“TEFRA was the biggest tax increase of the period [1968-2006] measured in constant dollars and as a percentage of GDP.”
Now, I’m sure some of you are asking yourselves: What the hell is TEFRA? Well, we’ll get to that in a moment. First, allow me to bask in the irony and point out that this information will continue to challenge assumptions. Because throughout the course of this article, I’ll also illustrate many other tax increases under Reagan.
And for those of you still convinced that Reaganomics saved the day, how do you explain the tax hikes Reagan enacted throughout the 1980's? I thought tax increases were supposed to kill the economy?
The following table represents the net effects of major legislation enacted during the Reagan Administration on the receipts. This table is from the Reagan’s own Budget of the United States Government report for the fiscal year of 1989.
Source: Office of Management and Budget, Budget of the United States Government, Fiscal Year 1989 (Washington: U.S. Government Printing Office, 1989), p. 4-4.
Clearly, the Economic Recovery Tax Act of 1981 had the greatest negative impact on the receipts because this Act was Reagan's huge tax cut package. However, the Tax Reform Act of 1986 was his historic Act that most people are familiar with. This was the legislation that had the largest role in flattening the progressive income tax brackets. But notice all the other legislation that had positive net impact on receipts? This was due mostly to tax hikes and expansions of the taxable bases. Let’s take a closer look:
1. Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)
According to the U.S. Department of Treasury, this was the largest tax increase between 1968-2006.
*Increased airport and airway trust fund taxes
*Increased cigarette excise taxes
*Increased telephone excise taxes
*Increase of Federal unemployment taxes and taxable base
*Extension of social security hospital insurance taxes to Federal employees
*Instituted 10% withholding on dividends and interest paid to individuals
2. Highway Revenue Act of 1982
The highlight of this legislation is the tax on gasoline and diesel fuel went from 4 to 9 cents per gallon.
3. Social Security Amendments of 1983
* Accelerated scheduled increases in Social Security payroll tax rate
* Instituted taxation of some Social Security benefits
* Raised self-employed OASDHI rate to combined employee-employer rate, with SECA credit
* Extended mandatory Social Security coverage to non-profit and new federal employees
(Yup, that's right... Reagan expanded Social Security entitlements.)
Source: Office of Management and Budget, Budget of the United States Government, Fiscal Year 1989 (Washington: U.S. Government Printing Office, 1989), p. 4-20.
For more info, check out:
http://www.ssa.gov/history/1983amend.html
4. Railroad Retirement Revenue Act of 1983
* Increased railroad retirement payroll taxes and railroad unemployment insurance taxes.
* Taxed railroad retirement pension plan benefits.
5. Deficit Reduction Act of 1984
*Increased distilled spirits excise tax
*Extended telephone excise tax.
*Restrictions on leasing. Reduced benefits from tax-exempt leasing and postponed effective data of liberalized finance leasing rules.
*Increased depreciable life of structures from 15 to 18 years.
6. Tax Reform Act of 1986
Most notably, this legislation consolidated the earned income tax structure. However, in doing so, Reagan proceeded to raise the taxes on the lowest income brackets while simultaneously decreasing the marginal rates of the top brackets quite substantially.
Source: http://www.taxfoundation.org/files/federalindividualratehistory-200901021.pdf
7. Consolidated Omnibus Budget Reconciliation Act of 1985
*Permanently extended 16 cents per pack cigarette excise tax.
*Enacted new excise tax on smokeless tobacco.
*Increased excise tax on coal production.
*Extended Medicare coverage to new state and local employees (This wasn't a tax hike, I just wanted to point out an expansion of entitlements.)
8. Superfund Amendments and Reauthorization Act of 1986
*Enacted excise tax of 8.2 cents per barrel on domestic crude oil and 11.7 cents per barrel on imported petroleum products.
*Enacted new broad-based tax on all corporations equal to 0.12 percent of alternative minimum taxable income in excess of $2 million.
