always, ipso facto, increase tax revenue, tax hikes may (again, not always) have largely negative economic consequences, i.e. disincentives that should be considered.  As Kevin Clarke correctly says, its about hitting the tax "sweet spot".

Ergo:

Megan McArdle: http://www.theatlantic.com/business/archive/2011/05/do-marginal-tax-rates-matter/239245/  [Megan McArdle has done tons of posts on taxes vis-a-vis the debt debate; she should be required reading]

Reihan Salam: http://www.nationalreview.com/agenda/267915/lane-kenworthy-impact-heavy-taxation-reihan-salam

Greg Mankiw: http://www.nytimes.com/2010/10/10/business/economy/10view.html?_r=1&ref=business

William Galston (making the case Republicans, at least the smart ones, have been making, i.e. a rate hike alone is insufficient without larger tax reform): http://www.tnr.com/articles/the-vital-center

Just de-bunking supply sideism doesn't, in my opinion, answer the tax question in the context of the deficit debate.

PS - There's been a lot of "debate" about budget cuts (someone making the absurb claim that we could gut 75% of the Penatgon's budget).  Michael Gerson's column in this morning's Wash. Post is great at showing the stickiness of the issue (did you know that MOST of the Pentagon's expenses result from health care and pension benefits?).  Very interesting.
Anonymous | 5/24/2011 - 9:08am
The only school of economic thought that espouses the view that cutting taxes always increases revenue is "my" school; that is, anyone who is actually paying taxes in this country wants to pay less, be they the struggling 9-to-5-ers or the CEO of the multi-national corporation who has to answer to the stockholders. So I think Mr. Clarke is making a straw man argument.

Conversely, many who think that taxes are not high enough are the ones who are paying no taxes.  

As one of the 50% of the US citizens who actually pays taxes but doesn't pay much attention to where my money goes, I was a little surprised to find that over 50% of federal revenue goes to support and provide for people who are not working.  No analysis here, just an observation that something seems grossly out of whack and that it seems that changing the tax policy is not going to be the panacea that either side seems to think it is going to be.
Anonymous | 5/24/2011 - 7:30am
''Mr. Clarke also made a false comparison''


Actually you made a false statement.  Your statement was  ''Reagan’s 1981 tax cuts reduced federal revenue until late in his second term''  An absolutely false statement.  Here are the tax revenues for 1976-1989

1976 - $506
1977 - $567
1978 - $646
1979 - $728
1980 - $798 inflation over previous 4 years 48.7% under Carter. ($536 without inflation compared to $506 for Ford's last year or it grew $30 billion in constant dollars)
1981 - $918
1982 - $939
1983 - $1000 
1984 - $1113 inflation over previous 4 years 21.3% under Reagan ($917 without inflation compared to $798 for Carter's last year or it grew $119 billion in constant dollars)
1985 - $1214
1986 - $1290
1987 - $1403
1988 - $1502 inflation over previous 4 years 14.7% under Reagan ($1309 without inflation compared to $1113 for Reagan's first term or it grew $196 billion in constant dollars)

There was a severe recession with very high unemployment in 1982 as Reagan supported Volker's restriction of the money supply to kill inflation but despite this both GDP and tax revenues grew with lower tax rates.  Taxes were lowered again in 1986.  

Whether you knew it or not is certainly not in my mind reading capabilities and that is why I used the world probably.  This was a post on taxes with some obviously false information so I assumed you did some homework but apparently not. So I apologize for saying you may have consciously distorted the information but you did distort the information presented.  So I expect an apology to your readers for that.
Anonymous | 5/24/2011 - 12:46am
I find it amazing how we go around and around with "Reagan did this, Clinton did that" arguments while virtually no one mentions the role of the party that controls the House might be in the equation.

Reagan had to work with a Democrat House. The House is where all spending bills begin and it's in the House were pork and the overall size of government is largely established....so Reagan had to pass his tax cuts by winning over a large enough group of Democrats to win passage. Any one of you political junkies want to wager a guess as to the price he had to pay to get half of what he wanted? If you guessed more spending.... you'd be right. 

Now if the tax rates were cut and spending held low.... it'd have been ever more successful. But by letting the Democrats spend more while rates are cut....the inevitable effect is deficits.

