I'll keep this one simple and ask debaters to bring in facts with informed opinions.

What were the positive and negative effects of President Reagan's fiscal policies? (taxing and spending) Overall did these policies make things better or worse?

Let's keep this informed and civil because there is likely a strong divide. Back up your opinions with evidence.

Ok, I'll take the bait.

First of all, you can't give Reagan credit for reducing inflation from the Carter years, because that was all Paul Volcker's doing and he started working on that in late 1979.

Positive: lower tax rates, good stock market returns.

Negative: exploding deficit (from increased military and other government spending at the same time as lowering the tax revenue base).

We've had other debates on whether the deficit really matters and the general consensus has been that they don't... until they do. Lower tax rates have fostered a culture that we don't have to pay for the size of government that we want, which makes it damn tough to pay our government's bills without financing our obligations.

On one hand, economic growth improved. On the other hand, we now have trouble paying for the social safety net that many Americans would agree we need to provide to prevent another depression.

I remember Reagan promising a balance budget if elected. Never mind that he went in the opposite direction.



Reagan did cut taxes as promised but soon figured out that this didn't help the economy because in the last part of 1981 the United States slipped into a recession and unemployment increased to over 10%.

From 1982-1986 Reagan presented 2 tax increases which was in direct contrast to his promises. But at least he realized he was wrong in the tax cuts prior and thusly moved to correct that.

As far as giving credit to Reagan for cutting inflation, that is another story. The Federal Reserve has the greater power to influence prices or inflation.

By raising rates they can cut off money supplies and quieten inflation.



And most of all lets don't forget Reagan's almost tripling the nation debt while he was in office.

This was probably brought on by embracing 'the supply-side economics.



So to surmise:

1. Paul Volcker tamed inflation, not Reagan

2. Reagan tripled the national debt while in office

3. Supply-Side economics was a failure.

4 Unemployment reached 10.8%, a 41 year record under his adminstration.

5. Cut many domestic programs to use money on military programs.

In reality, Reagan's fiscal policy wasn't as good as many would want you to believe.

On #4, inflation had reached 12% by the time Reagan took office. When Volcker raised rates and shunk the money supply, a soft landing was not in the cards. High unemployment was a natural consequence of getting 12% inflation under control. And Volcker was right to do that. The tax cuts didn't kick in until later, so they didn't really help until after unemployment was already peaking. I can't blame Reagan for this; he was dealt a bad hand going into office.

On #5, this is more about his domestic policy than his fiscal one, and unfortunately, we aren't debating that here, because this is one area that really burned me up. Cutting funding for mental health care so that we can have more missles..... Another topic!

The tax revenue base increased during Reagan's term. Lower taxes increased the incentive to earn, resulting in large increases in federal revenue, as particularly the upper income groups earned more. For example, in 1980, the top 1% of earners paid 15.4% of all taxes, by 2001 they paid 25.6%. This increase despite the fact that the top rates were lowered substantially over that time.
cato #s
rational revolution

The share of income taxes paid by the lower earning groups declined during Reagan's term, and has continued to decline up to today. Bush's tax cuts will have the same effect. The whole 'reverse Robin Hood' thing is a myth.

As for increased military spending, if we conclude that the Clinton term had a 'peace dividend' which allowed us to substantially cut military spending (perhaps too much), and resulted in surpluses, we could consider the Reagan defacits (at least the defense portion) more of a down payment on that dividend?

On the debt overall, Reagan resisted tax increases, and Congress resisted cuts in domestic spending. As ever, the compromise was to spend on everything that both parties wanted, giving us the increased national debt.

I know that in theory lower tax rates provide an incentive to work more, which will then increase tax revenues, but your links don't clearly support your point.

In fact, if you go to the figures at Monthly Treasury Statement Site, you'll see that tax revenues for 1981, 1982, and 1983 were all about the same and it took until 1984 (after Reagan had passed a few tax increases and the economy was running back toward inflation) that revenues increased.

I've yet to see any real data that shows that cutting tax rates leads directly to increased tax revenue. In fact, we've tried this twice and just end up with ballooning deficits, which means that the theory doesn't work in practice.



An interesting thought. And now we're at war with (at most) 20,000 people and yet all that peace dividend is gone and then some. I'm not sure the down-payment theory is as real as we'd have liked.

Edited to add: by the way, Clinton NEVER had a surplus. Our government had to borrow money every single year he was in office, although he's come closest to balancing the budget in several decades.



And Reagan NEVER proposed a single balanced budget or vetoed an appropriations bill over the costs. You can't just lay the blame on Congress (although they were definitely part of the problem, since they were also responsible for passing the bills to cut tax revenues). Reagan's own fiscal sense was more about show than go.