*Enacted a 0.1 cent per gallon excise tax on gasoline, diesel fuels and other special motor fuels to finance cleanup of wastes from leaking underground petroleum storage tanks.
9. Continuing Resolution for 1987 (and 1988)
*Increased Internal Revenue Service funding for staffing and equipment.
Although, this isn’t necessarily a tax hike, it is still an interesting development in tax legislation that generated additional revenue.
“Increase in Internal Revenue Service (IRS) Funding – Funds were provided to the IRS for additional examiners; additional staff to handle appeals and litigation related to tax shelters; an automated examination system; and a system to match information documents supplied by third parties against taxpayer returns. These increases in staffing and equipment will help IRS ensure the smooth implementation of tax reform, improve tax law enforcement, and reduce the gap between taxes owed and taxes paid.”
Source: Office of Management and Budget, Budget of the United States Government, Fiscal Year 1989 (Washington: U.S. Government Printing Office, 1989), p. 4-12.
10. Omnibus Budget Reconciliation Act of 1987
There is a lot of information in this one, but here are some highlights:
* Extended telephone excise tax
* Eliminated ESOP estate tax deduction loophole
*Occupational taxes imposed on the producers and manufacturers of alcohol, tobacco, and firearms products
*Increased taxes on the dealers of alcohol and firearms
Many other corporate tax loopholes and such were plugged up in this legislation. For more information check out:
Office of Management and Budget, Budget of the United States Government, Fiscal Year 1989 (Washington: U.S. Government Printing Office, 1987), p. 4-5.
11. Medicare Catastrophic Coverage Act of 1988
* Passed new supplemental premium tax on all persons eligible for Medicare. Premium rate was 15 percent of individual income tax liability in excess of $150, increased to 28 percent in 1993. Premium limited to $800 in 1989, raised to $1,050 in 1993, with future premium cap dependent on medical care costs after 1993.
_
Now don't get me wrong, I'm not demonizing Reagan for raising taxes. I'm simply pointing out that Reagan wasn't the patron saint of tax cuts that conservatives are led to believe (or claim). In fact, there was a time when Republicans actually did what was necessary to rein in the deficit. Although Reagan never technically balanced the budget, quite the opposite actually, he at least tried. These days the GOP and the teabaggers would have crucified him.
I’d also like to take a moment to discuss the Laffer Curve. This is an interesting model because it essentially illustrates a theoretical equilibrium of the tax rate that will generate the most revenue for the government. The premise of the model basically states that if the government taxes firms and labor 0%, the government will not collect any money. Conversely, if the government has a tax rate of 100%, they will not generate any revenue because there would be no incentive for productivity. Therefore, a happy medium needs to be reached somewhere in between that maximizes revenue and incentive to earn. Makes sense, right?
This is the model that Reagan used to justify lowering the tax rates to (unsuccessfully) appease budgetary critics. Essentially, this model suggests that at a certain point taxes are too high and need to be cut. The cuts will then create incentive to earn and ultimately more tax revenue will be collected because of increased productivity. In other words, tax cuts pay for themselves. However, the assumptions of this model have yet to prove themselves because tax cuts have never been empirically shown to increase revenue for the government. In fact, in 1989, the net effect of Reagan's tax cuts were -$568B (ERTA + Tax Reform Act of 1986). Obviously, something went horribly wrong somewhere in the logic. But in all fairness, the model doesn't actually provide equilibrium rates. It is left up for the politicians to decide.
I would also like to point out that by broadening the tax base, closing corporate loopholes, and taxing various areas in service, we could then lower everybody’s rates and spread the risk of massive revenue loss due to a recession and widespread unemployment.
This is what Reagan was trying to accomplish and I agree that the government is too heavily leveraged in personal income and payroll taxes. But these concepts are lost in the minds of pundits, politicians, and consequently the populace. I miss the days when the Chamber of Commerce ran the GOP. The GOP should be taking cues from Frum and not Fox.
