Conservatives have repeatedly argued that even though tax rates were cut during the Reagan administration, federal tax revenues have increased in almost every year. Is this true? YES. The Tax Policy Center presents a history of federal tax revenues from the Office Of Management and Budget (OMB).
BUT, what conservatives don’t acknowledge is the effect that Social Security revenues have had on total tax revenues. Combining a history of Social Security revenues with the history of total Federal tax revenues, I created a chart to show the effect that increasing Social Security revenues have had on total federal tax revenues.
As you can see, it has been dramatic. When we subtract Social Security revenues from total federal tax revenues, we see that, contrary to what conservatives maintain, income tax revenues in constant 2000 dollars have not increased almost every year since the Reagan era tax cuts.
The larger income tax revenues of the 1990s was due not to a decrease in tax rates but to an increase in tax rates on the upper income brackets. As the stock market experienced the “irrational exuberance” of the 1990s, capital gains taxes increased dramatically.
Have the Bush tax cuts of 2003 contributed to more tax revenues? Yes, BUT most of the revenue gains were again from capital gains taxes. As the stock market dramatically declined in the latter part of 2008, capital gains and the taxes on those gains evaporated.
The decrease of income tax revenues accelerated in 2009 and although the chart does not show it, the constant dollar income tax revenue in 2009 was about the same level as 1980.