NCPA - National Center for Policy Analysis


June 16, 2004

One of the myths perpetuated by Ronald Reagan's detractors is that he sold the country a bill of goods with his 1981 tax cut, promising that it would lose no revenue. This is simply nonsense, says Bruce Bartlett.

No one in a position of authority in the Reagan Administration ever said that the tax cut would pay for itself. The proposal that the White House sent to Capitol Hill on Feb. 18, 1981, clearly shows that it expected revenues to decline significantly.

  • The document estimated that the 1981 tax cut would reduce federal revenues cumulatively by $657 billion by 1986; no feedback effects whatsoever are estimated.
  • Revenue as a share of the gross national product is shown to decline from 24.1 percent in 1986 without the tax cut to 19.6 percent with the tax cut.

Furthermore, the White House's estimate of federal revenue following enactment of the tax cut exactly tracked that of the Congressional Budget Office, which was then under Democratic control. In a March 1981 report, "Economic Policy and the Outlook for the Economy," the CBO estimated the effect of the tax cut on revenue. On page 47, one can see that they are almost identical:

  • The administration's estimate for 1981 was only $1 billion higher than CBO's ($600 billion and $599 billion, respectively).
  • Its estimate for 1982 was $4 billion lower than CBO's ($650 and $654).
  • And it was only $2 billion higher for both 1983 and 1984 ($709 to $707 and $771 to $769, respectively).

Forecasting mistakes were made, but not because of supply-side economics or because anyone was lied to. Those who say so are perpetuating myths, says Bartlett.

Source: Bruce Bartlett, "Old Myths," National Center for Policy Analysis, June 16, 2004.


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