[net.politics] Items in the Federal budget: Olson is right

orb@whuxl.UUCP (SEVENER) (11/22/85)

I concede victory, Dave.  Indeed, as your figures indubitably
show, in fact federal income tax receipts did *INDEED* decline.
Underneath your figures I place figures with very rough
corrections for inflation of 8% in 1980 and 5% for years
thereafter.  Actually this is a *conservative* estimate as I
believe the inflation rate has in fact been higher during
those years.  Therefore the actual declines in revenue are even
*worse* than these admittedly very rough estimates:

> Dave's figures from Budget Office: 
> Year                  1980    1981    1982    1983    1984    1985
> Individual Income Tax
> (in $billions)        244.1   285.9   297.7   288.9   296.2   329.7(est.)
  inflation adjusted    244.1   264     261     241     235     249
 
There are several points of importance here.  First is to note that *even the
raw figures* practically show a decline in revenues.  Second, is
that even with the big jump in revenues projected for 1985, that the
total revenues adjusted for inflation are still *LESS* than in 1981
before the tax cuts.  Also I believe that there were some adjustments
made to increase taxes in 1984 due to the massive deficits.  Therefore
the low figures for 1985 would have been even lower without slight tax
increases.  Finally as I have mentioned before one should really
compare the actual revenues received with the tax cuts, with projected
revenues at the old tax rates.  This is not easy to do since supply-side
theory predicts that taxable income will rise, thereby raising revenues
based on that income.  However if we cannot  easily simply apply
the old tax rates to the taxable income actually generated after the
tax cuts we can project what the tax revenues would likely have been
without the tax cuts by looking at previous years.
 
In this case we find that tax revenues did *indeed* rise from 1980 to
1981, even adjusting for an inflation rate of 8% 
(from $244 to $264 billion).  We could probably
project that *without the 1981 tax cuts* that revenues would also have
increased from 1981 to 1982.  It is hard to be sure that this would
actually be valid without doing a sophisticated econometric model
of the economic conditions in these years and controlling for them.
Sine 1981 was a recession year, it would probably have been a problem
in any case since high rates of unemployment decrease overall income
while concommitantly increasing government spending for unemployment
benefits and welfare.  However I now have total confidence, thanks to
Dave's excellent research, in saying that the 1981 tax cuts reduced
federal revenues and increased the deficits every year thereafter.
The increases in the deficits caused by the fiscal irresponsibility of
buying a trillion dollars of preparations for War while also reducing
the revenues with which to pay for them were so huge that the
resultant increases simply in *interest* on the national debt
were greater than all of Reagan's cuts in social spending.
 
I think George Bush described it best in the 1980 primaries:
"Increase military spending, decrease taxes AND balance the budget?
         that's VOODOO ECONOMICS!"
That's all I have to say on this topic.  I concede victory.
             tim sevener   whuxn!orb