Palin, Reagan, and Obama, according to Krauthammer

“BC, I think your article is a good one. I like Charlie a lot, but he’s dead wrong about a lot of things”

Thanks. I read Krauhammer and watch him occasionally. He is often incisive, but I think he hold Palin in contempt. I saw that among the elites with Reagan, especially before he was elected. And whatever else Krauthammer is, he is an elitist, a card carrying member of the Washington Establishment. He jumped on Reagan’s train in 1985 after Reagan had won his second landslide, so he was a little slow on the uptake, when it came to the Gipper. I think he is similarly slow to embrace Palin. And for many of the same reasons that the elites were repelled by the Gipper.

Drilling for oil, supporting israel and boldly fighting terrorism are very safe issues for a fake conservative to pretend he cares about. They’re safe because his comments won’t do anything to increase conservative support because it is already fully saturated on those issues.

But when it comes to things like particuar conservative candidates with a good or reasonable chance of winning a nomination or gaining national attention, such as: Fred Thompson during the 2008 primaries; Bobby Jindal in his rebuttal to Obama’s first state of the union; or Sarah Palin in general, Krauthammer comes out at critical moments to put out any fires that might start burning in the hearts of conservative (and especially independent) Americans.

“except that you are mistaken about the effects of Reagan’s tax cuts.”

In what sense?

Total federal revenues doubled from just over $517 billion in 1980 to more than $1 trillion in 1990. In constant inflation-adjusted dollars, this was a 28 percent increase in revenue.

Revenues from individual income taxes climbed from just over $244 billion in 1980 to nearly $467 billion in 1990.5 In inflation-adjusted dollars, this amounts to a 25 percent increase.

http://www.heritage.org/Research/Reports/2001/03/The-Real-Reagan-Economic-Record

During the Reagan years, revenue to the Treasury from the individual income tax which he slashed, increased in CONSTANT DOLLARS BY FULLY ONE-QUARTER!

Unfortunately, federal spending, increased by 35.8% during these same years. The Government was not starved during by Reagan’s tax cuts, as Krauthammer wrongly suggests. The Government realized a windfall from the increased economic activity spurred by those rate reductions. The Government merely failed to live within what was a very generous increase of 25% in REAL dollars.

Reagan routinely corrected this attack on the tax cuts as fiscally irresponsible, but Krauthammer continues to push thje same nonsense, equating Reagan’s tax cuts to Obama’s dissolute spending in terms of their effect on federal revenues. (Note: Had Reagan controlled both Houses of Congress, as Bush did in 2000-2006, I believe the expenditure side of the ledger during the 1980s would have been different. As it was, The Reagan years were nothing like the wild spending undertaken by either Bush and accerated by Obama.)

“Total federal revenues doubled from just over $517 billion in 1980 to more than $1 trillion in 1990.”

Simply subtracting the revenues of 1980 from 1990 isn’t a valid method of determining the effects of the Reagan tax cuts, as appealing as that method might be for Rush Limbaugh (he happened to be doing this just yesterday). You have to run a regression analysis accounting for the normal business cycle, for deficit spending and other factors. Fortunately such a study was done by a pro-Reagan economist, Lawrence Lindsey, that was published as the book ‘The Growth Experiment’.

The results of Lindsey’s study supported the predictions of Reagan’s economic team. This was that the dynamic effects of tax cuts would recoup a portion of the tax loss predicted by static analysis. As I recall Lindsey found that over 60 cents of each dollar cut was recouped through economic growth. Only capital gains cuts ‘paid for themselves’ in increased revenues to the Treasury; and ironically the capital gains cuts began under Carter.

But the overall effect of the tax cuts was a reduction in Treasury revenue. The percentage of GDP taken in by the Treasury declined slightly over the Reagan years.

http://econlog.econlib.org/archives/2010/06/more_on_supply-.html

http://www.econlib.org/library/Enc1/Reaganomics.html

Martin Anderson was one of Reagan’s longest serving advisors and was one of maybe four principal economic advisors. He spends a lengthy section in his memoir ‘Revolution’ complaining about what he terms “the myth of the supply-siders”. He believes that certain supply side enthusiasts who didn’t work with Reagan misrepresented the Reagan program. The Reagan team didn’t expect tax revenues to go up which is why spending cuts were a part of their program. The goal of their program was economic growth and an end to inflation, not a means of increasing revenue to the Treasury. Anderson believes that the Reagan program worked out as intended, it just doesn’t happen to be the magical version now popular in the public mind.

http://old.nationalreview.com/reagan/manderson200406101417.asp

“Simply subtracting the revenues of 1980 from 1990 isn’t a valid method of determining the effects of the Reagan tax cuts”

It is a completely valid method of determining the effects of the effects of a tax cut. If a tax cut starved the government, as Krauthammer said, there would have been less revenue. It is really quite simple. There was 25% more revenue as a result of the INCOME TAX cut not the capital gains tax cut. If you count the cap gains tax cut, there was 28% more revenue.

