Trump says he will slash taxes like Reagan.
He told Jesse Watters on Fox News his tax plan will result in “a big reduction… the biggest tax cut since Reagan and probably bigger than Reagan.”
This is hyperbole based on mythology.
Reagan didn’t reduce the tax burden on ordinary Americans.
Back in 1988, Sheldon L. Richman put it into perspective. It was a shell game.
Before looking at taxation under Reagan, we must note that spending is the better indicator of the size of the government. If government cuts taxes, but not spending, it still gets the money from somewhere—either by borrowing or inflating. Either method robs the productive sector. Although spending is the better indicator, it is not complete, because it ignores other ways in which the government deprives producers of wealth. For instance, it conceals regulation and trade restricdons, which may require little government outlay.
If we look at government revenues as a percentage of “national income,” we find little change from the Carter days, despite heralded “tax cuts.” In 1980, revenues were 25.1% of “national income.” In the first quarter of 1988 they were 24.7%.
Reagan came into office proposing to cut personal income and business taxes. The Economic Recovery Act was supposed to reduce revenues by $749 billion over five years. But this was quickly reversed with the Tax Equity and Fiscal Responsibility Act of 1982. TEFRA—the largest tax increase in American history—was designed to raise $214.1 billion over five years, and took back many of the business tax savings enacted the year before. It also imposed withholding on interest and dividends, a provision later repealed over the president’s objection.
But this was just the beginning. In 1982 Reagan supported a five-cent-per-gallon gasoline tax and higher taxes on the trucking industry. Total increase: $5.5 billion a year. In 1983, on the recommendation of his Spcial Security Commission— chaired by the man he later made Fed chairman, Alan Green-span—Reagan called for, and received, Social Security tax increases of $165 billion over seven years. A year later came Reagan’s Deficit Reduction Act to raise $50 billion.
Even the heralded Tax Reform Act of 1986 is more deception than substance. It shifted $120 billion over five years from visible personal income taxes to hidden business taxes. It lowered the rates, but it also repealed or reduced many deductions.
According to the Treasury Department, the 1981 tax cut will have reduced revenues by $1.48 trillion by the end of fiscal 1989. But tax increases since 1982 will equal $1.5 trillion by 1989. The increases include not only the formal legislation mentioned above but also bracket creep (which ended in 1985 when tax indexing took effect—a provision of the 1981 act despite Reagan’s objection), $30 billion in various tax changes, and other increases. Taxes by the end of the Reagan era will be as large a chunk of GNP as when he took office, if not larger: 19.4%, by ultra-conservative estimate of the Reagan Office of Management and Budget. The so-called historic average is 18.3%.
Trump will likely follow the Reagan example, as stated, only not as advertised. His cuts to the federal budget by closing down bureaucracies are largely symbolic. If he plans to expand the military, rebuild infrastructure, grow the Department of Homeland Security, and build a wall on the border with Mexico, the money will have to come from somewhere.
He will probably take a page from the Reagan playbook: borrow money and increase deficits.
Gary North wrote in 2011:
Few people may remember that when Ronald Reagan took office, the federal budget was only $678 billion. During his 8-year tenure, the budget grew by 69% – on its way to today’s $2.3 trillion budget.
The annual average increase in government during Reagan’s administration was 6.8%, compared with “big government” Bill Clinton’s average annual increase of 3.6%.
Reagan promised to balance the budget within his first term. Instead, the annual deficit rose from $79 billion to $212 billion in that first term – and the Reagan years added $1.9 trillion to the federal debt.
Reagan is known as a tax-cutter, and the term “Reaganomics” implies dramatic cuts in tax rates. But after pushing through a tax cut to be implemented over three years, he cooperated during the second year in the largest tax increase in American history up to that time. The nation’s annual tax load increased by 65% during his time in office.
Trump will increase the financial burden on average Americans. Deficit spending creates inflation, as Bettina Bien Greaves notes:
This means that the government spends more than it collects in taxes and in borrowing from the people; it means government spending for all those purposes for which the government wants to spend. This means inflation, pushing more money into the market; it doesn’t matter for what purpose. And that means reducing the purchasing power of each monetary unit. Instead of collecting the money that the government wanted to spend, the government fabricated the money. Printing money is the easiest thing. Every government is clever enough to do it.