The Reaganistas still believe (or pretend to believe) that cutting taxes will spur so much economic growth that tax revenues will actually increase.
You'd think that the "tax cuts bring in more revenue"
myth would have been exploded by the experience of Gov. Brownback of
Kansas. He followed the Reagan playbook, and cut taxes while assuring the
cuts would result in an economic boom. We have seen what happened
Here's how Kansas Republican legislator Don Hineman
describes the state's budget problem:
"But think about this: the entire budgets for public safety and general
government could be eliminated and we still would not have eliminated
the $648.3 million budget deficit for fiscal year 2016. The budgets
for all elected statewide offices and cabinet-level departments could
be eliminated, all legislative functions be defunded, highway patrol and
KBI abolished, and all state prisoners let out on the streets, and we
still would not have totally eliminated the hole in the budget."
Tax cuts increase revenue? Hahahaha!.
But - but - but Reagan, reply the ideologues.
Yes, revenue increased under Reagan, but the increase came
despite the cuts, not because of them. (Post hoc ergo propter hoc is a common logical fallacy.)
The revenue increased for two reasons.
Firstly,
Reagan came into office when the economy was depressed as Volcker was
squeezing the economy to reduce inflation. So once Volcker removed the
screws, the economy took off from its depressed 1980 baseline - a growth
that was going to happen anyway without the Reagan tax cuts. So yes -
the increased economic activity brought in a certain amount of tax revenue, even when
the rates had been cut.
But a more significant source of increased
revenue came from the increase in government spending - largely
spending on unproductive military toys. This increased spending (mostly
borrowed) translated into people's incomes, a proportion of which came
back as taxes. So a big part of the much-touted Reagan revenue increase came
from borrowed money.
This may be hard to follow in the
abstract, so let's make it concrete. If the government spends $1
million that's unfunded, that $1 million becomes income for corporations
and individuals out there in the workplace. They will pay taxes on
that new income - let's say 25%, so $250,000 comes back to the
government, and voila! - an increase in revenue of $250,000. Except that the
government is out $750,000 to get that $250,000 back.
That's the story
of the 1980s revenue increase - a lot of it was essentially
borrowed money as Reagan and HGW tripled our national debt with
irresponsibly low tax rates. If taxes had not been cut so much under Reagan, the economy would still have boomed when the Fed relaxed interest rates, but not at the expense of such heavy borrowing.
These low rates (only
slightly ameliorated by Clinton) have persisted, meaning that we've had
constant borrowing since the 1980s. (There were a couple of Clinton
surpluses, but they arrived only as a result of the tech bubble - the
underlying underfunding continued.) Then GW made things worse by more
irresponsible tax cuts, whose full disastrous effects were masked by the
housing bubble. Once the housing bubble collapsed, and the economy
went into freefall, we started seeing the full effects of the
Reagan/Bush tax cuts.
Which is why blaming the resultant deficits on
Obama is disingenuous and intellectually dishonest. They are still the Reagan/Bush deficits.
