Reaganomics - Results - Tax Revenue

Tax Revenue

Short term analysis of revenue effect as percentage of GDP from tax bills enacted under Reagan.
Number of years after enactment
Tax bill 1 2 3 4 First 2-yr avg 4-yr avg
Economic Recovery Tax Act of 1981 -1.21 -2.60 -3.58 -4.15 -1.91 -2.89
Tax Equity and Fiscal Responsibility Act of 1982 0.53 1.07 1.08 1.23 0.80 0.98
Highway Revenue Act of 1982 0.05 0.11 0.10 0.09 0.08 0.09
Social Security Amendments of 1983 0.17 0.22 0.22 0.24 0.20 0.21
Interest and Dividend Tax Compliance Act of 1983 -0.07 -0.06 -0.05 -0.04 -0.07 -0.05
Deficit Reduction Act of 1984 0.24 0.37 0.47 0.49 0.30 0.39
Omnibus Budget Reconciliation Act of 1985 0.02 0.06 0.06 0.06 0.04 0.05
Tax Reform Act of 1986 0.41 0.02 -0.23 -0.16 0.22 0.01
Omnibus Budget Reconciliation Act of 1987 0.19 0.28 0.30 0.27 0.24 0.26
Total 0.33 -0.53 -1.63 -1.97 -0.10 -0.95

According to a United States Department of the Treasury economic study, the major tax bills enacted under Reagan, in the short term, increased total tax revenue and reduced the tax burden on the economy (~-1% of GDP). The Economic Recovery Tax Act of 1981 resulted in a reduced tax burden on the economy (~-3% of GDP) while other tax bills had neutral or, in the case of the Tax Equity and Fiscal Responsibility Act of 1982, a (~+1% of GDP) increase in revenue as a share of GDP. It should be however noted that the study did not examine the longer-term impact of Reagan tax policy, including sunset clauses and "the long-run, fully-phased-in effect of the tax bills". The fact that tax receipts as a percentage of GDP fell following the Economic Recovery Tax Act of 1981 shows a decrease in tax burden as share of GDP. Total tax revenue from income tax receipts increased during this time. The economic growth and increase in GDP outpaced the increase in tax receipt revenue, resulting in a slightly reduced tax burden as a percentage of GDP for the economy.

The effect of Reagan's tax cuts were at least partially offset by phased in Social Security payroll tax increases that had been enacted by President Jimmy Carter and the 95th Congress in 1977. An accounting indicated nominal tax receipts increased from $599 billion in 1981 to $1.032 trillion in 1990, an increase of 72% in current dollars. In 2005 dollars, the tax receipts in 1990 were $1.5 trillion, an increase of 20%. From 1991 to 2000, receipts increased by 90% in current dollars, or 60% in 2005 dollars. An analysis from the Center on Budget and Policy Priorities calculated that the average annual growth rate of real income-tax receipts per working-age person eventually rose over the two decades from 0.2% (1981–90) to 3.1% (1990-01).

Read more about this topic:  Reaganomics, Results

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