“You have to run a regression analysis accounting for the normal business cycle, for deficit spending and other factors.”

Huh? No, you don’t. (BTW, the same economists that are applying a regression analysis to the tax cuts are the ones who were predicting, as George H.W. Bush did during the 1980 primaries that Reagan’s tax cuts would result in 32% inflation!) A regression analysis only works when the static variable(the rate reduction) is independent of the other variables (in this case...economic growth, which you call the business cycle, as if it were inevitable).

This kind of sleight of hand won’t fly. The tax cuts CAUSED unprecedented GROWTH and thus unprecedented tax revenues. The growth is not independent of the tax cuts, any more than the business cycle was. Had there been no such growth and had the tax rates remained at 70%, rather than invest in wealth generating economic activity, entrepreneurs would have sought tax shelters rather than taxable investments, and the government would have suffered a loss (along with the rest of the country).

“The Reagan team didn’t expect tax revenues to go up which is why spending cuts were a part of their program. The goal of their program was economic growth and an end to inflation, not a means of increasing revenue to the Treasury.”

I never suggested that Regan cut taxes to grow government, only that Krauthammer is wrong that he cut taxes to “starve” government. Reagan knew that the tax cuts would result in increased economic activity which would mean in- creased Receipts of the Treasury. Reagan still wanted to cut the size of the government for reasons that had nothing to do with the tax cuts.

“But the overall effect of the tax cuts was a reduction in Treasury revenue. The percentage of GDP taken in by the Treasury declined slightly over the Reagan years.”

Absolute nonsense. Are you a bureaucrat? Reagan used to be enormously frustrated with the mindset that said that restraining the rate of growth of government was a “cut”, but that is your complete orientation. If only it had not been for the tax cuts of 1981 and 1986, the government would have had more money. Wrong. The government would have simply had a LARGER share of a SHRINKING pie and would have had less in real terms.

BTW, I don’t need Lawrence Lindsey or Martin Anderson to tell me what I can see with my own eyes. The Reagan tax cuts worked. The Government was a third party, unintended beneficiary of them, buy a beneficiary nonetheless. They cost the government money only in the rarefied air of the economists’ doublespeak.

“BTW, I don’t need Lawrence Lindsey or Martin Anderson to tell me what I can see with my own eyes.”

Well of course. I mean who needs Martin Anderson? He was a mere Reagan advisor starting with Reagan’s days as Governor. And he’s an economist who helped design and implement Reagan’s economic program. What could he possibly teach you? No, you’re quite right, there’s no need for you to pay attention to someone like him.

And Larry Lindsey. Who would listen to that guy? Well, G.W. Bush did make him Assistant to the President on Economic Policy, but as you point out he’s probably the sort of economist who predicted that Reagan’s cuts would result in 32% inflation. And even though he didn’t do that, we can pretend that he did. I mean if he really knew his stuff he wouldn’t have wasted all that time running a complex regression analysis on the effects of Reagan’s tax cuts. He would have just subtracted 1980s receipts from 1990s. That whole ‘The Growth Experiment’ book of his could have been reduced to one line.

“Absolute nonsense. Are you a bureaucrat?”

No, I’m just someone with a bit of economic background who reads economic literature. Back in the 80s and 90s I used to enjoy defending Reaganomics against a Keynesian college professor I knew. And in order to defend Reaganomics I had to know what it was designed to do and what it accomplished, not what I imagined it to be. To accomplish this I slogged through many books and articles that weren’t exactly easy reading. Two of the more useful sources of information were Anderson and Lindsey. Anderson because of his lengthy service with Reagan and his close participation in designing the Reagan economic program. Lindsey because his study isolates the effects of the tax cuts from other factors, and Lindsey is a Reagan friendly and honest analyst.

Now while you dismiss Anderson and Lindsey that’s not something I’d do. I’ve only been reading economics for a few decades and I’m not in a position to dismiss them yet. Perhaps reading more of your elegant writing will educate me enough to where I, too, am able to casually dismiss the likes of Anderson and Lindsey without wading through their writing. It would sure save a lot of time. So keep writing and sharing your wealth of knowledge with the rest of us.

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