The Reagan Deficit Myth
Duane Royal
Monday, January 14, 2002
On Friday, February 8, 2002, many Sampson County Republicans will assemble to celebrate the life of President Ronald Reagan. His economic policies were so successful, his political opponents have been reduced to coining a phrase in the absence of substantive criticism.
That historical phrase is �Reagan Deficits.� There is an axiom which says, �Repeat something often enough, and whether it is true or not it can transcend the gap between idea to fact.�
Among the arguments against tax rate reductions are inaccurate statements such as, �It is interesting to note that mainstream economists -- even conservative ones -- almost universally reject supply-side theory� from former Clinton political strategist James Carville.
While comparing a period of forty years after the great depression, to the eight Reagan years, there was a statement from a self-described �liberal essay� which claimed, �There is no historical evidence that tax cuts spur economic growth. The highest period of growth in U.S. history (1933-1973) also saw its highest tax rates on the rich: 70 to 91 percent.�
One political advocacy group said, �Those who claim that the Reagan tax cuts were a great success fail to distinguish between underlying economic growth rates on the one hand and the business cycle on the other,� a misleading deflection from the impact tax policy has on these economic variables.
An independent study assessed President Reagan�s supply-side policies by comparing the nation's economic performance in the Reagan years (1981-89) with its performance in the immediately preceding Ford-Carter years (1974-81) and in the Bush-Clinton years that followed (1989-95). In the vast majority of the key economic variables examined, the American economy performed better during the Reagan years than during the pre- and post-Reagan years.
It found that real economic growth averaged 3.2 percent during the Reagan years versus 2.8 percent during the Ford-Carter years and 2.1 percent during the Bush-Clinton years. Real median family income grew by $4,000 during the Reagan period after experiencing no growth in the pre-Reagan years; it experienced a loss of almost $1,500 in the post-Reagan years. Interest rates, inflation, and unemployment fell faster under Reagan than they did immediately before or after his presidency.
The only economic variable that was worse in the Reagan period than in both the pre- and post-Reagan years was the savings rate, which fell (it actually rose then fell) rapidly in the 1980s. The productivity rate was higher in the pre-Reagan years but much lower in the post-Reagan years.
The study also exposed several fables of Reagan�s economic policies, such as that the rich got richer and the poor got poorer, the Reagan tax cuts caused the deficit to explode, and Bill Clinton's economic record was better than Reagan's.
The truth is, as witnessed during the Reagan presidency, the proper tax cuts, such as cuts in the capital gains rates for investment dollars, can effectively provide a stimulus environment for economic growth. A tax increase during a period of economic decline will create a deleterious effect as was clearly illustrated in June 1990.
The economy can also flourish despite huge punitive taxation as seen in 1993 and during the subsequent technology expansion. Then with the election of a new congress in 1994, investors were all but assured of the end of economically prohibitive government policies during this period. However, once the initial growth of this industry had peaked, these tax rates ultimately contributed to today�s faltering economic conditions.
The term �Reagan Deficits� is a fictitious one since the Reagan tax cut policies led to increased revenue to the treasury. Nominal federal revenues doubled in the 1980s from $517 billion to $1.031 trillion. Even income tax revenues grew substantially in the 1980s. In 1981 income tax receipts totaled $347 billion; in 1989 they totaled $549 billion.
Budget deficits can only be generated by overspending. During the 1980s, the United States was still engaged in a nuclear cold war with the former communist Soviet Union. This 40+ year arms race was potentially globally catastrophic. It represented an authentic and direct threat to the security of the United States and, moreover, the world. From the Manhattan Project to 1995, the United States only spent just over 300 billion dollars on nuclear weapons research, production, and testing. Although defense spending increased to nearly $1 trillion during the last phase of the cold war, this spending was not only justified, protecting the nation is constitutionally mandated.
President Reagan�s strategy to win and put an end to the cold war eventually changed the nature of the nuclear arms race into a weapons technology race. He understood that the USSR, at the time in economic chaos, could not effectively engage in such a contest with a nation which had the richest natural resources and productivity, was thriving economically, and had almost unlimited borrowing power. While it was the position of the �no nuke� advocates to simply wish that nuclear weapons would just go away, in retrospect, one could only imagine what today�s budgetary pressures would be if the cold war was still alive.