In the end, I know that this information makes conservatives squirm. How could their beloved Reagan possibly raise taxes? Most will probably just ignore these data and continue living in bliss. Others will try to justify and rationalize it. Perhaps arguing that it was never really Reagan who raised the taxes and subsequently claim it was congress. Well, by that rational, Reagan never lowered the taxes to begin with and the whole basis that defines his presidency is inaccurate. The truth is, the president sets the tone for the country through actions and words. Not to mention, signs the legislation into law.
Sources:
Office of Management and Budget, Budget of the United States Government, Fiscal Year 1989 (Washington: U.S. Government Printing Office, 1987)
Office of Management and Budget, Budget of the United States Government, Fiscal Year 1984 (Washington: U.S. Government Printing Office, 1984)
http://fraser.stlouisfed.org/publications/usbudget/
http://www.taxpolicycenter.org/legislation/1980.cfm#Highway1982
http://www.taxfoundation.org/files/federalindividualratehistory-200901021.pdf
“TEFRA was also meant to fix tax rules and close loop holes. Would we honestly consider "cracking down on tax cheats" as a 'tax increase'?”
ReplyDeleteYes, I consider “cracking down on tax cheats” a tax increase. Those “cheats” are ultimately paying more in taxes, right? You’re mixing normative and positive statements.
“This is proven when checking the Real Family Income, EVERY bracket increased during Reagan's term;”
Family (key word) wages increased because women started entering the work force in bigger numbers. For a more intuitive approach, you should examine real income per capita. You’ll find much less modest gains during the Reagan Administration when compared to the 1970s and 1990s.
“We cannot use Tax Revenues to measure, because that would only prove the theory of the Laffer Curve and show that tax cuts encourage growth and spending (which in turn means more tax revenues). Individual Income Tax Revenues rose from $244 billion in 1980 to $446 billion in 1989. Does that mean the Laffer Curve is true?”
Were those figures adjusted for inflation and population growth? I don’t think so. It’s another popular misconception of Reagan’s record.
“Do we measure by the perceived 'tax burden' then? We can't do that because it shows the top 1%, 5% and 10% taking an increased tax burden, dispelling the myth that the richest benefited...”
I’m not quite sure what you’re saying here. But I will mention again that the wages remained stagnant under Reagan. Check out the rates of hourly wages for some illustration:
Reagan:
http://i1210.photobucket.com/albums/cc412/theprogressivecynic/fredgraph.png
Clinton:
http://i1210.photobucket.com/albums/cc412/theprogressivecynic/hourly_clinton.png
Also, keep in mind that the poverty rate increased during the Reagan administration too.
“Bush senior lost his re-election because of raising taxes, and his isn't called "biggest"!”
Did you ever consider the possibility that Clinton was the better candidate? :)
"Yes, I consider “cracking down on tax cheats” a tax increase."
ReplyDelete~Does this mean that if a thief is caught stealing he is paying more for a product?
"You’ll find much less modest gains during the Reagan Administration when compared to the 1970s and 1990s."
~I cited and linked the source that income increased for every bracket as well as real family income, "a rising tide lifts all ships".
"It’s another popular misconception of Reagan’s record."
~references cited, they are adjusted for inflation, though whether the increase is due to and influx of population complicates your assertions even more. It is more likely that there was an influx of immigrants seeing the wealth potential from the tax cut (or a general increased birth rate because couples could afford another child).
"Check out the rates of hourly wages for some illustration:"
~you are *only* noting wages, it is true that wages were stagnant, but you are leaving out other forms of compensation such as pensions, health care, etc. These all rapidly grew under Reagan and you can double check it under the sources I cited.
"poverty rate increased"
~Could that be part of your earlier assertion with an influx of population? The 'quality' of American poor is much higher than in other parts of the world, some 'poor' even have cable television!
Unfortunately this is another arbitrary and subjective assertion that has little weight in this discussion.
"Clinton was the better candidate?"
~Did you ever think that they considered Clinton the better candidate because the incumbent lied?
Or perhaps the ballot was split by Ross Perot?
Historically Tyrants have always used a third party candidate to split the ballot against an opponent.