Clinton had to work with a Republican House after 1994. Guess when the vaunted and ballyhooed "surplus" was achieved (on paper)? Why what a coincidence! It was reached after the GOP forced welfare reform, after the GOP forced some spending cuts (which were more reductions in the rate of growth than absolute cuts).

Meanwhile Reagan won the cold war and Clinton did what, exactly in his foreign policy dossier? Invade Haiti, mess up a successful mission in Somalia, sit by and watch genocide in Rwanda, dither in the Balkins, give up steath for a tactical mission over Serbia, give tech to the chi-coms to help them launch satellites (because ICBMs are sooooo different from satellite launch vehicles, right?), and let OBL get away 3 times..... yep, ol willy sure was a genius and Reagan a dunce. Meanwhile the talking heads pronounce Reagan's policies as the cause of deficits and ignore Congress....and praise Clinton's policies for the surplus and ignore Congress' role in forcing his hand.

And how many of you democratic "catholics" think big government spending is the moral equivalent to private charity? Or think me wanting to cut government to increase private charity is evil, while your desiring more government obstensibly to 'help the poor' makes you virtuous is "catholic social justice"? 

We say things, we believe things. but strip away the rhetoric, get down to historical record and the players involved and a lot of what passes for common knowledge is myth.  
Tom Maher | 5/23/2011 - 11:35pm
The International Monetary Fund (IMF) semi-annual report "Fiscal Monitor" of April, 2011 observerd the Unted States does not have a credible plan to reduce its national debt. 

 This IMF report made a seriies of recommentdations to reduce the hugh and hard-to-finance 14.3 trillion dollar national debt by spending cuts to rapidly expanding entitlement programs.  The report did not make any recommendation for increadsing taxes.  Instead recoommended going to a VAT Value Added Tax as is done in most European nations that raises a lot of revenue form a relatively much smaller base than the 15 trillion dollar United States Gross Domestic Product (GDP).  Note the VAT tax is not to expand or even maintain  entitilment programs at their current level.  The VAT tax revenue would be to reduce the debt to GDP ratio over ten years to 60 percent of GDP.  Our current ratio of nation debt to GDP (14.3 divided by 16 trillion)  is over 90 percent of GDP.  This debt ratio is projected  to go to 100 percent in the  next year. 

The IMF identifies a debt to GDP ratio of 100% as a critical debt problem.  The  IMF should know.  In the last year the IMF has bailed out Greece, Ireland and recently Portugal.  These countries dept was above or near 100 percent of their GDP.  Spain and Belguim may require IMF financial assistance in the future.  These countires were either no longer able to finance their debt at any interest rate becasue no one would buy its debt securities or their debt securites could only be sold at avery high double-digit intrest rate.  In return  the IMF made these countires cut all government services and payments including salaries and pensions.   

So it is not a happy day when the IMF starts noticing let alonge controlling the United States government's severe national debt crisis.  The IMF report recommends urgent action to reduce the national debt to GDP ratio. 

It os important to note the that total debt needs to be reduced while the GDP needs to be increased.  

Increasing taxes foes not do the job here.  Taxes would be used to finance the budget with less barrowing but the size of the debt would not be reduced without spending cuts.  But tax increases would also tend to put a break on the economy which is already minimumlly growing at stagnant 2 percent rate.  The GDP needs to grow to help reduce the debt to GDP ratio.  The IMF reports recommends keeping the debt to GDP ratio well under 100 percent and eventually in ten years to 60 percent.  

We should listen to the IMF recommendations so that the United States does not go into default for its excessive national debt the way Greece, Ireland and Portugul  did. 
Mark Harden | 5/23/2011 - 11:10pm
" Mr. Harden seems to believe that pointing out the work and praise of Gov workers is both partisan and lame. "

The problem, Mr. Gleason is that everyone can page up to see the context of your original content and see that you meant nothing whatsoever about praising the workers, but only had condemnation for the presumably anti-government hicks in Joplin flyover country.

