**DONOTDELETE**
09-05-2001, 04:53 PM
SUPPLY-SIDE TAX CUTS AND THE TRUTH
ABOUT THE REAGAN ECONOMIC RECORD
by William A. Niskanen and Stephen Moore
William A. Niskanen is chairman and Stephen Moore is director of fiscal policy studies at the Cato Institute.
--------------------------------------------------------------------------------
Executive Summary
Bob Dole's proposal for a 15 percent income tax cut has reignited the long-standing debate about the economic impact of Reaganomics in the 1980s. This study assesses the Reagan 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).
On 8 of the 10 key economic variables examined, the American economy performed better during the Reagan years than during the pre- and post-Reagan years.
· 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 rapidly in the 1980s. The productivity rate was higher in the pre-Reagan years but much lower in the post-Reagan years.
This study also exposes 12 fables of Reaganomics, 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 has been better than Reagan's.
Introduction
Bob Dole's call for a 15 percent across-the-board income tax cut has provoked yet another fierce debate about the Reagan economic record. Because Dole's tax plan is at least partly modeled after Reagan's tax cuts of 1981, the Reagan record has recently been put squarely back on trial. [1]
Judging from the partisan political discourse in Washington, there is virtually no agreement about what that record tells us. Republicans describe the 1980s as an era of prosperity--a decade when America reasserted its economic and military might. Democrats, on the other hand, portray the Reagan presidency as a period of record budget deficits, economic decline, and widening income gaps between rich and poor. Senator Bill Bradley (D-N.J.) recently described the 1980s as a decade of "discredited supply side economics." President Clinton recently warned that, like the Reagan tax cuts, the Dole tax cut would "balloon the deficit, raise interest rates, and weaken the economy." [2]
Often partisanship and ideology prevent a dispassionate assessment of the Reagan years. The political left has adopted the convention of arguing that the beneficial economic changes in the 1980s--the conquering of inflation, the surge in employment, and the sustained economic expansion--had little to do with Reagan's policies, whereas any negative change--the explosion in the budget deficit, the savings and loan crisis, and so forth--was a direct consequence of the failed theology of Reaganomics. [3] Meanwhile, the right argues that only the triumphs of Reagan's record deserve much attention, and that any blemishes--again the big budget deficits--were inconsequential or the fault of the Democrats in Congress. [4]
This study attempts to cut through the fog created by this partisan dialogue and spotlight the real economic record of the 1980s--sticking to "just the facts." All the figures provided in this study come from standard statistical sources: Bureau of the Census, the Economic Report of the President, and Historical Tables, Budget of the U.S. Government. To judge how well the economy performed under Reagan's policies, we compare the economic performance of the Reagan years (1981-89) with that of the immediate pre-Reagan years (1974-81) and the post-Reagan years (1989-95).
In the last part of the study we provide some interpretation of these economic and fiscal data and sort out fact from fable regarding the 1980s. We also examine the implications of the economic data as they relate to the advisability of an income tax rate cut in 1997.
The Era of Reaganomics
In 1981 Ronald Reagan entered the White House and immediately implemented a dramatic new economic policy agenda for the country that was dubbed "Reaganomics." [5] Reaganomics consisted of four key elements to reverse the high-inflation, slow-growth economic record of the 1970s: (1) a restrictive monetary policy designed to stabilize the value of the dollar and end runaway inflation; (2) a 25 percent across-the-board tax cut enacted (The Economic Recovery Tax Act of 1981) designed to spur savings, investment, work, and economic efficiency; (3) a promise to balance the budget through domestic spending restraint; and (4) an agenda to roll back government regulation.
Clearly, some of those goals were accomplished; others were not. The most objective way to assess whether the policies were a success is to examine the economic evidence for the Reagan years once the policies were implemented.
A Model for Assessing the Reagan Record
There is some disagreement about what date should be used to measure the economic starting point of the Reagan era. A common ploy of Reagan's critics is to measure the economy's performance from 1979 to 1989 and falsely describe the record over this period as "the Reagan years." For example, in 1991 the Democrats on the Joint Economic Committee of Congress released a report entitled "Falling Behind: The Growing Income Gap in America," which purportedly proves that the victims of Reaganomics were the least affluent Americans. The report concluded that "families in the lowest forty percent of the income distribution actually had lower real incomes on average in 1989 than they did in 1979." Upon closer inspection, however, what the income data really show is that when Jimmy Carter's economic policies were in effect, family incomes plummeted by 9 percent, but that after Reagan's economic policies took effect (1982-89), family incomes rose by 11 percent. In the Joint Economic Committee report, Reaganomics is blamed for the poor performance of the economy under Carter. Ronald Reagan had many seemingly magical qualities, but his policies were never able to influence the economic direction of the nation at least two years before they took effect. Some of Reagan's supporters, on the other hand, define the Reagan years as only the seven years of economic expansion, 1983-89, while conveniently omitting the recession years of 1981 and 1982. [6]
Read the entire report here. (http://www.cato.org/pubs/pas/pa-261.html)
Take a look at the graphs and tables in this report. Especially table #5 Reagan Tax Cuts vs. Bush-Clinton Tax Hikes: Overall Real Revenue Growth
You might be suprised at what you see here. There are also many other tables that compare where the spending went during the last 20 years.
Also look at the Ronald Reagan Homepage - Revenues (http://reagan.webteamone.com/revenues.html) and Social Welfare Spending (http://reagan.webteamone.com/social_spending.html) to compare spending over the last 40 years. The numbers will set you back on your heels. Remember these numbers when the lying RATS want to increase taxes and expand government.
