David Greenberg, author of Nixon’s Shadow in WSJ 3/21/09: “Reagan was struggling to pass his tax cuts when John Hinckley’s bullets landed him in the hospital. The outpouring of sympathy, aided by Reagan’s winning bedside humor, buoyed his popularity and helped him win a big victory. But that success didn’t foreshadow any continued mastery of Congress; his relations with the Democratic House, and later, the Senate, would deteriorate.”
For the first 6 years of the two term Reagan presidency, the Republicans controlled the Senate while the Democrats controlled the House. The last two years of his presidency, the Democrats controlled both houses.
In 1980, total Federal receipts, including Social Security taxes of almost $120B, were $517B. In 1988, total receipts were $909B, including SS taxes of almost $264B (U.S. Dept of Treasury).
In 1980 the Federal Debt was $907.7B; in 1988 it was $2602.3B. The deficit had almost tripled.
At the end of 1980, the CPI-U index was 86. It was 120 when Reagan left office.
In 1988, the top marginal tax rate was 28%. In 1980, it was 70%. Some argue that lowering tax rates dramatically raises tax revenues. The data above shows that tax revenues did increase, although the increase was not dramatic. Excluding Social Security tax receipts and adjusting for inflation, net tax revenues increased 16% in 8 years. Will lowering marginal income tax rates always produce increased tax revenues? Is there some optimal income tax rate? I’ll look at different theories on that subject in a future blog.
How much of this tax revenue increase came from capital gains taxes? The Dow Jones index stood at 930 when Reagan took office. It was 2239 when he left. I will take a look at that in a later blog but here is a 1997 congressional committee discussion of capital gains tax rates.
The data does show one very clear point. Increasing tax revenues can not offset runaway spending.