Just admit you went rhetorically overboard without charitable consideration and peace be with you.
Helena Loflin | 5/23/2011 - 11:00pm
1. Reagan was a serial tax raiser. As governor of California, Reagan “signed into law the largest tax increase in the history of any state up till then.” Meanwhile, state spending nearly doubled. As president, Reagan “raised taxes in seven of his eight years in office,” including four times in just two years.  Reagan raised taxes 11 times in his administration.
2. Reagan nearly tripled the federal budget deficit. During the Reagan years, the debt increased to nearly $3 trillion, “roughly three times as much as the first 80 years of the century had done altogether.” Reagan enacted a major tax cut his first year in office and government revenue dropped off precipitously. Despite the conservative myth that tax cuts somehow increase revenue, the government went deeper into debt and Reagan had to raise taxes just a year after he enacted his tax cut. Despite ten more tax hikes on everything from gasoline to corporate income, Reagan was never able to get the deficit under control.
3. Unemployment soared after Reagan’s 1981 tax cuts. Unemployment jumped to 10.8 percent after Reagan enacted his much-touted tax cut, and it took years for the rate to get back down to its previous level. Meanwhile, income inequality exploded. Despite the myth that Reagan presided over an era of unmatched economic boom for all Americans, Reagan disproportionately taxed the poor and middle class, but the economic growth of the 1980′s did little help them. Since 1980, median household income has risen only 30 percent, adjusted for inflation, while average incomes at the top have tripled or quadrupled.
4. Reagan grew the size of the federal government tremendously. Reagan promised “to move boldly, decisively, and quickly to control the runaway growth of federal spending,” but federal spending “ballooned” under Reagan. He bailed out Social Security in 1983 after attempting to privatize it, and set up a progressive taxation system to keep it funded into the future. He promised to cut government agencies like the Department of Energy and Education but ended up adding one of the largest — the Department of Veterans’ Affairs, which today has a budget of nearly $90 billion and close to 300,000 employees. He also hiked defense spending by over $100 billion a year to a level not seen since the height of the Vietnam war.
5. Reagan gave amnesty to 3 million undocumented immigrants. Reagan signed into law a bill that made any immigrant who had entered the country before 1982 eligible for amnesty. The bill was sold as a crackdown, but its tough sanctions on employers who hired undocumented immigrants were removed before final passage. The bill helped 3 million people and millions more family members gain American residency. It has since become a source of major embarrassment for conservatives.
6. Reagan illegally funneled weapons to Iran. Reagan and other senior U.S. officials secretly sold arms to officials in Iran, which was subject to a an arms embargo at the time, in exchange for American hostages. Some funds from the illegal arms sales also went to fund anti-Communist rebels in Nicaragua — something Congress had already prohibited the administration from doing. When the deals went public, the Iran-Contra Affair, as it came to be know, was an enormous political scandal that forced several senior administration officials to resign.
7. Reagan vetoed a comprehensive anti-Apartheid act which placed sanctions on South Africa and cut off all American trade with the country. Reagan’s veto was overridden by the Republican-controlled Senate. Reagan responded by saying “I deeply regret that Congress has seen fit to override my veto,” saying that the law “will not solve the serious problems that plague that country.”
8. Reagan helped create the Taliban and Osama Bin Laden. Reagan fought a proxy war with the Soviet Union by training, arming, equipping, and funding Islamist mujahidin fighters in Afghanistan. Reagan funneled billions of dollars, along with top-secret intelligence and sophisticated weaponry to these fighters through the Pakistani intelligence service. The Taliban and Osama Bin Laden — a prominent mujahidin commander — emerged from these mujahidin groups Reagan helped create, and U.S. policy towards Pakistan remains strained because of the intelligence services’ close relations to these fighters. In fact, Reagan’s decision to continue the proxy war after the Soviets were willing to retreat played a direct role in Bin Laden’s ascendency.
ed gleason | 5/23/2011 - 10:57pm
The Government responders were and are apprieciated by the people of Joplin.as they praised FEMA, National Guerd et al on TV  Mr. Harden seems to believe that pointing out the work and praise of Gov workers is both partisan and lame. Shame on you.
Mark Harden | 5/23/2011 - 10:06pm
" I hear that  people in Joplin MO have started to appreciate the Government responders. "

Eighty-nine people lost their lives in Joplin, and Ed Gleason uses the tragedy to score a (lame) partisan political point. Shame on you.
Anonymous | 5/23/2011 - 8:53pm
And by the way, I am anti Wall Street since they seem to contribute very little to the economy except keeping New York City alive.  Without them, NYC would be a ghost town or the Gotham City of Batman movies with lousy public services and few able to go to the theater or the expensive restaurants.  