Have fun!!!
ABOUT THE REAGAN ECONOMIC RECORD
by William A. Niskanen and Stephen Moore
William A. Niskanen is chairman and Stephen Moore is director of fiscal policy studies at the Cato Institute.
--------------------------------------------------------------------------------
Executive Summary
Bob Dole's proposal for a 15 percent income tax cut has reignited the long-standing debate about the economic impact of Reaganomics in the 1980s. This study assesses the Reagan 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).
On 8 of the 10 key economic variables examined, the American economy performed better during the Reagan years than during the pre- and post-Reagan years.
· 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 rapidly in the 1980s. The productivity rate was higher in the pre-Reagan years but much lower in the post-Reagan years.
This study also exposes 12 fables of Reaganomics, 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 has been better than Reagan's.
Introduction
Bob Dole's call for a 15 percent across-the-board income tax cut has provoked yet another fierce debate about the Reagan economic record. Because Dole's tax plan is at least partly modeled after Reagan's tax cuts of 1981, the Reagan record has recently been put squarely back on trial. [1]
Judging from the partisan political discourse in Washington, there is virtually no agreement about what that record tells us. Republicans describe the 1980s as an era of prosperity--a decade when America reasserted its economic and military might. Democrats, on the other hand, portray the Reagan presidency as a period of record budget deficits, economic decline, and widening income gaps between rich and poor. Senator Bill Bradley (D-N.J.) recently described the 1980s as a decade of "discredited supply side economics." President Clinton recently warned that, like the Reagan tax cuts, the Dole tax cut would "balloon the deficit, raise interest rates, and weaken the economy." [2]
Often partisanship and ideology prevent a dispassionate assessment of the Reagan years. The political left has adopted the convention of arguing that the beneficial economic changes in the 1980s--the conquering of inflation, the surge in employment, and the sustained economic expansion--had little to do with Reagan's policies, whereas any negative change--the explosion in the budget deficit, the savings and loan crisis, and so forth--was a direct consequence of the failed theology of Reaganomics. [3] Meanwhile, the right argues that only the triumphs of Reagan's record deserve much attention, and that any blemishes--again the big budget deficits--were inconsequential or the fault of the Democrats in Congress. [4]
This study attempts to cut through the fog created by this partisan dialogue and spotlight the real economic record of the 1980s--sticking to "just the facts." All the figures provided in this study come from standard statistical sources: Bureau of the Census, the Economic Report of the President, and Historical Tables, Budget of the U.S. Government. To judge how well the economy performed under Reagan's policies, we compare the economic performance of the Reagan years (1981-89) with that of the immediate pre-Reagan years (1974-81) and the post-Reagan years (1989-95).
In the last part of the study we provide some interpretation of these economic and fiscal data and sort out fact from fable regarding the 1980s. We also examine the implications of the economic data as they relate to the advisability of an income tax rate cut in 1997.
The Era of Reaganomics
In 1981 Ronald Reagan entered the White House and immediately implemented a dramatic new economic policy agenda for the country that was dubbed "Reaganomics." [5] Reaganomics consisted of four key elements to reverse the high-inflation, slow-growth economic record of the 1970s: (1) a restrictive monetary policy designed to stabilize the value of the dollar and end runaway inflation; (2) a 25 percent across-the-board tax cut enacted (The Economic Recovery Tax Act of 1981) designed to spur savings, investment, work, and economic efficiency; (3) a promise to balance the budget through domestic spending restraint; and (4) an agenda to roll back government regulation.
Clearly, some of those goals were accomplished; others were not. The most objective way to assess whether the policies were a success is to examine the economic evidence for the Reagan years once the policies were implemented.
A Model for Assessing the Reagan Record
There is some disagreement about what date should be used to measure the economic starting point of the Reagan era. A common ploy of Reagan's critics is to measure the economy's performance from 1979 to 1989 and falsely describe the record over this period as "the Reagan years." For example, in 1991 the Democrats on the Joint Economic Committee of Congress released a report entitled "Falling Behind: The Growing Income Gap in America," which purportedly proves that the victims of Reaganomics were the least affluent Americans. The report concluded that "families in the lowest forty percent of the income distribution actually had lower real incomes on average in 1989 than they did in 1979." Upon closer inspection, however, what the income data really show is that when Jimmy Carter's economic policies were in effect, family incomes plummeted by 9 percent, but that after Reagan's economic policies took effect (1982-89), family incomes rose by 11 percent. In the Joint Economic Committee report, Reaganomics is blamed for the poor performance of the economy under Carter. Ronald Reagan had many seemingly magical qualities, but his policies were never able to influence the economic direction of the nation at least two years before they took effect. Some of Reagan's supporters, on the other hand, define the Reagan years as only the seven years of economic expansion, 1983-89, while conveniently omitting the recession years of 1981 and 1982. [6]
Read the entire report here. (http://www.cato.org/pubs/pas/pa-261.html)
Take a look at the graphs and tables in this report. Especially table #5 Reagan Tax Cuts vs. Bush-Clinton Tax Hikes: Overall Real Revenue Growth
You might be suprised at what you see here. There are also many other tables that compare where the spending went during the last 20 years.
Also look at the Ronald Reagan Homepage - Revenues (http://reagan.webteamone.com/revenues.html) and Social Welfare Spending (http://reagan.webteamone.com/social_spending.html) to compare spending over the last 40 years. The numbers will set you back on your heels. Remember these numbers when the lying RATS want to increase taxes and expand government.
Have fun!!!