Tax Cuts and Revenue

[jem]

first of all the reagan supply side tax cuts were 1981... remember that when had to take the carter and dems policies of heavy inflation out of the system and bring back prosperity to america.
Reagan cut taxes rates.

1986 was a tax reform designed to be revenue neutral ... to broaden out the base and eliminate loopholes.

The U.S. Congress passed the Tax Reform Act of 1986 (TRA) (Pub.L. 99–514, 100 Stat. 2085, enacted October 22, 1986) to simplify the income tax code, broaden the tax base and eliminate many tax shelters and other preferences. Referred to as the second of the two "Reagan tax cuts" (the Kemp-Roth Tax Cut of 1981 being the first), the bill was also officially sponsored by Democrats, Richard Gephardt of Missouri in the House of Representatives and Bill Bradley of New Jersey in the Senate.

The Tax Reform Act of 1986 was given impetus by a detailed tax-simplification proposal from President Reagan's Treasury Department, and was designed to be tax-revenue neutral because Reagan stated that he would veto any bill that was not. Revenue neutrality was targeted by decreasing individual income tax rates, eliminating $30 billion annually in loopholes, while increasing corporate taxes, capital gains taxes, and miscellaneous excises.[1] The act raised overall revenue by $54.9 billion in the first fiscal year after enactment [2] As of 2014, the Tax Reform Act of 1986 was the most recent major simplification of the tax code, drastically reducing the number of deductions and the number of tax brackets (for the individual income tax) to three.[3]


but we can engage on that too...

by the time they were done with exemptions even back then... very few people at the very bottom... actually paid income tax even if their rates went up in theory.
I was just out of school back then and I can assure you people making 10000 a year were not hit with more taxes. People making that little did not even bother filing back then.
Even people working for the federal govt.

But.... average income in 1986 was 22,600 dollars.
Many hardworking americans... making a little below average... they did see a tax rate cut... and a tax cut.
those americans making over 9170 dollars but less than 16,800 got a tax rate cut as did americans making over 31000.

However, similar to what AAA stated... there is no way you can blame those tax levels on income disparity now... because the bottom half of the country takes money from the federal govt.

Yes, bam. The tables Arnie linked, to support his claim that during Reagan tax rates for the lower incomes were lowered, show the opposite.

 

[Arnie]

Pie,

This is what you posted....

Top rates were much reduced, and the rate of the lowest bracket raised.

Now, looking at the tables I posted, when were the top rates much reduced?

It's obvious you were talking about the 1981 tax cuts.

BTW, the 1986 tax Reform Act, which did raise rates for the lowest brackets was a bipartisan effort.

With the Tax Reform Act of 1986, Reagan and Congress sought to raise taxes on lower incomes, eliminate many deductions, and reduce the highest marginal rates. In 1983, Democrats Bill Bradley and Dick Gephardt had offered a proposal; in 1984 Reagan had the Treasury Department produce its own plan. The eventual bipartisan 1986 act aimed to be revenue-neutral: while it reduced the top marginal rate, it also cleaned up the tax base by removing certain tax write-offs, preferences, and exceptions, thus raising the effective tax on activities previously specially favored by the code. Ultimately, the combination of the increase in tax rates on lower incomes and decrease in deductions raised revenue equal to about 4% of existing tax revenue.[11]

 

[piezoe]

Pie,

This is what you posted....

Top rates were much reduced, and the rate of the lowest bracket raised.

Now, looking at the tables I posted, when were the top rates much reduced?

It's obvious you were talking about the 1981 tax cuts.

BTW, the 1986 tax Reform Act, which did raise rates for the lowest brackets was a bipartisan effort.

With the Tax Reform Act of 1986, Reagan and Congress sought to raise taxes on lower incomes, eliminate many deductions, and reduce the highest marginal rates. In 1983, Democrats Bill Bradley and Dick Gephardt had offered a proposal; in 1984 Reagan had the Treasury Department produce its own plan. The eventual bipartisan 1986 act aimed to be revenue-neutral: while it reduced the top marginal rate, it also cleaned up the tax base by removing certain tax write-offs, preferences, and exceptions, thus raising the effective tax on activities previously specially favored by the code. Ultimately, the combination of the increase in tax rates on lower incomes and decrease in deductions raised revenue equal to about 4% of existing tax revenue.[11]

The reform act of 1986 raised rates dramatically for the lowest brackets starting in 1987 and continuing years. It lowered rates on high income earners. The 1981 tax reform lowered rates in the top bracket by 28 %, and it lowered them by exactly half that (14%) in lowest taxable bracket. Both of these "tax reforms" resulted in tax rate compression. The 1986 tax reform was particularly damaging in this regard. The result, after many years of tax bracket compression, is reflected in the extreme skew of the income distribution in the U.S. we see today. Of course there are other factors that have contributed as well, but flattening of the tax brackets, making the tax structure less progressive, is certainly a major contributor.

Another undesirable outcome of Reaganomics was the lessening of opportunity to move to higher brackets. It takes hard work and access to capital to move up from the lower brackets, and ultimately to transition from labor to capital. The squeeze that Reaganomics applied to the lower middle class made this transition more difficult.