I would also tax the high income lawyers who contribute nothing to the economy.  I am much more interested in preserving the job generating centers such as those in Silicon Valley and MIT and other centers of entrepeneurship than the high bonuses of Wall Street and lawyers.  But how can you single out these two groups.  I wish there was a way but that will not happen since these are two of the three financial rivers for Democratic party funding.  The other is the public employee unions.  All three are negatives on the economy and our lives but they are the life blood of the Democrats.
Anonymous | 5/23/2011 - 8:20pm

At 0% tax rates you collect no taxes.  At 100% tax rates you collect no taxes.  The maximum is somewhere in between.  Also the tax rates on different types of individuals returns different behavior patterns and tax revenues are affected.  It is possible that 40% tax rate on the middle class and a 15% tax rate on millionaires will generate more revenue than if you reversed the two.
 
No knows the tax rate that will create the maximum tax revenue.  Many just wants to raise them because they think it will generate more tax revenue and when it was pointed out to Obama that reductions of capital gains taxes under Clinton increased dramatically the tax revenues he said he was more interested in fairness.  He has a strange sense of fairness, screwing the poor so that he can also punish the rich.  Maybe that is what he meant by fairness.   Here is the link
 
http://www.youtube.com/watch?v=WpSDBu35K-8
 
Mr. Clarke also made a false comparison above and he probably knows it.  There was a very deep recession during the first two years of the Reagan administration as he had to reduce the high inflation of the Carter years.  Despite that recession and the tax cuts, tax revenues rose dramatically under Reagan.  Here is the results of the Carter and Reagan years.
 
Starting in 1977 under Carter, growth in GDP after inflation 3.5% (total for 4 years so less than 1% with a stimulus package and low Fed rates implemented by the Democrats under Carter.  The growth in government revenues after inflation was 9.3%.  As Carter's policies pushed people into higher tax brackets, they paid a greater percentage of their wages in taxes.  We had a new term in US economic performance called Stagflation and people paid higher taxes but the economy only grew barely.  Hey maybe the higher taxes had an effect.
 
Reagan first term: growth in GDP after inflation 11.1%, more than triple that of Carter.  (there was a deep recession the first two years as part of this)  and growth in government revenues after inflation - 9.0%.  Much higher growth in GDP than Carter and good growth in government revenues despite the tax cuts.  Reagan second term: growth in GDP after inflation 13.3%; growth in government revenues after inflation - 16.8%.  Again much higher growth in GDP than Carter and outstanding growth in government revenues despite the tax cuts.  This puts to rest the myth that tax cuts cost the government money.  it was just the opposite.
 
Since Ronald Reagan implemented his economic policies, total GDP had doubled (about 104% gain) and Federal revenues have doubled (105%).  These include adjustments for inflation.  Population growth during this time was about 32%.  From 1981 to 2005, 45 million new jobs were created in the US and all this new job growth can be credited solely to small business start ups.  None can be attributed to large business expansion as some obviously grew but others contracted so the net was zero.  The reason for this were the financial incentives Reagan's policies provided and the removal of regulation inhibiting start ups.

All this is from official government websites on GDP, tax revenues and inflation by year. 
 
The stock market prior to Reagan had languished for years and after Reagan came in it more than doubled during his term.
Anonymous | 5/26/2011 - 1:07pm
"What GOP leader agrees to revenue[tax] increases.?"

With respect, there's a difference between revenue increasing and tax hikes.  Ryan's Roadmap (NOT budget) contains details very close to the Bowles-Simpson plan for increasing revenue without raising rates.  Republicans are arguing for reforming the tax code in ways that will increase revenue.  I'm not opposed to raising rates, but we have to acknowledge that is simply mathematical reality that hiking rates on a small group of people will NOT solve the debt problem  It's not a GOP talking point either, if you see the Megan Mcardle blog I linked to earlier.  that's not to say we shouldn't raise rates, only that to put all your hope on raising rates alone is just as foolish as putting all your hope on cutting NPR funding to solve the problem.  But frankly, I don't think referring to "GOP" or "DEM" in black and white terms is very helpful to the conversation.
Anonymous | 5/26/2011 - 12:08pm
I agree with Jeff. Our structural debt and deficit and unfunded liabilities on federal, state, municipal and private enterprise levels is so huge that ultimately we as a nation will either face the prospect of massive, catastrophic default....or massive and enduring catastrophic cuts to services and hikes to taxes... or some calamitous combination of both.

