Posted on 10/06/2015 7:27:02 AM PDT by SeekAndFind
President Ronald Reagan is invoked incessantly by conservative commentators and politicians, but never more so than when the subject is taxes. And so it was when Donald Trump released his plan for tax reform. Several conservative commentators have done Trump a favor (and the public a disservice) by vouching for the legitimacy of the plan and saying it is very much in the Reagan tradition.
That gives Trump far too much credit. His tax plan bears a superficial resemblance to Reagan’s agenda, but Reagan would never have proposed something so transparently infeasible.
Reagan is invoked too casually on taxes both by those who believe no tax cut is too big and by those who always want to raise taxes instead of cutting them. Both camps base their views on misleading interpretations of the Reagan record.
Reagan’s initial tax plan was an across-the-board cut in individual-income-tax rates of 23 percent, to be phased in over three years, coupled with a reduction in the corporate rate, and the eventual indexation (starting in 1985) of the income thresholds defining the tax brackets. When fully phased in, the top rate for individuals was to be 50 percent (down from 70 percent), and the lowest rate was to drop from 14 to 11 percent.
According to the Treasury Department, the average annual revenue loss from the Reagan tax cut over its first four years was 2.9 percent of GDP, or about 13 percent of total federal revenue.
Reagan wanted to couple the tax cuts with deep, and permanent, spending reductions on the domestic side of the federal budget. And, in his first year, he was quite successful in this regard, securing $131 billion in spending cuts over three years in the 1981 Omnibus Budget Reconciliation Act. After that initial effort, however, it became a much harder slog, as House Democrats, led by Speaker Tip O’Neill, dug in their heels to protect as many of their favored programs as they could.
In 1982, a year-long standoff between the parties over fiscal matters eventually resulted in a compromise tax and spending plan. Reagan agreed to a tax increase — mainly in terms of scaling back depreciation deductions for corporations — in exchange for promised spending reductions, which never materialized. The 1982 tax hike reversed about one-third of the revenue loss from the 1981 tax cuts while keeping the Reagan cuts in the individual-income-tax rates.
Democrats, and many in the media, point to 1982 as evidence that even Reagan wouldn’t fit in with today’s anti-tax GOP. But that’s a terribly flawed reading of the historical record. Reagan consistently pushed for lower taxes and lower spending throughout his presidency; in 1982, he saw an opportunity, in a politically divided Congress, to give a little on taxes — in the aftermath of the very large tax cut the year before — in exchange for even deeper spending cuts. He later considered this deal one of his worst mistakes as president because he had failed to secure an airtight plan to ensure that the cuts would actually be implemented.
It is also clear that Reagan would never have agreed to the 1982 deal if the 1981 tax cuts had not already been enacted. The 1982 tax hike did not undo in any way the positive growth effects achieved by the 1981 individual-income-tax cuts.
#share#Reagan’s successful push for a revenue-neutral tax reform in 1986 secured his legacy by lowering the top individual rate to just 28 percent. The sum total of the Reagan record was a lowering of the economic burden on individuals and businesses and a massive simplification of the tax code.
His emphasis on tax cutting was always coupled, however, with efforts to keep deficits and debt under control so as to ensure that whatever he accomplished could be sustained. He struck numerous deals with Congress during his presidency — e.g., on civil-service pensions, Social Security, Medicare, and Medicaid — that, cumulatively, reduced long-term entitlement-spending commitments by trillions of dollars.
In 1989, the last fiscal year that began during the Reagan presidency, the federal budget deficit was 2.7 percent of GDP — only modestly above the average deficit of 2.2 percent in the 1970s. Moreover, Reagan’s successful efforts to hasten the demise of the Soviet Union led to the large reductions in Cold War defense spending that made balanced budgets a reality in the 1990s.
On a superficial level, the Trump tax plan resembles the Reagan approach, with its emphasis on lowering rates and providing tax cuts for all taxpayers. Trump proposes four individual-income-tax rates, with a top rate of 25 percent, and a zero rate for the many millions of households with incomes below $25,000 for individuals and $50,000 for couples. He also proposes to cut the corporate rate from 35 to 15 percent and to eliminate the estate tax.
The Tax Foundation estimates the revenue loss from the Trump plan at nearly $12 trillion over ten years, assuming no effect on the economy. With added economic growth, the revenue loss might fall to just above $10 trillion over a decade, or about $1 trillion per year.
A $10 to $12 trillion tax cut would court fiscal disaster. According to the Congressional Budget Office, total federal revenue over the period 2016 to 2025 is expected to be $41.6 trillion. The Trump tax plan would thus reduce federal revenue by between 24 and 29 percent, or about twice as much as the 1981 Reagan tax cut. The Tax Foundation notes that the increase in the federal deficit would be even greater than the amount of the lost revenue itself, since interest on the debt would soar.