You asked when were the top rates much reduced. Actually it was several times. the 1986 reform lowered the top rate from 50% to 28% by 1988 . That's a large reduction! It is bigger than the 1981act provided (70 to 50%)

 

[Tsing Tao]

This is undeniably true. In fact it is self evident. It is also self-evident that such a situation would be disastrous. That is what happened to Argentina, and the result was disastrous. This is then, a situation to be avoided.

Avoided by spending within our means, not by artificial manipulation.

If you are proposing higher and higher debt costs as a solution to overspending I have to tell you that that is idiotic. Don't go around suggesting this if you want to be taken seriously.

Taken seriously? You mean by someone who dodges questions and obfuscates the issues? That sure is rich coming from you!

What I am proposing is to let the free market work. Higher interest rates is how the market quantifies risk. It tells those issuing debt that their situation is getting a bit out of hand, and to take on the risk of additional debt, investors demand a higher premium. You can complain that it would put us in a situation similar to Argentina if you like, but the reality is we are already at that point - it's just papered over by artificial manipulation. That will work until it doesn't, and then it will be too late to correct everything. Even the Fed cannot hold off market forces forever.

 

[Tsing Tao]

Pie, I don't know if you're just trolling or you really are delusional enough to believe the crap you post.

He's not trolling. He's a clueless academic with little or no experience in the real world. Someone who spends their day read up on the mainstream economic releases and has eliminated anything that doesn't fit his narrative from the discussion for so long, that he automatically declares it myth and witchcraft without actually thinking it through. Additionally, when the questions get tough, he'll bail.

 

[Arnie]

He's not trolling. He's a clueless academic with little or no experience in the real world. Someone who spends their day read up on the mainstream economic releases and has eliminated anything that doesn't fit his narrative from the discussion for so long, that he automatically declares it myth and witchcraft without actually thinking it through. Additionally, when the questions get tough, he'll bail.

After I read a few of his responses to my posts, I realized I was probably dealing with an idiot. Maybe "idiot" is too strong. "Educated fool" is more like it.

The high 5 Ricter gave him confirmed it.

 

[Tsing Tao]

After I read a few of his responses to my posts, I realized I was probably dealing with an idiot. Maybe "idiot" is too strong. "Educated fool" is more like it.

The high 5 Ricter gave him confirmed it.

Educated fool describes him perfectly.

 

[Ricter]

After I read a few of his responses to my posts, I realized I was probably dealing with an idiot. Maybe "idiot" is too strong. "Educated fool" is more like it.

The high 5 Ricter gave him confirmed it.

And yet... you were wrong about the tax rate changes on the lower rungs, during Reagan. So you were bested by "an idiot".

 

[Arnie]

And yet... you were wrong about the tax rate changes on the lower rungs, during Reagan. So you were bested by "an idiot".

Oh no I wasn't. Artful dodger that he is, he was clearly talking about the '81 tax cuts. The top rate went from 70% to 50%, the largest year to year reduction in the top rate. Lower rates DID NOT go up. If he was talking about "Reagan" tax cuts why would he focus on a bill that passed Senate Finance Committee 20-0 and the full Senate 97-3? It was one of the most bipartisan bills addressing tax reform to ever pass. I'm glad he wants to give all the credit to Reagan.

It broadened the tax base and got rid of bogus tax shelters, so capital would go where its needed. Those are all good things. Guys like you and Piehole are so short sighted in your hatred of the "rich" that you'd rather we adopt a tax policy that penalizes the top earners, so every time the economy hiccups, we have a a recession. Just look at California...its feast or famine because no one in the lower brackets is paying any tax. They just balanced their budget and it only took them 10 years. May we be so lucky.


How Did the 1986 Tax Reform Act Attract So Much Support?

What made it possible to enact this legislation, versions of which passed the
Senate Finance Committee by a 20 to 0 vote and the full Senate by a 97 to 3 vote,
with such overwhelming bipartisan support? I believe that two features of the
Act were critical – (1) substantial rate reduction and (2) significant improvement
in the public’s perception of the fairness of the tax. Also important were two
other aspects of the shaping of the Act – revenue neutrality and de-emphasis on
adjusting the tax’s distribution by income class.

http://www.finance.senate.gov/imo/media/doc/92310RWTEST1.pdf

 

[piezoe]

Oh no I wasn't. Artful dodger that he is, he was clearly talking about the '81 tax cuts. The top rate went from 70% to 50%, the largest year to year reduction in the top rate. Lower rates DID NOT go up. If he was talking about "Reagan" tax cuts why would he focus on a bill that passed Senate Finance Committee 20-0 and the full Senate 97-3? It was one of the most bipartisan bills addressing tax reform to ever pass. I'm glad he wants to give all the credit to Reagan.

It broadened the tax base and got rid of bogus tax shelters, so capital would go where its needed. Those are all good things. Guys like you and Piehole are so short sighted in your hatred of the "rich" that you'd rather we adopt a tax policy that penalizes the top earners, so every time the economy hiccups, we have a a recession. Just look at California...its feast or famine because no one in the lower brackets is paying any tax. They just balanced their budget and it only took them 10 years. May we be so lucky.