Now, two world views are in a fight for supremacy. One holds that all social ills and answers lie with ever bigger government services and controls ministered by them (of course) since they're both intellectually and morally superior to "the other side" as a matter of dogma (which is why evidence to the contrary is simply ignored).

Let the progressive liberal elites control Detroit for 50 years and..... despite all help they run it into the ground. But nothing shakes their faith in their ideology or the class of rulers in charge of the system. In their world view it's all OK because the people who matter are doing OK and the rest of the state (and nation) is there to come to the aid of those whom the powers that be chronically fail to serve.

But take this world view to a national or global extent and there won't be any "other world" to come to the rescue when the combination of inefficiency and waste simultaneously runs up huge debts and produces systemic corruption, a helpless population utterly dependent on the tender mercies of a small but all powerful class of bureaucrats and security details. The nation will hit the wall at 100 mph completely unprepared to handle any federal cut much less the 40% cut facing us in the near term.

The other world view holds that it is freedom coupled with personal responsibility that produces wealth and that far from ever greater government controlls and regulators, we need more local freedom and social responsibility - that social irresponsible behavior (immorality) is what leads to dependency and the creation of a police state to hold the appearance of society together.

This world view seeks to prepare people to be adults, not "consumers" or cogs in the faceless machine of almighty party or state. This world view expects people to behave themselves - but also empowers them to teach their children, provide for their own housing, food, shelter, retirement, security, etc. by promoting laws for the common good vs. special loopholes and set asides for 'special' groups.

It's inevitable that we as a nation will face a huge cut in federal spending. But which world view will best prepare the middle class to survive? The one that is putting all their eggs into state funded social services..... or the one who holds that individuals, families, churches, companies, and non-governmental groups ought to be as self-sufficient as possible?

In 1948 the Federal Government was cut by 40% as millions of GIs were de-mobilized and the 'arsenal of democracy' was scaled back after WW2. Instead of a re-start of the Great Depression though, we experienced an economic boom as we the people invested huge sums of money in the creation of private wealth (goods and services) that didn't exist before.

There's no reason why a similar cut could not result in another boom time if we the people were empowered to be free and independent rather than ever more controlled and regulated.

It is not charity to insist people become ever more dependent on others and it is not miserliness to insist that people become ever more independent and responsible for themselves.
Tom Maher | 5/25/2011 - 2:45pm
Tax increases no matter who is being taxed makes no sense without significant taxing and spending reforms.   This is especailly true when all spending reform proposals such as Paul Ryans's budget reforms are being demogoued without any constructive discussion and no alternate proposals are being offered.  Our urgent fiscal problems are being ignored as too politically resky to deal with openly and cadidly.  So our budget grows more dangerdangerously higher and less affordable in realtion to our GDP year after year.  PAying more taxes without taxing and spending reforms only makes the problem worse and worse.  The courty has a basic spending problem not a taxing problem.    

The proposed 2012 Obama budget would have us barrow 40 cents on the dollar or 1.6 trillion dollars.  This is clearly not sustainable since the public debt is already at 14.3 trillion in an economy with a GDP of 15 trillion.  These numbers do not allow a 1.6 trillion increase in barrowing. . To balance the buget without barrowing would require 1.6 trillion more taxes and would not stop all federal progams from growing more and more each year. 

It is time to recognize that tax increases without significant budgetary reforms are not a viable option anymore, the size and cost of government programs must be reformed and brought permanently under fiscal control year to year before any tax increases should be considered. 

The public discussion of budgetary reform is just not happening an dit is time ot confront our problems while we are still able to do so without defaulting on our national debt..
ed gleason | 5/25/2011 - 2:37pm
Joe wants Demo plan for SS AND MEDICARE. 
Both are COLLECTING MONEY NOW, RAISE RATES GRADUALLY AS MORE IS NEEDED. RAISE THE AGE LIMIT GRADUALLY. AND SINGLE PAYER PLAN ASAP. Get more taxes out of the GEs and ExxonMobiles, and their over compensated CEOs. Help Joplin Mo without the HOUSE trying to get offsets that would not pass Senate or presidential veto ... sheeezze
ANN JOHNSON | 5/25/2011 - 2:31pm
35 comments (thus far) and not one written by a woman. Is there any significance? Who knows?! I guess we are too busy with other things to indulge in these online arguments. I'm lucky to have time to skim this website.
Anonymous | 5/25/2011 - 1:42pm
''how come no mention of China?''


