Federal Spending & The Budget

Linking Tax Rates With Government Spending

With polls showing that voters want smaller government as well as tax relief, some Republican political strategists are advising presidential candidate Bob dole to link tax cuts to reduced federal spending. They argue that the cuts themselves will force government downsizing.

  • When President Reagan lowered the top personal tax rate from 70 percent to 50 percent in 1982, and then to 28 percent in 1988-89, federal spending slowed markedly.

  • During this period, entitlement programs expanded by a mere 2 percent at an inflation-adjusted annual rate, and their share of gross domestic product declined from 11.6 percent to 9.8 percent.

  • Nondefense discretionary spending increased at a paltry 0.5 percent real annual rate, while its GDP share dropped from 4 percent to 3.1 percent.

  • Strong 4 percent per year economic growth reduced the demand for federal programs.

So tax cuts successfully pressured government to curb spending.

By contrast, two major tax increases under Presidents Bush (1990) and Clinton (1993) financed significantly higher domestic spending.

  • Since 1990, entitlement spending has grown at a 5.7 percent inflation-adjusted annual rate, rising from 10 percent to 12 percent of GDP.

  • Domestic discretionary spending has accelerated at a 4.2 percent annual rate of increase, rising from 3.1 percent to 3.5 percent of GDP.

  • A sluggish 2 percent annual growth rate has increased economic anxiety and increased the demand for federal assistance.

The President's 1997 budget contains 193 new programs that are estimated to cost $180 billion more by 2002 -- necessitating tax increases. A recent Money magazine interview revealed Mr. Clinton's preference for expanded government: income redistribution, opposition to Social Security privatization and opposition to tax reform.


Home | Support Us | All Issues | Social Security | Debate Central | Contact Us

Dallas Headquarters: 12770 Coit Rd., Suite 800 - Dallas, TX 75251-1339 - 972/386-6272 - Fax 972/386-0924
Washington Office: 601 Pennsylvania Ave. NW, Suite 900 South Building - Washington, DC 20004 - 202/220-3082 - Fax 202/220-3096
© 2001 NCPA