History, hypocrisy and Obama's first budget.
"Yesterday, President Obama issued his first detailed budget. Among its most controversial proposals is a significant increase in taxes, especially on those with upper incomes. Obama also proposes a cap-and-trade system to reduce pollution that is in essence a broad-based energy tax.Republicans will undoubtedly make extravagant claims about the detrimental economic effect of these higher taxes. When one hears these claims, however, it is worth remembering that they said the same things in years past and none of their dire predictions came to pass.
According to a recent Treasury Department study, Ronald Reagan proposed the largest peacetime tax increase in American history as part of a budget deal to get the federal deficit under control. The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 was signed into law on Sept. 3, and most of its provisions took effect on Jan. 1, 1983.
During debate on TEFRA, many conservatives predicted economic disaster. They argued that raising taxes in the midst of a severe recession was exactly the wrong thing to do. "Every school child knows you don't raise taxes in a recession unless you want to make it worse," The Wall Street Journal's editorial page warned. Said Rep. Newt Gingrich, "I think it will make the economy sicker." The Chamber of Commerce of the U.S. said it had "no doubt that it will curb the economic recovery everyone wants."
Looking at the data, however, it is very hard to see any evidence that TEFRA had a negative effect on growth. Indeed, one could easily make a case that its enactment stimulated growth. As one can see, the economy's growth rates after TEFRA took effect were among the fastest in history.
The unemployment rate also peaked just before TEFRA took effect at 10.8% in December 1982. Throughout 1983, it fell steadily to 8.3% by year's end. The unemployment rate continue to fall through 1984, reaching 7.3% by December.
In 1993, Bill Clinton proposed another major tax increase. Perhaps because it was initiated by a Democrat, conservatives were even more convinced that it would bring about economic disaster. In an Aug. 3, 1993, media fact sheet, John Goodman of the National Center for Policy Analysis predicted the following results from the higher taxes: Capital formation would be reduced by $1.76 trillion through 1998, 1.34 million fewer jobs would be created and the real GDP growth rate would be 0.4% lower than it otherwise would have been.
An examination of the data, however, shows that this forecast was totally wrong in every respect. The following table shows what happened after the 1993 tax increase was signed into law on Aug. 10.
| Year/Quarter | Real GDP Growth | Gross Private Domestic Investment |
| 1993 III | 2.1% | 0.0% |
| 1993 IV | 5.5% | 22.3% |
| 1994 I | 4.1% | 18.3% |
| 1994 II | 5.3% | 25.5% |
| 1994 III | 2.3% | -6.9% |
| 1994 IV | 4.8% | 19.9% |
Source: Bureau of Economic Analysis
The unemployment rate was at 6.8% when the law was signed and fell steadily thereafter, reaching 5.5% by the end of 1994. By Clinton's second term, the economy was booming to such an extent that the federal government began running large budget surpluses.
Of course, past experience doesn't necessarily tell us what will happen in the future. Maybe this time, the conservative scaremongers will be right, and higher taxes will abort recovery and bring on a sharp economic setback such as happened in 1937."
snip...
As the table below demonstrates, Reagan signed into law major tax increases every year of his presidency after the first. By the end of his presidency, he took back half of the 1981 tax cut in the form of higher taxes. And it should also be noted that when confronted with a crisis in Social Security in 1983, Reagan endorsed a rescue plan drafted by Alan Greenspan that consisted almost entirely of higher taxes.
Legislated Tax Changes by Ronald Reagan as of 1988
| Tax Cuts | Billions of Dollars |
| Economic Recovery Tax Act of 1981 | -264.4 |
| Interest and Dividends Tax Compliance Act of 1983 | -1.8 |
| Federal Employees' Retirement System Act of 1986 | -0.2 |
| Tax Reform Act of 1986 | -8.9 |
| Total Cumulative Tax Cuts | -275.3 |
| Tax Increases | Billions of Dollars |
| Tax Equity and Fiscal Responsibility Act of 1982 | +57.3 |
| Highway Revenue Act of 1982 | +4.9 |
| Social Security Amendments of 1983 | +24.6 |
| Railroad Retirement Revenue Act of 1983 | +1.2 |
| Deficit Reduction Act of 1984 | +25.4 |
| Consolidated Omnibus Budget Reconciliation Act of 1985 | +2.9 |
| Omnibus Budget Reconciliation Act of 1985 | +2.4 |
| Superfund Amendments and Reauthorization Act of 1986 | +0.6 |
| Continuing Resolution for 1987 | +2.8 |
| Omnibus Budget Reconciliation Act of 1987 | +8.6 |
| Continuing Resolution for 1988 | +2.0 |
| Total Cumulative Tax Increases | +132.7 |
Many of the same Republicans who today complain about Obama's spending voted for every pork-barrel project proposed by any Republican during the years they controlled Congress, as well as voting for a vast expansion of Medicare spending in 2003 when the program was already bankrupt.
Among those voting to further bankrupt Medicare were such self-proclaimed protectors of the public purse as House Republican Leader John Boehner, House Republican Whip Eric Cantor and House Budget Committee Ranking Republican Paul Ryan. When they complain about Obama's spending, they should be reminded that their vote to expand Medicare added $17.2 trillion to the nation's long-term indebtedness, according to the latest report by Medicare's trustees (Table III.C23).
Read the rest here at Forbes: Higher Taxes: Will The Republicans Cry Wolf Again? - Forbes.com:
Bartlett, an economist and former Reagan administration official (a former Treasury Department economist) and the author of Reaganomics: Supply-Side Economics in Action and Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy. He writes a weekly column for Forbes.com.
No comments:
Post a Comment