You want to mention China.  No problem.  It is also a repressive society with little rights for their people.  Next time I will add it to the list.  I am sorry to have left it out this time.  It's not quite the same as North Korea and Cuba but it definitely deserves to be included.  I have been to China and it is possible to travel a lot of places in the country but people have a habit of disappearing there if they are not pc.


If one wants to comment on Paul Ryan's budget and medicare plan, then they should go to the horse's mouth.  Here is a video by Ryan about it


http://budget.house.gov/fy2012budget/medicare.htm 
ed gleason | 5/25/2011 - 1:21pm
Let's summarize the GOP plan now that they lost NY26,
Smith; " A million dollars ain't what it used to be' and "the idea of taxing the hell out of the evil rich is much more class anger/envy; {Koch brothers?] Mr Smith, I live in the same district as multi-millionaires e.g.Feinstein/Pelosi  and they want to tax the ' evil rich' too. You must have more!
Cosgrove; the buggie man scare... "Enforcing so called fairness is the game and that gets you Cuba and North Korea in the extreme' [how come no mention of China?]
Landry; "Well that's really good for the Republicans since it was never their plan to "vouchering" Medicare to begin with!'   why didn't the all wise Newt think of that untrue spin.??
here is a summary of GOP plan for going into the next election if they ever find a candidate that can stand up for at least a month or two.
Drill baby drill, end capital gains and dividend taxes, no increases in millionaire income  tax.. vouchering Medicare and privatize SS, end unemployment. [ GOP  Whip Cantor wants no aid to Joplin Mo. without offsets. ??]
 reduce deficit by ending NPR and PP. More private gunnie contractors instead of Seals.
More Talk about class war and get deferments for their children.  
Anonymous | 5/25/2011 - 9:58am
"That also goes for the GOP ending Medicare with vouchers; over 65 private health insurance  [no Medicare] is now 1200-2000 a month. one $6000 voucher a year 10 years from now is a worthless promise."

Well that's really good for the Republicans since it was never their plan to "voucherize" Medicare to begin with!  Ryan's buget does nothng like provide vouchers. 
Anonymous | 5/25/2011 - 8:52am
Ed,

I hope the Democrats have a better solution for saving Medicare.  Maybe they will get around to telling us about it after they propose a budget.  I look forward to their proposal of saving Medicare by raising taxes on the wealthy.
Anonymous | 5/25/2011 - 7:35am
''Bring up links to 30 year ago tax rates all you want but it's Game ,set, match. ''

The problem is the human nature that God gave us along with natural laws such as gravity.  These are forces that have to be harnessed and dealt with not wished away.  Raising taxes on the rich gets you less money.  Lowering taxes on them gets you more tax money.  Which do people want?  Maybe in the future it won't but in the past it has but apparently that is not what the ''game'' is about.  Enforcing so called fairness is the game and that gets you Cuba and North Korea in the extreme or unsustainable entitlements, high unemployment, dysfunctional families and social meccas such as Detroit in the moderation.


I don't think people should look at the the temporary success in a political game as solving the problems we face.  Demagoguery in a congressional race does not create jobs and grow the economy or even get money from the rich.  And that is what happened in Western New York.  But temporarily winning political points seems to be the objective for many.
ed gleason | 5/25/2011 - 1:22am
The GOP no tax increase on the millionaires has been swept off the table after NY 26. 
That also goes for the GOP ending Medicare with vouchers; over 65 private health insurance  [no Medicare] is now 1200-2000 a month. one $6000 voucher a year 10 years from now is a worthless promise. Bring up links to 30 year ago tax rates all you want but it's Game ,set, match. 
Anonymous | 5/24/2011 - 11:39pm

I am sorry for the long post but it was necessary to understand just what happened during the Reagan years and why they were so dramatic and changed every thing.  In order to understand what Reagan did and what he accomplished, it is important to know what preceded him.  Jimmy Carter was elected in 1976.  Fiscal year 1977 started before he was elected and began under Ford.  Thus, to better understand what happened it necessary to begin with fiscal year 1977, the last year under Ford and use it as a baseline and use 1978 as the beginning of Carter and his policies.
 
