The “Reagan Deficits”

During the 1980’s Congress, under pressure from President Reagan, passed a series of tax rate cuts. Tendentious professors of history typically refer to the Reagan era tax acts as “tax cuts,” rather than “tax rate cuts,” implying that they caused a loss of government revenue. The half of history that you won’t learn in college is that the rate cuts of this era did not reduce government revenues at all. A spreadsheet of revenues and spending is available from the Congressional Budget Office, and the objective truth is that government revenues went up, not down, during Reagan’s presidency.

A typical university textbook describes the rate cuts this way: “By 1986 a series of tax cuts had benefited the wealthy by reducing top personal income tax rates to 28 percent and lowering capital gains, inheritance, and gift taxes. To compensate for the lost revenue, Reagan proposed massive spending cuts.”

Another widely used textbook tells the reader that by “radically reducing taxes,” while increasing military spending, Reagan caused the federal budget deficit to soar. “Spurred by large increases in funds for the military, federal spending far outstripped income, producing the largest budget deficits in American history.”

Textbook authors use terms like “lost revenue” pretty loosely when discussing this period. Tax revenues were $599 Billion in the 1981, the last fiscal year before Reagan’s tax cuts began to be phased in. When Reagan retired in 1989 the take was $991 Billion; a $392 Billion increase. On an inflation-adjusted basis this represents a 22% increase in tax revenue. The rapidly increasing prosperity of the American people during this period allowed the government to collect more money despite, or perhaps because of, the lower tax rates.

Conservatives and liberals can argue about what really caused the strong economic growth that began in the middle of Reagan’s first term, but the increase in tax revenues is an objective fact.

As for that runaway deficit, it was caused by runaway government spending. The Office of Management and Budget has itemized government spending in a handy spreadsheet, which shows that Reagan’s much-maligned increase in defense spending during that period was only $146 Billion. If non-defense spending had merely kept pace with inflation during the 80’s, instead of growing by leaps and bounds, the rapidly increasing tax revenues of that era would have paid for Reagan’s defense buildup while virtually eliminating the budget deficit.

Technically, of course, President Reagan did not cut tax rates; Congress did. People who talk about the “Reagan tax cuts,” or the “Roosevelt tax increases,” are misrepresenting how the federal government is constituted.

Article One, Section Seven of the US Constitution states “All bills for raising revenue shall originate in the House of Representatives.” The only constitutional power a US President has over tax policy is the power to either sign or veto a tax bill, once it gets to his desk.

In actual practice, however, a President can influence the Congress in powerful ways. A President will make his wishes known, and then urge congress to turn them into a bill and send it to him for a signature. When the opposition party controls the House, as it did during Reagan’s presidency, a President is unlikely to get his tax policy suggestions adopted unless he is able to attract wide support from the voters, and bring public pressure to bear on recalcitrant members of the House and Senate. Reagan used this strategy with great success in his efforts to push tax cuts through the Congress. “If you can’t make them see the light,” he would say, “make them feel the heat.”

The president used similar tactics to persuade Congress to fund the military buildup that he considered essential to his plan to win, once and for all, the Cold War that had threatened the security of the American people for decades.

Reagan’s efforts to rein in social welfare spending were less successful. He did try to persuade Congress to slow the growth of government programs he considered wasteful, hence the textbook statement that Reagan “proposed massive spending cuts” to “compensate for the lost revenue.” When mere words were not effective, Reagan used his veto power to stop Congressional spending. During his two terms Reagan wielded the veto pen seventy-eight times. Nine of his vetoes were over-ridden by super-majorities in the House and Senate.

High tax rates are an article of faith for liberals, just as low tax rates are a cherished principle among conservatives. Professors and textbook writers portray the rate cuts of the 80’s in a negative light because that is the liberal perspective. This one-sided portrayal of Reagan’s tax policies is just one more example of the kind of one-sided education America’s youth are getting in most of the nation’s colleges and universities.

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4 thoughts on “The “Reagan Deficits”

  • So Reagan was simply unsuccessful in reigning in government spending which was being implemented by a Democratic controlled congress?

    I think I saw a chart that shows that in Reagan’s first term, when Republicans controlled Congress, America had a budget surplus, but in his second term, once Democrats took control, we got the deficits.

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