Tuesday, June 21, 2011

Tim Pawlenty on Tax Revenues During the 1980’s

Lawrence O’Donnell featured Bruce Bartlett to have an intelligent and honest discussion of tax rates and tax revenues. This feature starts with Tim Pawlenty repeating a very discredited claim – that the 1981 tax cuts led to tremendous economic growth almost doubling Federal tax revenues during the 1980’s. We’ve gone over this so many times but let’s do this again.

Table 2.1 from this source does show that total Federal receipts rose from around $517 billion in 1980 to around $1031 billion in 1990, which is what Pawlenty is talking about. But note that this includes payroll taxes which rose from around $158 billion in 1980 to $380 billion in 1990 – a 141% nominal increase. Other Federal taxes (mainly individual income and corporate profits) taxes rose from $359 billion in 1980 to $652 billion in 1990, which represents a 81% increase. A little reminder for Governor Pawlenty – we increased payroll tax rates during the 1980’s.

Bruce Bartlett reminded us that prices rose during the 1980’s – in fact the GDP deflator was over 51% higher in 1990 than it was in 1980. In 1980 dollars, other Federal revenues were only $431 billion. So in real terms, revenues rose only by 20%. Had we left tax rates alone and had we enjoyed the 3.5% average annual growth rates that we had for the period from 1951 to 1980, real revenue growth should have exceeded 40%. But we not only had lower tax rates but we also enjoyed lower real GDP growth during this period. Any serious student of fiscal policy knows this. The next President should know this. And maybe Tim Pawlenty knows all of this – which would mean that he hopes you don’t so he can continue lying to you!


TheTrucker said...

Why oh why do the Republicans and their apologists insist that American "prosperity" (to the extent that it actually existed) during the 1980's was because of the tax cuts? The pictures I see tell a much different story:

It is easy to make gains when you are at rock bottom. That is where the US economy was thanks to Paul Volcker who destroyed the American economy in order to "get" the inflation monster. After the disaster, interest rates were ratcheted downward all during the 80's. This will have had a greater influence on economic growth than tax cutting.


And then there is the reality of energy prices:


Now unless you believe that cutting taxes caused oil production to increase in in the world OUTSIDE the USA then you can't actually claim causation. We see that the FED was busy trying to breath life back into the economy after wrecking it. On that OIL note I will add that if your primary source of world exchange money is OIL (as it was in the USSR) then the collapse of oil prices will tear down a wall or two.

chris said...

I really doubt Pawlenty knows that either, since I bet that no one around him has ever explained it to him, and I am sure he would never bother to figure it out for himself.

TheTrucker said...

It amazes me how economists and politicians can constantly bicker over idiotology regarding government spending, taxation and monetary policy and completely miss the REAL events that are the CAUSE or the extender of economic dislocations. NO economist I have heard of is willing to admit that the "Dust Bowl" played a huge role in the depth and length of the Great Depression. All those people who had subsisted on the lands were left with nothing. They had to find jobs and there were none. Agricultural prices continued to erode because the farmers were getting a lot smarter and a lot more efficient. But those who subsisted on the land were not all that concerned with the prices. They had their cow and their pigs and their corn and the like and that's all they needed. But when that is gone, so too are the general store (seeds man) and the local bank. And one 5th of the nation was left without a pot to pee in.

Here is one more "reality" article with which we should deal: