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Reagan's Phony
Tax Cut
April 06,
2001
by Ken Alford
How many times have we heard the talk radio and newspaper
editorialists remind us that the Reagan tax cut brought record
revenues into our Treasury? Usually their boasts are preceded
by the declaration that the huge deficits of the 1980s were
caused by too much spending - not a lack of revenues. Furthermore,
it was the Democratic Congress that was responsible because
they could not restrain spending.
Never mind that the Republicans had control of the House
for two years, the Senate for six years, and the Presidency
for eight years. Or that Mr. Reagan always asked for more
spending than the Congress gave him.
In the most simple examination of the facts, one might conclude
they are correct. However, on a closer analysis, we realize
the source of the revenues in the 1980s budgets. A huge proportion
of the revenues were gained from government spending of borrowed
money.
It was no secret that Mr. Reagan was adamant about cutting
the size of government. If we had to spend all the incoming
revenues on interest and numerous military projects, there
would be little left to grow the government with more social
programs. In this respect , Mr. Reagan was very successful.
Indeed, revenues increased in the 1980s.
Contrary to Republican claims, there were few new social
programs initiated in the 1980s. Still, few programs were
receiving enough revenues to pay for themselves. Social Security
was one of the few programs. For example, there was not enough
revenues to pay for the $300 billion defense budgets. In fact,
most of the deficit spending could be directly attributed
to the increases in defense spending.
After the huge taxcut, there simply was not enough revenues
to pay the $100 billion per year needed for unemployment insurance.
Not surprisingly, Mr. Reagan and his administration made the
decision to tax unemployment insurance in order to get more
revenues. Also, they decided to put a 50% surtax on Social
Security income at a certain level. Of course, they accrued
more revenue when they repealed the long tradition of deducting
interest on credit cards.
Every avenue was investigated for possible revenues. Without
a doubt, it was the working people and the middle class that
suffered most from Ronald Reagan's taxcut.
Furthermore, we should understand that borrowed money by
the federal government also produces tax revenue. For example,
if a GI is paid with borrowed money and he buys a new car,
there are tax revenues produced from this borrowed money the
same as if it had come from a balanced budget. The worker
that made the car would pay taxes. The salesman that got the
commission from selling the car would have paid taxes into
our Treasury, etc. So, we can state with some certainty that
many of the revenues paid into the Treasury after the great
Reagan tax cut were paid from borrowed money.
So, indeed revenues did increase during the Reagan Revolution.
And if we had borrowed another trillion dollars, they would
have increased even more.
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