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!