The real deficits came from an unexpectedly sharp reduction in inflation in the early 1980s that led to large real increases in federal spending and then from exponential increases in congressional spending once revenues grew so large so fast. Additionally, Lyndon Johnson's vision of a "temporary" investment to help the poor become self-sufficient and climb into the economic mainstream turned into a bureaucratic and fiscal nightmare whose total cost has been calculated at $5.4 trillion. The political result: a secured voting base addicted to a cycle of government dependency. Critics like to point out that in order to get to this figure, it requires the inclusion of all entitlement spending but they disregard the fact that recycling money through government programs has always been grossly inefficient.
The study accurately concluded that the 1980s were years of economic progress, not decline. Real Gross Domestic Product grew by about one-third in the 1980s. The economic gains were widely distributed among income groups, with every income quintile, from the richest fifth to the poorest fifth, gaining ground in the Reagan years.
Most significantly, the economy of the 1980s outperformed that of the 1990s in virtually every measurable category. Economic growth was higher, job creation was faster, incomes rose much faster, and productivity climbed at a healthier pace.
These clarifications will not prevent President Reagan�s detractors from continuing to make the same unsubstantiated arguments that tax cuts hurt the economy and cause deficits. If they did, why isn�t there a current demand for tax increases? People will always find ways to protect themselves from government confiscation of their wealth. That hurts an economy.
Now that the logical data has been presented in its proper perspective and in the face of the distortions, any efforts to further misinform the public about the �Reagan� deficits should now be more easily dismissed.
Duane Royal is a member of the Sampson County Republican Executive Committee.
The Reagan era economic data and portions of this article were taken from the Cato Institute�s Policy Analysis Number 261, October 22, 1996. The Cato Institute is an independent policy research foundation in Washington DC.
The Reagan Deficit Myth
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Kevin
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The Reagan Deficit Myth
Duane Royal
Monday, January 14, 2002
On Friday, February 8, 2002, many Sampson County Republicans will assemble to celebrate the life of President Ronald Reagan. His economic policies were so successful, his political opponents have been reduced to coining a phrase in the absence of substantive criticism.
That historical phrase is �Reagan Deficits.� There is an axiom which says, �Repeat something often enough, and whether it is true or not it can transcend the gap between idea to fact.�
Among the arguments against tax rate reductions are inaccurate statements such as, �It is interesting to note that mainstream economists -- even conservative ones -- almost universally reject supply-side theory� from former Clinton political strategist James Carville.
While comparing a period of forty years after the great depression, to the eight Reagan years, there was a statement from a self-described �liberal essay� which claimed, �There is no historical evidence that tax cuts spur economic growth. The highest period of growth in U.S. history (1933-1973) also saw its highest tax rates on the rich: 70 to 91 percent.�
One political advocacy group said, �Those who claim that the Reagan tax cuts were a great success fail to distinguish between underlying economic growth rates on the one hand and the business cycle on the other,� a misleading deflection from the impact tax policy has on these economic variables.
An independent study assessed President Reagan�s supply-side policies by comparing the nation's economic performance in the Reagan years (1981-89) with its performance in the immediately preceding Ford-Carter years (1974-81) and in the Bush-Clinton years that followed (1989-95). In the vast majority of the key economic variables examined, the American economy performed better during the Reagan years than during the pre- and post-Reagan years.
It found that real economic growth averaged 3.2 percent during the Reagan years versus 2.8 percent during the Ford-Carter years and 2.1 percent during the Bush-Clinton years. Real median family income grew by $4,000 during the Reagan period after experiencing no growth in the pre-Reagan years; it experienced a loss of almost $1,500 in the post-Reagan years. Interest rates, inflation, and unemployment fell faster under Reagan than they did immediately before or after his presidency.
The only economic variable that was worse in the Reagan period than in both the pre- and post-Reagan years was the savings rate, which fell (it actually rose then fell) rapidly in the 1980s. The productivity rate was higher in the pre-Reagan years but much lower in the post-Reagan years.
The study also exposed several fables of Reagan�s economic policies, such as that the rich got richer and the poor got poorer, the Reagan tax cuts caused the deficit to explode, and Bill Clinton's economic record was better than Reagan's.
The truth is, as witnessed during the Reagan presidency, the proper tax cuts, such as cuts in the capital gains rates for investment dollars, can effectively provide a stimulus environment for economic growth. A tax increase during a period of economic decline will create a deleterious effect as was clearly illustrated in June 1990.
The economy can also flourish despite huge punitive taxation as seen in 1993 and during the subsequent technology expansion. Then with the election of a new congress in 1994, investors were all but assured of the end of economically prohibitive government policies during this period. However, once the initial growth of this industry had peaked, these tax rates ultimately contributed to today�s faltering economic conditions.
