Do the Math

I was listening to Sean Hannity again this afternoon, and he was pressing the case that cutting taxes spurs economic growth.  He noted, as he has in the past, that government revenues doubled in the 1980s in spite of the Reagan tax cuts: hence, tax cuts actually increase government revenues.

Well, maybe.  A look at the official figures (http://www.gpoaccess.gov/usbudget/fy11/pdf/hist.pdf, pages 30-31) yields the following:

For 198o, the US government took in $517.1 billion.  For 1990, it was $1,032 billion.  So yes, in that time, government revenues almost doubled.

But government revenues doubled–or more–in every decade from 1940 to 2000.  So that really isn’t saying very much.

The government also presents figures where the revenues are adjusted to constant 2005 dollars.  By that measure, government revenues increased at a rate of 2.34% per year, on average, through the 1980s.

OK, what happened during the 1970s, the decade that brought us the energy crisis and stagflation?

Revenues went up, on average, in constant dollars, at a rate of…

…wait for it…

2.15% per year.

Also, government revenues as a percentage of GDP were 19% in 1980 and 18% in 1990.

All of this suggests that the vaunted Reagan tax cuts were, in the long run, tweakage.  Something changed during that time to make us all believe we were more prosperous.  But the tax cuts themselves had very little to do with it.

But what’s more disturbing is what has happened since 2000.  Government revenue went up a tick over the decade, but dropped in terms of constant 2005 dollars.  Meanwhile, expenditures went galloping ahead, more than doubling over the decade, or increasing at a rate of 4.97% per year in constant 2005 dollars.

So in the 1980s, taxes were cut–a little–and government revenues held steady, considering inflation and general economic growth.  In the 2000s, taxes were cut, and revenues dropped.

So cutting taxes does not increase revenues.

Sorry, Sean.

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