You are using an outdated browser.
Please upgrade your browser
and improve your visit to our site.
Skip Navigation

Pawlenty: Bush Tax Cuts? Never Heard Of 'Em!

Dave Weigel asks Tim Pawlenty why, given that the Bush tax cuts failed to boost growth or revenue, he believes that deepening those same tax cuts would produce such spectacular results:

"After the Bush tax cuts we got slightly less revenue, we got a larger debt," I asked. "You're talking about tax cuts as part of a larger plan that will grow the economy, reduce the deficit over the long term. Why would that work when the Bush tax cuts didn't?"
"Keep in mind," said Pawlenty, "our plan does not just cut taxes. It cuts spending. Big time. So as people look back to the historical examples, there's been other chapters where tax cuts have been enacted, and almost always they raise revenues if you just isolate the effect of the tax cuts. But I think they didn't fully serve their intended purposes, because at the same time, past Congresses and administrations also raised spending. That's not what we're proposing. We're not proposing to cut taxes and raise spending. We're proposing to cut taxes and cut spending, and if you do that we're going to grow jobs by shrinking government. We're going to grow the private sector by shrinking government."
"On the revenue side," I said, "they [the Bush tax cuts] generated less revenue than the previous tax rates did. Why would your tax cuts generate more?"
"When Ronald Reagan cut taxes in a significant way," said Pawlenty, "revenues actually increased by almost 100 percent during his eight years as president. So this idea that significant, big tax cuts necessarily result in lower revenues -- history does not [bear] that out."

So first Pawlenty replies by citing spending, which does not address the objection that lower tax rates failed to goose growth. Weigel presses the point, and Pawlenty cites Reagan. Of course, Reagan's tax cuts don't really get around the objection. The higher a starting tax rate, the more supply-side punch a tax cut could have. Reagan reduced the top marginal tax rate from 70% to 28%, which is a powerful reduction. George W. Bush cut taxes starting from the Clinton-era level, a top rate of 39.6%, down to 35%. Pawlenty proposes to cut below the Bush level. Cutting to a rate lower than the Bush level should mean an even weaker return than than the return on Bush's tax cuts.

Anyway, the notion that Reagan's tax cuts produced a gusher of revenue is also pure nonsense, but nonsense that conservatives have been peddling for a couple decades. The basic story is that Reagan passed a huge tax cut in 1981. By 1982, the deficit was climbing to alarming levels, and the Reagan administration immediately began raising payroll taxes in 1982 and 1983, partially but not completely stanching the loss of revenue.

The claim that revenue doubled is totally false. If you look at total revenue, it increased by 65% from 1981 through 1989. That's probably where Pawlenty got his "almost 100 percent" figure. But there are some huge problems with even that number. That number is total tax revenue, which means that the payroll tax hikes are covering up for the income tax cuts. Second, and worse still, that's a raw dollar figure, failing to account for inflation, which is a very basic no-no. Real income tax revenue increased 14% from 1981 to 1989. That's, uh, way less than 100%.

But wait! Even that increase is wildly misleading. After all, the United States is going to experience population growth and economic growth under virtually any income tax regime. Real tax revenue will grow if you keep the tax laws unchanged. (So will expenditures, for the same reason.) So to figure out what Reagan did to revenue, you need to compare it to the trend. Fortunately, Paul Krugman has done that for us:

I'm trying to think of more ways that Pawlenty is wrong, but I'm getting bored of this so I'll leave it there. Suffice it to say that he's wrong -- crazy wrong, climate change denial-wrong -- but also firmly in keeping with his party's orthodoxy. The utter failure of conservative predictions about the effects of the Clinton tax hikes (will destroy the economy, cause a recession and lead to less revenue) and the effects of the Bush tax cuts (will create a new economic boom) have left absolutely zero imprint upon the thinking of movement conservatives.