Adolf Hitler was voted into power with the same percentage as Clinton was, 43%...
(March, 1933)
"Did you ever consider the possibility that Hitler was the better candidate?"
“Yes, I consider “cracking down on tax cheats” a tax increase."
ReplyDelete~Does this mean that if a thief is caught stealing he is paying more for a product?”
Apples and oranges... And for the record, I have no problem with closing the corporate loopholes. But the fact still remains, whether closing the loopholes was ethical or not, corporations ultimately paid more money. And that, my friend, is called a tax hike.
“"You’ll find much less modest gains during the Reagan Administration when compared to the 1970s and 1990s."
~I cited and linked the source that income increased for every bracket as well as real family income, "a rising tide lifts all ships".”
First of all, you cited a right-wing think tank. That’s fine, but it’s not academic policy analysis. And you completely ignored the second part of my quote: compared to the 1970s and 1990s… Not to mention that women had to enter the workforce in higher numbers during the 1980s because wages weren’t keeping up with the increasing cost of living. This generated additional family income, but does that mean society was better off? For that answer, you need examine per capita income. And you’ll find “much less modest gains.”
Don’t be fooled by the family income rhetoric. It’s sad if you truly think about. There was a time when a single working parent could easily support a family of four…
"It’s another popular misconception of Reagan’s record."
~references cited, they are adjusted for inflation, though whether the increase is due to and influx of population complicates your assertions even more. It is more likely that there was an influx of immigrants seeing the wealth potential from the tax cut (or a general increased birth rate because couples could afford another child).
Population doesn’t complicate my assertions. We’re talking about 10 years of population growth; it is conventional wisdom (and common sense) to consider this variable over lengths of time. This sort of analysis is inaccurate when it’s not corrected for inflation and population growth. Simply looking at the bottom line isn’t an end in itself. It’s the beginning of analysis.
Technically, in purely dollar terms, tax revenues increased upwards of 80% during Reagan’s presidency. But that’s before inflation and population growth are accounted for. These two things have an immense impact on revenues.
Date National Population
July 1, 1989 246,819,230
July 1, 1980 227,224,681
Source: http://www.census.gov/population/estimates/nation/popclockest.txt
And yes, net immigration is responsible for much of the growth. Check out:
http://www.npg.org/specialreports/imm&uspopgrowth.htm
Another thing to consider is that massive amounts of money were given to the IRS twice during Reagan’s presidency for more resources to tax collections. These investments generated more revenue. See: 9. Continuing Resolution for 1987 (and 1988)
“"Check out the rates of hourly wages for some illustration:"
~you are *only* noting wages, it is true that wages were stagnant, but you are leaving out other forms of compensation such as pensions, health care, etc. These all rapidly grew under Reagan and you can double check it under the sources I cited.”
Eh I don’t know about that. “Rapidly” is a relative term and I’d make the argument that the long term effects of deunionization during the Reagan years ultimately brought down much of the collective bargaining that fought for those things in the first place. I’ve already illustrated stagnant hourly wages. And at this point, I can’t even think of a private company that still has pensions. As far as health care, well that’s a huge can of worms. What exactly do you think the purpose of unions are?
“"poverty rate increased"
ReplyDelete~Could that be part of your earlier assertion with an influx of population? The 'quality' of American poor is much higher than in other parts of the world, some 'poor' even have cable television!
Unfortunately this is another arbitrary and subjective assertion that has little weight in this discussion.”
You don’t consider poverty increasing relevant in this discussion? Have you asked yourself what causes poverty? Is it laziness? Maybe it is low IQ? Or perhaps it was because the promised opportunities never came about? Ask yourself…
One must wonder if there’s a correlation between wealth concentration at the top and poverty rates at the bottom.
Also, we’re not comparing America’s poverty to the poor in other parts of the world. Apples and oranges again.
“"Clinton was the better candidate?"
~Did you ever think that they considered Clinton the better candidate because the incumbent lied?
