KRUGMAN: The Great Taxer

[dw]

Published June 8, 2004 in The New York Times

Over the course of this week we'll be hearing a lot about Ronald Reagan, much of it false. A number of news sources have already proclaimed Mr. Reagan the most popular president of modern times. In fact, though Mr. Reagan was very popular in 1984 and 1985, he spent the latter part of his presidency under the shadow of the Iran-Contra scandal. Bill Clinton had a slightly higher average Gallup approval rating, and a much higher rating during his last two years in office.

We're also sure to hear that Mr. Reagan presided over an unmatched economic boom. Again, not true: the economy grew slightly faster under President Clinton, and, according to Congressional Budget Office estimates, the after-tax income of a typical family, adjusted for inflation, rose more than twice as much from 1992 to 2000 as it did from 1980 to 1988.

But Ronald Reagan does hold a special place in the annals of tax policy, and not just as the patron saint of tax cuts. To his credit, he was more pragmatic and responsible than that; he followed his huge 1981 tax cut with two large tax increases. In fact, no peacetime president has raised taxes so much on so many people. This is not a criticism: the tale of those increases tells you a lot about what was right with President Reagan's leadership, and what's wrong with the leadership of George W. Bush.

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[Eric J in MN]

1. Who would thought that an Economics Professor could be so cool? nt

nt

[myopic4141]

2. Tax cuts and deficits.

Everyone talks about tax cuts and deficits regarding the Federal Government. No one actually talks about the nations debt (aka - Credit Market Debt or CMD). I think this is an important aspect of what is happening to this economy and is being kept in the dark. I thought I would bring it up again in this thread.
Apologists for Reagan in particular and Conservative tax cuts in general like to bring up JFK's tax cutting era when comparing with Reagan's and Bush's. What the apologists fail to mention is the CMD of the particular eras. I will present CMD as a function of GDP (CMD/GDP). Back when JFK cut taxes (1961 or so) the CMD was 148% of GDP which grew to 168% in 1981. At the end of the Reagan/Bush I era (1993), the CMD was 243% of GDP. A 75% point increase over 12 years vs a 20% point increase over 20 years. A significant rate of growth in debt. Then end of the Clinton era (2001) found the CMD at 292% of GDP or 38% percentage point over 8 years. At the end of the first year of Bush II (2002), the CMD is 303% of GDP or 11% points over 1 year. In all cases, CMD is growing faster than GDP; however, CMD grew markedly faster after the Reagan and Bush II tax cuts. Just to give an idea of what CMD costs the nation, I will use a debt service of 10% to demonstrate the differences between eras. The 10% debt service of CMD would translate into 14.8% of GDP in 1961, 16.8% of GDP in 1981, 24.3% of GDP in 1993, 29.2% of GDP in 2001, and 30.3% of GDP in 2002. This would have profound effects on how much capital actually goes into new investment.

[teryang]

3. That is an interesting perspective

I've often wondered what the total debt balance is compared to assets. Are they running a fundamentally unstable debt structure? I think that they (we) are. But I am not an economist. I had the impression during the Reagan era, that it was decided to borrow as much as possible, to strip the equity out of the country and deliver it to creditors at high interest rates, much as the corrupt corporate officers do at shareholder expense. Then the middle class which bought the tax cutting mantra, got to pay the bill for that and also to pay for the stripping of the nations savings and loans by the bush/contra scheme, which dwarfed Enron in its scale of officially sanctioned larceny.

[myopic4141]

6. Debt rising over income.

You do not have to be an economist to determine whether or not a debt structure is unstable. Just look at household income verses household debt and deficits (debt is what is owed and deficit is the difference between income and outgo). If debt is growing, then the household is running a positive deficit expenditure (outgo greater than income). As debt grows, debt service becomes a greater percentage of outgo expenditures; therefore, reduces the availability of discretionary (choice) and non-discretionary (required) funds for other services. Assets may be available for collateral against debt; but, if debt cannot be serviced, then assets are liquidated to repay debt at a value determined at liquidation time which may or may not be the desired liquidation value. Also, debt service drives up the cost of the asset; therefore, reduces the capital gains that can be achieved by the asset (the gains could actually become a loss when compared to cost).

[muriel_volestrangler]

4. For clarification

is the "nation's debt" the total debt of the federal government (plus state governments?) to others (Americans, foreigners); or is it the debt of all Americans (government, companies, individuals) to foreigners? I suspect it's the first (since I think the USA was, until recently, a creditor nation), but I just want to know for sure what you're measuring.

[myopic4141]

5. CMD

Credit Market Debt is the debt of the nation (government, corporate, and private). It can be found at http://www.census.gov/statab/www/ for all years by selecting "selected earlier editions". CMD can be found in the "Flow of Funds - Credit Market Debt" table of "Section 25 - Banking, Finance, and Insurance. GDP can be found in Section 13 - Income, Expenditures, and Wealth. Not all earlier publications are available via the site although they are all listed. A call should be made to the public library to see if they have the years not at the site. Hopefully this helps.

[swinney]

7. Reagan had 18 Tax increases

He signed 15 ,without a whimper, vetoed three and two were overridden.

His Legacy is President Spend and Borrow.

Increased spending by 80%--debt by 187% and deficits by 110%.

"most scurrilous Adm. in history" per Haynes Johnson prominent Wash Post writer.

Reagan had investigations in 31 Departments and on 232 individuals.

Seven Cabinet Members were investigated. Two found guilty. One pardoned.

Ten high level officials were found guilty.

Two went to Prison.

Anyone interested in this FACTOID

President Clinton had $110,000,000 spent trying to destroy his administration.

$110,000,000 caught one person. One person was "convicted" of a "felony" which was "committed while that person worked for" President Clinton.

$110,00,00 per person is sho a hugh waste of our money.