The term �Reagan Deficits� is a fictitious one since the Reagan tax cut policies led to increased revenue to the treasury. Nominal federal revenues doubled in the 1980s from $517 billion to $1.031 trillion. Even income tax revenues grew substantially in the 1980s. In 1981 income tax receipts totaled $347 billion; in 1989 they totaled $549 billion.
Budget deficits can only be generated by overspending. During the 1980s, the United States was still engaged in a nuclear cold war with the former communist Soviet Union. This 40+ year arms race was potentially globally catastrophic. It represented an authentic and direct threat to the security of the United States and, moreover, the world. From the Manhattan Project to 1995, the United States only spent just over 300 billion dollars on nuclear weapons research, production, and testing. Although defense spending increased to nearly $1 trillion during the last phase of the cold war, this spending was not only justified, protecting the nation is constitutionally mandated.
President Reagan�s strategy to win and put an end to the cold war eventually changed the nature of the nuclear arms race into a weapons technology race. He understood that the USSR, at the time in economic chaos, could not effectively engage in such a contest with a nation which had the richest natural resources and productivity, was thriving economically, and had almost unlimited borrowing power. While it was the position of the �no nuke� advocates to simply wish that nuclear weapons would just go away, in retrospect, one could only imagine what today�s budgetary pressures would be if the cold war was still alive.
The real deficits came from an unexpectedly sharp reduction in inflation in the early 1980s that led to large real increases in federal spending and then from exponential increases in congressional spending once revenues grew so large so fast. Additionally, Lyndon Johnson's vision of a "temporary" investment to help the poor become self-sufficient and climb into the economic mainstream turned into a bureaucratic and fiscal nightmare whose total cost has been calculated at $5.4 trillion. The political result: a secured voting base addicted to a cycle of government dependency. Critics like to point out that in order to get to this figure, it requires the inclusion of all entitlement spending but they disregard the fact that recycling money through government programs has always been grossly inefficient.
The study accurately concluded that the 1980s were years of economic progress, not decline. Real Gross Domestic Product grew by about one-third in the 1980s. The economic gains were widely distributed among income groups, with every income quintile, from the richest fifth to the poorest fifth, gaining ground in the Reagan years.
Most significantly, the economy of the 1980s outperformed that of the 1990s in virtually every measurable category. Economic growth was higher, job creation was faster, incomes rose much faster, and productivity climbed at a healthier pace.
These clarifications will not prevent President Reagan�s detractors from continuing to make the same unsubstantiated arguments that tax cuts hurt the economy and cause deficits. If they did, why isn�t there a current demand for tax increases? People will always find ways to protect themselves from government confiscation of their wealth. That hurts an economy.
Now that the logical data has been presented in its proper perspective and in the face of the distortions, any efforts to further misinform the public about the �Reagan� deficits should now be more easily dismissed.
Duane Royal is a member of the Sampson County Republican Executive Committee.
The Reagan era economic data and portions of this article were taken from the Cato Institute�s Policy Analysis Number 261, October 22, 1996. The Cato Institute is an independent policy research foundation in Washington DC.
Duane Royal
Monday, January 14, 2002
On Friday, February 8, 2002, many Sampson County Republicans will assemble to celebrate the life of President Ronald Reagan. His economic policies were so successful, his political opponents have been reduced to coining a phrase in the absence of substantive criticism.
That historical phrase is �Reagan Deficits.� There is an axiom which says, �Repeat something often enough, and whether it is true or not it can transcend the gap between idea to fact.�
Among the arguments against tax rate reductions are inaccurate statements such as, �It is interesting to note that mainstream economists -- even conservative ones -- almost universally reject supply-side theory� from former Clinton political strategist James Carville.
While comparing a period of forty years after the great depression, to the eight Reagan years, there was a statement from a self-described �liberal essay� which claimed, �There is no historical evidence that tax cuts spur economic growth. The highest period of growth in U.S. history (1933-1973) also saw its highest tax rates on the rich: 70 to 91 percent.�
One political advocacy group said, �Those who claim that the Reagan tax cuts were a great success fail to distinguish between underlying economic growth rates on the one hand and the business cycle on the other,� a misleading deflection from the impact tax policy has on these economic variables.
An independent study assessed President Reagan�s supply-side policies by comparing the nation's economic performance in the Reagan years (1981-89) with its performance in the immediately preceding Ford-Carter years (1974-81) and in the Bush-Clinton years that followed (1989-95). In the vast majority of the key economic variables examined, the American economy performed better during the Reagan years than during the pre- and post-Reagan years.