Large tax-rate reductions of the kind Trump proposes would be feasible only if coupled with deep and permanent spending cuts and the elimination of popular tax deductions. Trump has not proposed anything remotely close to what would be required to prevent debt from soaring under his plan.
In contrast, Reagan campaigned in 1980 on implementing deep spending cuts in domestic programs.
President Obama has the nation skating dangerously close to a fiscal crisis. During his time in office, federal-government debt has risen from 39 to 74 percent of GDP, and he has avoided doing anything meaningful to rein in entitlement spending, which is set to soar as ever more baby-boomers retire. It would not take much — perhaps just a mild recession — for federal budget deficits to reach a point where they would be difficult to reverse without very painful austerity.
This does not mean tax cutting is no longer advisable. What’s needed is another course correction on taxes and spending, similar to what Reagan engineered through a series of initiatives throughout his presidency. Pro-growth tax reform should be the centerpiece, but it must be realistic in terms of revenue reduction and complemented by a sustainable fiscal plan that acts on the need for spending restraint, especially on entitlements.
That’s the kind of agenda worthy of being called Reaganesque. And it bears no resemblance to what Trump has proposed to date.
— James C. Capretta is a senior fellow at the Ethics and Public Policy Center and a visiting fellow at the American Enterprise Institute.
I’ll sum the article up for you: Bull.
Another “I hate Trump” article from NRino.
What will they write about when he is gone? To bad they don’t refuse to use any of their bandwidth the address GOPe leadership that is destroying the party.
To bad they refuse to use any of their bandwidth the address GOPe leadership that is destroying the party.
So again they demand more position papers from Trump, while everyone else is ok to just skate on by with platitudes.
Just another hit job on The Donald from the RINO National Review Trump haters.
Well, government revenues doubled thanks to the Reagan tax cuts.
But the Demons spent it all plus some.
Which is what Demons do.
Don’t be surprised if Yellen raises interest rates when/if a Republican takes office - this would skyrocket interest paid on the debt and force austerity. All the candidate better have a workable plan.
Another day, another anti-trump screed from National Review, GOPe central.
They have become pathetic.
RE: I’ll sum the article up for you: Bull.
Thanks for the summation, but please elaborate.
"Trump obviously attacks everyone but she’s become a much bigger target, and I think part of what’s going on here is that last debate. Let’s be honest. Carly cut his balls off with the precision of a surgeon.”
1. Immigration
2. 2nd Amendment
3. Taxes
And I suspect more will follow.
He, also, mentioned to Mark Levin about downsizing the whole government.
All the other Yo-Yo's, both R & D just run their mouths, nothing in writing.
I agree; interesting to note that neither the author of this latest NRO hit piece, James Carpretta - a health care analyst, by the way, nor any of the staff of the Tax Foundation, has ever held a real world job in the private sector! Not one of these economic armchair quarterbacks, who do nothing more than consult and support each other as they contemplate their navels.
NRO’s latest Trump attack, but from a new author. The other idiots must be getting writer’s cramp. I notice now it took two of them to write one article earlier today. By the time Trump is president, the whole NRO staff will be needed to write one article.
National Review has beclowned itself in its hatred of Trump. I can understand people legitimately disagreeing, but this is not legitimate criticism, but this is just plain yellow journalism.
Reagan, for those of us who remember, did get tax cuts which increased government tax revenue because the tax cuts promoted economic growth. However, democratic congresses increased spending tremendously. Remember, every time Reagan submitted a budget, Tip O’Neill would pronounce it DOA.
“Another day, another anti-trump screed from National Review, GOPe central.”
“Why I Love George Will
by Jonah Goldbrick
Yesterday’s paper.
Mark Levin says his tax plan is very Reaganeque, so, I’ll take Mark’s word over some unknown Trump hater at National Review.,
--with no specifics on how to eliminate the $680B deficit. The reason he (yeah and all the candidates with him) won't say anything is because then they'd have to cut Social Security, Medicare, and Welfare--
| 2013 actual (In billions of dollars) | |
| National defense | 633,385 |
| Nondefense: | |
| Agriculture | 2 |
| International affairs ................................ | 633 |
| Transportation ....................................... | 1,441 |
| Education, training, employment, and social services . | 44,226 |
| Health ............................................... | 21,531 |
| Medicare ............................................. | 583,798 |
| Income security ...................................... | 430,653 |
| Social security ...................................... | 807,249 |
| Veterans benefits and services ....................... | 121,557 |
| Administration of justice ............................ | 671 |
| Grants to State and local governments for individuals | 378,217 |
| All other grants | 167,954 |
| Net Interest | 220,885 |
| All other | 135,188 |
| Undistributed offsetting receipts | -92,785 |
| Total nondefense | 2,821,220 |
| Total outlays | 3,454,605 |
| Receipts | 2,775,103 |
| Deficit | -679,502 |
--as cutting anything else wouldn't make enough of a dent.
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