Reagan and revenue
Ah – commenter Tom says, in response to my post on taxes and revenues:
Taxes were cut at the beginning of the Reagan administration.
Federal tax receipts increased by 50% by the end of the Reagan Administration.
Although correlation does not prove causation the tax cut must have accounted for some portion of this increase in federal tax receipts.
I couldn’t have asked for a better example of why it’s important to correct for inflation and population growth, both of which tend to make revenues grow regardless of tax policy.
Actually, federal revenues rose 80 percent in dollar terms from 1980 to 1988. And numbers like that (sometimes they play with the dates) are thrown around by Reagan hagiographers all the time.
But real revenues per capita grew only 19 percent over the same period — better than the likely Bush performance, but still nothing exciting. In fact, it’s less than revenue growth in the period 1972-1980 (24 percent) and much less than the amazing 41 percent gain from 1992 to 2000.
Is it really possible that all the triumphant declarations that the Reagan tax cuts led to a revenue boom — declarations that you see in highly respectable places — are based on nothing but a failure to make the most elementary corrections for inflation and population growth? Yes, it is. I know we’re supposed to pretend that we’re having a serious discussion in this country; but the truth is that we aren’t.
Update: For the econowonks out there: business cycles are an issue here — revenue growth from trough to peak will look better than the reverse. Unfortunately, business cycles don’t correspond to administrations. But looking at revenue changes peak to peak is still revealing. So here’s the annual rate of growth of real revenue per capita over some cycles:
1973-1979: 2.7%
1979-1990: 1.8%
1990-2000: 3.2%
2000-2007 (probable peak): approximately zero
Do you see the revenue booms from the Reagan and Bush tax cuts? Me neither.
Reagan and revenue - Paul Krugman Blog - NYTimes.com