1977 $2066 trillion GDP; revenues $574 billion;  $459 billion of which is not social security.  Use this as a template for the years listed.
1977 2066  574  459 
1981 3177  935  737 inflation between end of 1977 and end of 1981 51.62% (8.9, 12.1, 12.8, 10.1 for each year)  Thus in 1977 dollars the totals for 1981 were
1981 2095 616 486 
This meant for the four Carter years GDP increased just 1.5% and revenues increased 7.3% and non social security revenues increased 5.8%. So in four years of Carter there was less than 1/2% growth a year and revenues grew 7.3% as people were pushed into higher tax brackets.  Essentially there was a tax increase and the result in GDP was nothing.  The term Stagflation came into being as prices rose over 50% during Carter's term.
 
Now for Reagan the base year is 1981 or Carter's last year and his tax cuts went into effect just before the 1982 fiscal year.  It was phased in with 5% cuts happening for the 1982 year, and an additional 10% in each of the following two years.  So the total effect of the tax cuts were not present till fiscal year 1984.  In 1981 and 1982 there was the worse recession since the Great Depression only surpassed by our current problems as Reagan supported Paul Volcker use of the Fed to rid the economy of inflation.
Comparing 1985, the last year of the first Reagan term with 1981 the base line for him,
1985 4258   1227  943 inflation between the end of 1981 and 1985 was 16.3%.  Thus, in 1981 dollars the totals for 1985 were
1985 3661 1055  810  This meant despite the major recession and tax cuts 1985 GDP was 15.2% higher than Carter's last year which was a four year period of almost no growth.  Revenues were 12.8% higher and non social security tax revenues were 9.9% higher.  There was a raise in the social security taxes in 1984 and a small tax raise in 1983 that mainly affected corporate deductions.  So in Reagan's first term there was substantial growth in GDP and tax revenues despite the large tax deductions while Carter had almost no growth and an effective tax hike.  Reagan was re-elected losing only one state.
Comparing 1989 with 1985
1989 5532 1635 1246 inflation between the end of 1985 and 1989 was 15.55%.  Thus, in 1985 dollars the totals for 1989 were 

1989 4787 1414 1078 Thus GDP was up 12.4%.  Revenues increased 15.2% and non social security revenues were up 14.3%.  A lower tax rate was put into effect in 1987 and tax revenues grew faster than GDP despite these lower rates.  Again evidence that lower taxes increase tax revenues.  An interesting phenomena happened as a result of this.  While tax rates on the rich were substantially lowered, their share of taxes went up dramatically.  From Wikipedia
 
''As a result of 1981 tax cuts and other tax acts in the 80s, the top 10% were paying 57.2% of total income taxes by 1988 - up from 48% in 1981[3] - while the bottom 50% of earners share dropped from 7.5% to 5.7% in the same period. The total share borne by middle income earners of the 50th to 95th percentile decreased from 57.5% to 48.7% between 1981 and 1988.[4] Much of the increase can be attributed to the decrease in capital gains taxes, while the ongoing recession and subsequently high unemployment contributed to stagnation among other income groups until the mid-80s.''
 
Pleas check my numbers if you want.  They are available on t he following websites
http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=5&FirstYear=2009&LastYear=2010&Freq=Qtr
http://www.bea.gov/national/nipaweb/TableView.asp?SelectedTable=86&FirstYear=2009&LastYear=2010&Freq=Qtr
http://inflationdata.com/Inflation/Inflation_Calculators/Inflation_Rate_Calculator.asp#calcresults
Kang Dole | 5/24/2011 - 9:16pm
Jeez, guys-get a room or something.
Tom Maher | 5/24/2011 - 8:16pm
JR Cosgrove (#22)

Really glad to hear your reply.  Now I know why you have the economic and finance issues and policy  down cold.  I thought you were just very well read.  But a Stanford MBA would enable you to have the clearity, detail and great insight you have.  Really glad as you put it that you have not left the fold.  I worry. 

Very glad you are not part of the Wall Street caused the financial  meltdown stuff  rather than the massive housing bubble that burst.  This is like balming the military that there are wars.

