These charts are out of order …I will fix it later …if you click on them they do get much bigger and easier to read! 🙂
• 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.3
• As a percentage of the gross domestic product (GDP), federal revenues declined only slightly from 18.9 percent in 1980 to 18 percent in 1990.4
• 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.
• Federal spending more than doubled, growing from almost $591 billion in 1980 to $1.25 trillion in 1990. In constant inflation-adjusted dollars, this was an increase of 35.8 percent.6
• As a percentage of GDP, federal expenditures grew slightly from 21.6 percent in 1980 to 21.8 percent in 1990.7
• Contrary to popular myth, while inflation-adjusted defense spending increased by 50 percent between 1980 and 1989, it was curtailed when the Cold War ended and fell by 15 percent between 1989 and 1993. However, means-tested entitlements, which do not include Social Security or Medicare, rose by over 102 percent between 1980 and 1993, and they have continued climbing ever since.8
• 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 senior President Bush, while domestic spending increased in both mandatory and discretionary accounts.9 (See Chart 1.)
HOW DID REAGAN’S POLICIES AFFECT ECONOMIC GROWTH?
• This economic boom lasted 92 months without a recession, from November 1982 to July 1990, the longest period of sustained growth during peacetime and the second-longest period of sustained growth in U.S. history. The growth in the economy lasted more than twice as long as the average period of expansions since World War II.10
• The American economy grew by about one-third in real inflation-adjusted terms. This was the equivalent of adding the entire economy of East and West Germany or two-thirds of Japan’s economy to the U.S. economy.11
• From 1950 to 1973, real economic growth in the U.S. economy averaged 3.6 percent per year. From 1973 to 1982, it averaged only 1.6 percent. The Reagan economic boom restored the more usual growth rate as the economy averaged 3.5 percent in real growth from the beginning of 1983 to the end of 1990.12
• In 1991, after the Reagan rate cuts were well in place, the top 1 percent of taxpayers in income paid 25 percent of all income taxes; the top 5 percent paid 43 percent; and the bottom 50 percent paid only 5 percent.13 To suggest that this distribution is unfair because it is too easy on upper-income groups is nothing less than absurd.
• The proportion of total income taxes paid by the top 1 percent rose sharply under President Reagan, from 18 percent in 1981 to 28 percent in 1988.14
• Average effective income tax rates were cut even more for lower-income groups than for higher-income groups. While the average effective tax rate for the top 1 percent fell by 30 percent between 1980 and 1992, and by 35 percent for the top 20 percent of income earners, it fell by 44 percent for the second-highest quintile, 46 percent for the middle quintile, 64 percent for the second-lowest quintile, and 263 percent for the bottom quintile.15
• These reductions for the lowest-income groups were so large because President Reagan doubled the personal exemption, increased the standard deduction, and tripled the earned income tax credit (EITC), which provides net cash for single-parent families with children at the lowest income levels. These changes eliminated income tax liability altogether for over 4 million lower-income families.
Nevertheless, even if one counts the Social Security payroll tax, the share of total federal taxes increased between 1980 and 1989 for the following groups:
• For the top 5 percent of taxpayers, from 27.3 percent in 1980 to 30.4 percent in 1989; and
• For the top 20 percent of taxpayers, from 56.1 percent in 1980 to 58.6 percent in 1989.
On the other hand, the share of total federal taxes, if one includes the Social Security payroll tax, declined for four groups:
• For the second-highest 20 percent of taxpayers, from 22.2 percent in 1980 to 20.8 percent in 1989;
• For the middle 20 percent of taxpayers, from 13.2 percent in 1980 to 12.5 percent in 1989;
• For the second-lowest 20 percent of taxpayers, from 6.9 percent in 1980 to 6.4 percent in 1989; and
• For the lowest 20 percent of taxpayers, from 1.6 percent in 1980 to 1.5 percent in 1989
If Reagan’s critics had been willing to work with him to limit domestic spending even further and to control the growth of entitlements, the budget would have been balanced five to ten years sooner and without the massive tax increase imposed in 1993. Today, Members of Congress from across the political spectrum should stand on the evidence and defend the Reagan record.
Peter Sperry is the Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.