Or perhaps the ballot was split by Ross Perot?
Historically Tyrants have always used a third party candidate to split the ballot against an opponent.
Adolf Hitler was voted into power with the same percentage as Clinton was, 43%...
(March, 1933)
"Did you ever consider the possibility that Hitler was the better candidate?"”
Clinton, Perot, Hitler? Haha three strikes, you’re outta here. You must like apples and oranges.
Have you ever considered that Obama makes a better Republican president than Bush Sr.
Heres something to make progressives squirm
ReplyDeleteThe rich pay most of the taxes in this country, and in fact, after bush lowered their marginal tax rates in 2003, the wealthiest Americans paid more in taxes than they did under higher rates during the Clinton years.
So the rich pay more in taxes than they receive in income, so rasising their tax rates will do the opposite of that, and shift the tax burden onto the poor, which is precisely the opposite of what progressive want. Right?
So marginal tax rate reductions did in fact increase revenue, particularly from the richest americans. It also debunks the myth perpetuated by the left that the "rich dont pay their fair share", because, they do.
I agree with you that loopholes and tax breaks are nonsense, government should not favor any big business or industry, no matter if it is “green technology” or not.
We should simplify the tax code and eliminate the income tax on everyone, the capital gains, and dividends, and look at a VAT tax. Except for low income earners, there may not be some type of exemption because it would be slightly regressive as sales taxes tend to place a heavier burden on individuals who spend a larger % of their disposable income. I dont have all the answers, but we need a simplified tax code, and tax reform dearly
Non the less, we need lower pro growth taxes on everyone, that encourage savings and investment, coupled with significantly less government expenditures.
http://www.taxfoundation.org/files/ff104.pdf
“Heres something to make progressives squirm
ReplyDeleteThe rich pay most of the taxes in this country, and in fact, after bush lowered their marginal tax rates in 2003, the wealthiest Americans paid more in taxes than they did under higher rates during the Clinton years.”
This is all a supply side spin. For one, the 400 richest Americans have more wealth than the bottom 50 percent of the population. The socioeconomic gaps between the rich and the poor haven’t been this bad since the Great Depression. You’re completely ignoring the blatantly obvious fact that the “haves” have so much more than the “have nots.” So yea, they pay most of the taxes. Secondly, Clinton balanced the budget, remember? He increased revenue by raising taxes and then cut defense spending. It’s a no brainer. It’s what we need to do now. Third, and most important, you’re simply saying that federal revenues were higher in one decade compared to another. It’s a spin that is a popular misconception. Nominal Figures are misleading and quoting them is disingenuous. Also, are you talking about just income tax revenue or all tax revenues? Be careful about the distinctions.
I will also remind you that federal spending skyrocketed under Bush Jr too. Tons of money was dumped into defense and homeland security, effectively creating a “jobs program” as a result of the War on Terror. In other words, out of one pocket and into another. Essentially, you’re comparing peace time revenues to war time revenues. Regardless of tax structure, war has its own unique implications.
“So the rich pay more in taxes than they receive in income, so rasising their tax rates will do the opposite of that, and shift the tax burden onto the poor, which is precisely the opposite of what progressive want. Right?”
I’m not sure what point you’re trying to convey here. Raising taxes by a few percentage points creates revenue, not destroys it. Use your intuition.
“We should simplify the tax code and eliminate the income tax on everyone, the capital gains, and dividends, and look at a VAT tax. Except for low income earners, there may not be some type of exemption because it would be slightly regressive as sales taxes tend to place a heavier burden on individuals who spend a larger % of their disposable income. I dont have all the answers, but we need a simplified tax code, and tax reform dearly”
So, let me get this straight. You want to eliminate taxes on income and capital gains, and then have all taxation be on consumption? Do you realize how high the price of goods and services will rise in a scheme like this? Value added taxes are generally supplemental, not stand alone. You don’t incentivize consumption this way. And in case you forgot, personal consumption (aka demand) pushes our economy, not the other way around. Supply doesn’t create its own demand.