How Did the 1986 Tax Reform Act Attract So Much Support?

What made it possible to enact this legislation, versions of which passed the
Senate Finance Committee by a 20 to 0 vote and the full Senate by a 97 to 3 vote,
with such overwhelming bipartisan support? I believe that two features of the
Act were critical – (1) substantial rate reduction and (2) significant improvement
in the public’s perception of the fairness of the tax. Also important were two
other aspects of the shaping of the Act – revenue neutrality and de-emphasis on
adjusting the tax’s distribution by income class.

http://www.finance.senate.gov/imo/media/doc/92310RWTEST1.pdf

Arnie, I know you mean well, but you're resolutely refusing to recognize that my post deals with tax rate compression and its consequences. You yourself provided the data and an explanation for the features of the '86 act that garnered support from both sides. Obviously, at the time, not enough concern was raised regarding possible long-term undesirable effects of "de-emphasis on adjusting the tax's distribution by income class.", i.e. rate compression.

I did not state which specific Reagan tax cuts I was referring too, but when I mentioned that he raised the rate on the lowest bracket, from the data you provided you could, of course, tell that it was the 1986 act that did that. Does it really matter to you which specific Reagan period Tax act raised the rates on the low brackets? What is important is that it happened and the ultimate effect was rather profound.

The main point of my post was that during the Reagan presidency what we could call "the great rate compression" began. And the cuts resulting from the 1981 and the 1986 acts both resulted in rate compression. This has been somewhat undone since of course. Even after partially undoing the rate compression of the Reagan era, however, we still have not recovered anything like the progressiveness of the income tax rate structure prior to Reagan.

I just now found this quote in the Wiki article on Reaganomics: I think you, and especially Jem, will find it enlightening.

"With the Tax Reform Act of 1986, Reagan and Congress sought to raise taxes on lower incomes, eliminate many deductions, and reduce the highest marginal rates. In 1983, Democrats Bill Bradley and Dick Gephardt had offered a proposal; in 1984 Reagan had the Treasury Department produce its own plan. The eventual bipartisan 1986 act aimed to be revenue-neutral: while it reduced the top marginal rate, it also cleaned up the tax base by removing certain tax write-offs, preferences, and exceptions, thus raising the effective tax on activities previously specially favored by the code. Ultimately, the combination of the increase in tax rates on lower incomes and decrease in deductions raised revenue equal to about 4% of existing tax revenue." [underlining is mine.]

But this is a side track from what I have pointed out to you, namely that there was a great compression of brackets during the Reagan Presidency, and it has remained, in part, ever since. .

I think I made it quite clear that to blame Reagan for this is misguided. In fact democrats also bought into the supply-side economics of the time. The supply siders held sway until there was enough data to make it clear that the results were not as had been anticipated. We found that we were not on the down slope of the Laffer curve, as Laffer had suggested to Cheney and Rumsfeld, who ran breathlessly back to Washington to spread the news that tax cuts will pay for themselves. It's win win!

We're past that now. We know the supply-siders were wrong, but the damage done by rate compression remains to this very day. Even though top marginal rate have gone back up some since the Reagan era, they still remain lower than at any time since 1930! By no means have we put back all the progressiveness that once existed in the U.S. tax structure.

Obviously the the upper income brackets can take far more advantage than lower income brackets of various deductions and loopholes to reduce their tax burden. The effect of these loopholes is equivalent to rates even more compressed than shown in the tables. The tables tell you all you need to know about how tax rate tampering during Reaganomics, in the interest of "fairness" and "revenue neutrality" squeezed the lower middle class while benefiting high income earners. The family vacation enjoyed by the lower middle class during the Eisenhower era, a period of steeply progressive tax rates, was soon to become an endangered species by the end of the Reagan Presidency.

By the way, Arnie, the 1986 act lowered over two years, rather than one, the top marginal rate by a little more than the 1981 cuts.

I have been puzzled by why a flat tax is more fair than a progressive one, since in both a flat and progressive tax structure we pay exactly the same tax rate on the same dollars earned. For example. If I make 25K and a Billionaire makes 1 billion we both pay exactly the same rate on 25K. It is just that Billionaire also makes dollars that fall in other brackets as well, and he pays a different rate in those brackets. I'd pay exactly the same rate as he if I made dollars that fell in those other brackets. What is unfair about that?

So, in my mind it isn't a matter of fairness, it's a matter of which tax structure produces the most stable and strongest economy in the long run. Is it the one that produces less disparity in net income after taxes, or the one that produces more disparity? You can argue until you're blue in the face, but you'll never convince me that the way to provide opportunity for the middle class to move up the economic ladder is to make the wealthy wealthier. I don't care if the wealthy get even wealthier, that's fine with me. I'm concerned about the increasing difficulty for middle class citizens, especially the lower middle class, to move up the economic ladder. Don't tell me that the way to improve opportunity for the lower classes is through making the upper classes wealthier. That's nonsense!