In 2002 dollars:
Federal Revenues 1980 = $4.7 Trillion
Federal Revenues 1990 = $5.5 Trillion

I don't disagree that it took a few years for things to work, but that just makes sense, doesn't it? I hate that we give a president credit for anything in their first 2 years economically, as there was no time to impact policy yet.


You're right in that monies were siphoned off from trust funds and that the federal debt increased.

I didn't just lay the blame on Congress. My blame was equal - Reagan couldn't have enacted his program without compromising on spending with Congress.

But when adjusted for inflation what do you have?



I searched for a quick comparison and one came from this link.

Link

with the numbers based on this link
Inflation Conversion Factors for Dollars 1665 to Estimated 2014

The ratio of $500,000 in 1980 to $750,000 in 1990 means that if you multiply the 1980 by 1.5 then you have inflation adjusted numbers.

1.5 times $4.7 trillion = approximately $7 trillion. So the revenues of the government declined as $5.5 trillion and not $7 trillion were taken in in 1990.

amf, I think you made a slight error, by comparing apples to oranges.

You cannot demonstrate that cutting tax rates leads to lower revenue by pointing to the deficit, since we both know that tax revenue is only half the picture of the deficit. We both know that the deficit is the difference between revenues and outlays and tax rates only affect the first part of that equation.

The Reagan years were not a complete success as far as fiscal policies go because Congress did not follow through with their end of the deal. Bob Dole promised Reagan that he could get 3 dollars in spending cuts for every dollar in tax cuts. While the tax cuts were enacted, the spending cuts were never enacted.

Of course, it is not obvious that tax cuts lead to higher revenues. It is not a direct equation. However, there can be little doubt that tax cuts spur the economy. The more robust economy leads to an increase in tax revenues (in general). The effect is not always immediate.

If you look at the income tax revenues by year, you will see that they did, indeed, increase every year except in 1983 (after the 1982 recession). Internal Revenue Gross Collections, by Type of Tax, Fiscal Years 1973-2003

Tax collection in 1980 (the year before Reagan took office) were $519 billion (total) with $360 billion of that coming from income taxes. In 1989, when Reagan left office, revenues to the treasury had grown to $1.013 trillion, with $632 billion coming from income taxes. The interesting thing to keep in mind is how very bad the economy was when Reagan took office in 1981. During his first two or three years, growth was anemic, followed by a very strong period of growth. This skews the numbers for those who point to the Reagan era as a period of decreasing revenues.

Instead of focusing on the budget numbers, I think we should focus on the general effects on the economy. Did the lower tax burden of the 1980s result in higher growth, higher employment, and a generally higher standard of living? Reigning in interest rates and controlling inflation are much more important to the average American's well being than whether or not tax revenues to the US Treasury increased.

Carter was President with a Democrat controlled Senate and House.
Inflation in the last 2 years of the Carter administration rose from 9.3% (Jan '79) and peaked at a whopping 14.7% (April '80) Link
The Prime interest rate peaked at 21.5% in December of '80. At the time, interest rates were fluxuating wildly, with full percentage point differences from week to week. Prime Rate: Historical Data
The Consumer Price Index (back-calculated) was rising at a clip of 10% per year.
The economy was unpredictable, which is the worst thing for it and the worst thing for everyday Americans.

By the time Reagan left office, let's see what the numbers were:
Inflation: The average inflation during the '80s was 4.82% (including 1980 when it was 12-14% the whole year.) Chart
Prime Rate in 1988 was 10.5%, after being as low as 7.5% in 1986.
The Consumer Price Index rose by an average of 4.9% from 1981 to 1989, despite an almost 8.3% jump from 1981-82. CPI increases were predictable, at about 4% per year.CPI

The economy was rolling again. The economy was predictable. It was the proverbial "Decade of Greed" where everyone seemed to be doing better. It started off rocky. There was a deep recession in 1982, which caused real incomes to fall from $37,857 in 1980 (after it had dropped from $38,227 in 1979 ) to $36,326 in 1982. With the recession over, real incomes expanded from 1982 until 1989 and topped out at $40,890. (All numbers in 1984 dollars). Chart

But what about the poor? Did their incomes increase during the 1980s?
Chart
Unfortunately for those who disparage Reagan, incomes in the bottom fifth bracket increased from $10,644, dipped to $10,072 during the Recession of 1982 and rose again to top off at $11,311 in 1989.

Economically, Reagan's policies were a shot in the arm at a time when this country needed it.

Amlord, I didn't demonstrate what I did by pointing at the deficits. I pointed at the revenues, which were essentially flat for 1981, 1982, and 1983. Tax cuts directly led to less revenue. That's the way it works.

As for the rest of your posting, you're confusing what Reagan's policy was from what Volcker's policy was. Volcker is the one who increased the interest rates into the 20% range to squeeze all the inflation out of the economy. He's also the one who lowered the interest rates in 1982 to levels that made getting a loan worthwhile for businesses. So I credit Reagan's tax cut with spurring the economy less than I credit Volcker's policy of controlling the money supply to spur the economy.