It found that real economic growth averaged 3.2 percent during the Reagan years versus 2.8 percent during the Ford-Carter years and 2.1 percent during the Bush-Clinton years. Real median family income grew by $4,000 during the Reagan period after experiencing no growth in the pre-Reagan years; it experienced a loss of almost $1,500 in the post-Reagan years. Interest rates, inflation, and unemployment fell faster under Reagan than they did immediately before or after his presidency.
The only economic variable that was worse in the Reagan period than in both the pre- and post-Reagan years was the savings rate, which fell (it actually rose then fell) rapidly in the 1980s. The productivity rate was higher in the pre-Reagan years but much lower in the post-Reagan years.
The study also exposed several fables of Reagan�s economic policies, such as that the rich got richer and the poor got poorer, the Reagan tax cuts caused the deficit to explode, and Bill Clinton's economic record was better than Reagan's.
The truth is, as witnessed during the Reagan presidency, the proper tax cuts, such as cuts in the capital gains rates for investment dollars, can effectively provide a stimulus environment for economic growth. A tax increase during a period of economic decline will create a deleterious effect as was clearly illustrated in June 1990.
The economy can also flourish despite huge punitive taxation as seen in 1993 and during the subsequent technology expansion. Then with the election of a new congress in 1994, investors were all but assured of the end of economically prohibitive government policies during this period. However, once the initial growth of this industry had peaked, these tax rates ultimately contributed to today�s faltering economic conditions.
The term �Reagan Deficits� is a fictitious one since the Reagan tax cut policies led to increased revenue to the treasury. Nominal federal revenues doubled in the 1980s from $517 billion to $1.031 trillion. Even income tax revenues grew substantially in the 1980s. In 1981 income tax receipts totaled $347 billion; in 1989 they totaled $549 billion.
Budget deficits can only be generated by overspending. During the 1980s, the United States was still engaged in a nuclear cold war with the former communist Soviet Union. This 40+ year arms race was potentially globally catastrophic. It represented an authentic and direct threat to the security of the United States and, moreover, the world. From the Manhattan Project to 1995, the United States only spent just over 300 billion dollars on nuclear weapons research, production, and testing. Although defense spending increased to nearly $1 trillion during the last phase of the cold war, this spending was not only justified, protecting the nation is constitutionally mandated.
President Reagan�s strategy to win and put an end to the cold war eventually changed the nature of the nuclear arms race into a weapons technology race. He understood that the USSR, at the time in economic chaos, could not effectively engage in such a contest with a nation which had the richest natural resources and productivity, was thriving economically, and had almost unlimited borrowing power. While it was the position of the �no nuke� advocates to simply wish that nuclear weapons would just go away, in retrospect, one could only imagine what today�s budgetary pressures would be if the cold war was still alive.
The real deficits came from an unexpectedly sharp reduction in inflation in the early 1980s that led to large real increases in federal spending and then from exponential increases in congressional spending once revenues grew so large so fast. Additionally, Lyndon Johnson's vision of a "temporary" investment to help the poor become self-sufficient and climb into the economic mainstream turned into a bureaucratic and fiscal nightmare whose total cost has been calculated at $5.4 trillion. The political result: a secured voting base addicted to a cycle of government dependency. Critics like to point out that in order to get to this figure, it requires the inclusion of all entitlement spending but they disregard the fact that recycling money through government programs has always been grossly inefficient.
The study accurately concluded that the 1980s were years of economic progress, not decline. Real Gross Domestic Product grew by about one-third in the 1980s. The economic gains were widely distributed among income groups, with every income quintile, from the richest fifth to the poorest fifth, gaining ground in the Reagan years.
Most significantly, the economy of the 1980s outperformed that of the 1990s in virtually every measurable category. Economic growth was higher, job creation was faster, incomes rose much faster, and productivity climbed at a healthier pace.
These clarifications will not prevent President Reagan�s detractors from continuing to make the same unsubstantiated arguments that tax cuts hurt the economy and cause deficits. If they did, why isn�t there a current demand for tax increases? People will always find ways to protect themselves from government confiscation of their wealth. That hurts an economy.
Now that the logical data has been presented in its proper perspective and in the face of the distortions, any efforts to further misinform the public about the �Reagan� deficits should now be more easily dismissed.
Duane Royal is a member of the Sampson County Republican Executive Committee.
The Reagan era economic data and portions of this article were taken from the Cato Institute�s Policy Analysis Number 261, October 22, 1996. The Cato Institute is an independent policy research foundation in Washington DC.