I enjoy your comments and sharp insighs.  You bring these comments ot a much higher level.  

I still don't get where your are coming from about Wall Sreet.  We will have to talk someday.
Anonymous | 5/24/2011 - 7:22pm
"I suppose that includes Medicare.  I wonder what the percentage would be without it."

You're implying that the government would end up paying for elder health care anyway and the percentage would be higher?  Why couldn't this be taken out of the federal realm completely?  Medicare, Social Security are relatively new programs, created in my short (cough, cough) lifetime. 

http://www.aapsonline.org/brochures/myths.htm
Anonymous | 5/24/2011 - 4:57pm

Tom,
 
I am not unaware of what Wall Street does or the hedge funds.  I have an MBA from Stanford and many of my classmates have been investment bankers.  And I realize the role they often play in investment decisions and how they help make things happen.  But a lot of what they do is not that anymore.  Their money is not coming from faciliation of large projects but the underwriting of Bonds, mortgage and state and municipal and playing the spread between small discrepancies in the markets.  I am sure they still do the traditional stuff but there are much easier ways to make a buck today. 
 
A lot of what they traditionally did is useful but most of their money is coming from stuff that does not really drive the economy.  Most of their money is from the carry trade as they are able to borrow low directly from the Fed and get a 2-4% margin with almost no risk or they underwrite a big bond issue and take a cut when they unload it.  If you analyzed where their profits are coming from, you might have a different take.  That is why they are big supporters of the Democratic Party, because they know they can get a free ride there and make a ton and they then return it to their facilitators in political donations.  Many could care less if it moves the economy forward because they know that money has to travel and like the Master of the House, they take a sou or two at every step.  Do you think they are worried about the debt? The more the better because they will get a cut off the top.  The hedge funds are worried because what is classified as inside information is now being re-defined.  It will be interesting to see where this goes.  They depend on a little unusual insight to make their numbers.
 
One financial analyst said a short time ago that each day about 5-6 trillion dollars is traded in foreign currencies and only about $300 billion of that is for actual trade.  The rest is speculation.  I have read too much to have much respect for them and most of what they do is speculate.  But certainly not all.   I certainly do not blame them for the housing crisis as that blame lies elsewhere but they are making popular scape goats for people to throw darts at.  I am not part of the Wall Street caused the crisis mob.
 
The real heros of the economy are elsewhere.  I am all for the venture capitalists who are the real drivers of the fruitful investment and have made more things happen than all the investment bankers put together.   They too make large profits and I salute them but they take real risks and underwrite new real economic activity.  Every week there is a new venture capitalist or entrepeneur featured at Stanford and I often listen to them and what they have done.  These are the real movers of the economy.  Some of them, including some of my classmates, have made tens of millions of dollars and have been very generous with their money.
 
The country owes more to Frederick Terman than almost any other individual in the last 60 years.  He is the father of Silicon Valley and encouraged the cooperation between industry and academia that brought us the prosperity we see today.  Reagan's economic policies later unleashed these people in ways no one dreamed of.  There is a chart on the wall at the Stanford Business School library that had all the early genealogy.  It started with Bell Labs in the late 40's then started mushrooming in the 1950-60's with Fairchild, Raytheon etc.
 
Don't worry about me.  I have not left the fold.   I am just not a fan of Wall Street but listen to Bloomberg and WSJ all the time to get their take on the economy.
ed gleason | 5/23/2011 - 6:33pm
A huge minority wanted to believe Obama was not a native. And the idea that tax cuts increase revenue has been absorbed into the ideology of the same bunch. Imagine only paying 15% capital gains while the wage workers pay 35% and having the nerve to ask for lower capital gains.  I had it affirmed by an un-employed middle aged college economic  graduate friend  whose only job in the the last two years was the census. Yep, he didn't like the Government either. I hear that  people in Joplin MO have started to appreciate the Government responders.  
ed gleason | 5/25/2011 - 7:22pm
Tom says; 'The courty [country] has a basic spending problem not a taxing problem.'   

Spending problem not taxing problem is THE GOP talking point. Do you not recall a few months ago  the Congress and Executive did spending reforms with NO taxing increase. So that wacko talking point is moot. Dem talking point now is NY 26 voted NOT to end Medicare. That one is true too.