Let's look at it another way: if Volcker had kept interest rates at 15% during the early '80's, would the economy have grown because of tax cuts? Nope. We would have been hopelessly mired in recession, because people wouldn't have invested in stocks and money wouldn't have been available for business growth. Tax cuts do not drive this economy; controlling the money supply does.

And you are also blaming Congress (via Dole) for the deficits. As I pointed out earlier, Reagan never met a spending bill he didn't sign. He NEVER vetoed a spending bill. Don't blame Congress; Reagan had a hand in creating the deficit.

And like I said: supply-side economics is a THEORY, because it doesn't take political reality into consideration. As such, it's a failed experiment, because it ALWAYS leads to deficits, given our political system.

According to these figures, the poor only averaged .8% raise per year. I don't know about you, but that doesn't sound like figures that would prove Bush helped the poor in wage increases.

In fact that is in line with this 'trickle-down theory'. The companies get breaks so they can pass the money down to the poor worker at the bottom. Something must have happened to the money before it had a chance to trickle down.

"In 2002 dollars" means adjusted for inflation. The 1980 figure was adjusted for 22 years of inflation, and the 1990 figure was adjusted for 12 years of inflation.

The numbers I listed are directly comparable, and federal revenue, adjusted for inflation, did increase during the 80's despite radically lowering the taxes for people and corporations. If you don't inflation-adjust it, Internal Revenue doubled over 10 years.

Carlitoswhey,

My bad. You posted the numbers as they should be and I didn't read your post correctly. Sorry for the in depth and incorrect explantion of the effects inflation had on your numbers.

Good job of fixing my gaffe.

What were the positive and negative effects of President Reagan's fiscal policies? (taxing and spending) Overall did these policies make things better or worse?

As another Reagan thread has devolved into a litany of generalizations and blanket innuendo, I did some searching for facts and figures, which may be more pertinent than one persons recollections. Since what I found dealt primarily with the Reagan fiscal policies, I'm posting the links in this thread.
Reagan's record includes sweeping economic reforms and deep across-the-board tax cuts, market deregulation, and sound monetary policies to contain inflation. His policies resulted in the largest peacetime economic boom in American history and nearly 35 million more jobs.
Joint Economic Report Link
Total spending on all national security programs never equaled domestic spending, even when Social Security, Medicare, and net interest are excluded from domestic totals. In addition, national security spending fell during the Administration of the Bush the Elder, while domestic spending increased in both mandatory and discretionary accounts.



Cato Institute

How telling that the link you provided is based entirely on the Republican Party's recollection of the Reagan record, conveniently leaving out the Democrat's view (although it's alluded to in the Table of Contents) or even a more balanced view. Coincidence? I think not.

I guess you missed the listing of Dems on the JOINT Economic Committee.
What a wonder that both houses were controlled by the republicans when this report was released. I'll expect the same hue and cry from you if/when both houses are controlled by democrats. Don't trust your congress to issue economic fatcs, fine. Don't trust your dem senators and representatives, fine.

I didn't miss the listing of Democrats, just as you probably didn't miss the title stating that the part of the report that you posted ONLY reflects the views of the "majority" party and not any of the "minority" committee members, who might have a different recollection of events.

And, yes, if the information were slanted in this manner, I'd certainly call the poster on it. I'm an independent, after all; both parties suck.

To quote Amlord:



I find myself in a dilemma when reading these figures. According to my math, median incomes rose a net 8% between 1980 and 1989 (see chart). Such an increase is commendable by itself.

But when we apply this calculation to the bottom fifth bracket, the poorest Americans, we see these incomes rise by only a net 6.3% (see chart). I don't have further data, but this figure by itself suggests a growing gap between rich and poor (or, at the very least, between median incomes and the incomes of the poor). Furthermore, the poor, not the rich, would have been seeing their social services cut during the Reagan Administration, thereby further compounding their problems.

Furthermore, if we assume that Reagan's policies had an effect that outlasted his presidency (which I believe is a fair assumption), or if we look at the first Bush's Administration as an extension of Reagan's, then a cruel rebuttal to Reagan policy is in full bloom by the end of Bush I's term.

By 1993, coming out of a recession, real median family incomes have risen only a paltry $48, or only 0.13%, from 1980. The poor have it even worse; their income has actually dropped a net $1,110, or 10%!

I must admit that I am no economist. I may not be reading these numbers correctly, so if anyone would like to point out any errors in my thinking, I would gladly accept the input. I also don't have further data to offer beyond the charts given by Amlord, and would be interested to see how the numbers play out during Clinton's two terms. But based on what has been made available on this thread, I don't think that those who disparage Reagan's economic policies will have any trouble holding on to their beliefs.