The Daily Signal posted an article today about the immediate impact of the tax cuts recently passed by Congress.
I would like to remind people of what happened the in the 1980’s when President Reagan and Congress passed major tax cuts.
According to a Washington Post article April 10, 2015:
…the government’s budget numbers show that tax receipts expanded from $517 billion in 1980 to $909 billion in 1988 — close to a 75 percent change (25 percent after inflation),” Moore (Stephen Moore of The Heritage Foundation) wrote.
We checked the historical records of the White House budget office, and those numbers are right. But it’s devoid of important context.
First of all, revenues as a percentage of gross domestic product (GDP), which is the best way to compare across years, dropped from 19.1 percent in 1981 to a low of 16.9 percent in 1984, before rebounding slightly to 17.8 percent in 1989. One reason the deficit soared during Reagan’s term is because spending went up as a share of the economy and revenues went down.
A HeraldNet article of December 15, 2012 reminds us that President Reagan made a deal with the Democrats that included spending cuts as well as tax cuts. Conventional wisdom concerning that deal was that for every dollar in tax cuts there would be a three dollar cut in spending. Unfortunately, the Democrats never kept their end of that bargain.
The HeraldNet article reports the plan:
Here’s the actual breakdown of the three-year agreement, according to a June 1982 chart prepared by the GOP-controlled Senate Budget Committee staff, which appears in the 1989 book “The Deficit and the Public Interest,” by Joseph White and Aaron B. Wildavsky. (Note: The numbers represent reductions from anticipated outlays.)
$98.3 billion (26 percent)
Defense cuts: $26.4 billion (7 percent)
Nondefense cuts: $34.8 billion (9.1 percent)
Entitlement cuts: $30.8 billion (8.1 percent)
Other reductions/offsets: $7.8 billion (2 percent)
Freeze federal pay raise: $26.1 billion (6.9 percent)
Management savings: $46.6 billion (12.3 percent)
Net interest: $107.7 billion (28.4 percent)
Total non-revenue:$280.2 billion (74 percent)
Total: $378.5 billion
…At best, the spending savings that Congress could deliver, including defense cuts, amounted to a 1:1 ratio.
As Congress debates spending, we can hope that they will not repeat this mistake. Increased government revenues due to tax cuts should not lead to increased federal spending.
So far the results of the recent tax cut have been positive.
The article at The Daily Signal reports:
More businesses are announcing bonuses, higher minimum wages, and new benefits for employees after passage by Congress of Republicans’ tax reform bill.
An email from House Speaker Paul Ryan’s press office highlights 33 businesses—including Aflac, Associated Bank, and PNC Bank—that have announced raises, bonuses, and other improvements for employees.
In moves that may defuse efforts to mandate higher minimum wages across the nation, at least nine of the 33 businesses announced they are boosting their minimum wage for thousands of workers to $15 or more an hour.
The article at The Daily Signal includes a partial list of companies offering benefits to their employees as a result of the tax cut. The article also includes a link to a complete list.
All working Americans have many reasons to celebrate the tax bill.