TruthOut10
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- Dec 3, 2012
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The historical myth that Reagan raised $1 in taxes for every $3 in spending cuts
In 1982, Ronald Reagan sat down with the Democrats and they had a deal a $3 cut in spending for every dollar they raised in taxes. Guess what? They raised the taxes, and they never cut the spending.
oft-repeated story told in Washington during fiscal cliff negotiations
It had become an article of faith by conservatives that President Reagan reluctantly agreed to raise taxes in his first term in office and that Congress then failed to follow though on promised spending cuts. The frequent recitation of this story during the current fiscal debate made us wonder: What actually happened three decades ago?
Its not hard to find the source of this story Reagans own memoir, An American Life. Heres what he wrote: I made a deal with the congressional Democrats in 1982, agreeing to support a limited loophole-closing tax increase to raise more than $98.3 billion over three years in return for their agreement to cut spending by $280 billion during the same period; later the Democrats reneged on their pledge and we never got those cuts.
When Reagan made a nationally-televised speech in support of the tax hike trying to refute charges that it was the biggest tax increase in U.S. history he also cited a 3-to-1 agreement:
Revenues would increase over a three-year period by about $99 billion, and outlays in that same period would be reduced by $280 billion. Now, as you can see, that figures out to about a 3-to-1 ratio $3 less in spending outlays for each $1 of increased revenue. This compromise adds up to a total over three years of a $380 billion reduction in the budget deficits.
The Washington Post did not have a Fact Checker column back then, and this speech certainly would have been ripe for fact checking. (We would have been suspicious of his use of the word outlays.) Lets go back in time to show what really happened, using documents, news reports and memoirs of the period.
The Facts
Despite Reagans claim that he made a deal with the Democrats, the Senate at the time was controlled by Republicans. Sen. Bob Dole of Kansas then chairman of the Finance Committee and later the majority leader and Republican nominee for president was a driving force behind a big tax increase because he was concerned about soaring deficits after Reagan had boosted defense spending and slashed taxes.
Dole warned the White House that the final year of Reagans three-year tax cut was at risk unless revenue could be raised in other ways. Under Doles leadership, the Senate Finance Committee led the way in crafting a big tax bill, fending off efforts by Democrats to halt Reagans tax cut.
Key people on Reagans team especially budget director David Stockman and White House Chief of Staff James A. Baker III were eager to rein in the deficit. But others, such a Treasury Secretary Donald Regan, were skeptical of a deal. Regan, in his memoir For the Record, proudly notes that he demanded a ratio of $1 in tax increases for $3 in spending cuts.
Stockman, in an interview, acknowledged that we needed a 3-to-1 ratio to get the deal accepted by Reagan and the Adam Smith tie boys (e.g. Ed Meese, et al). But it appears that Reagan and Regan did not actually understand the mechanics of the agreement. It turns out that much of the savings were not from spending cuts and many of the savings were dependent on actions by the Reagan administration.
Heres the actual breakdown of the three-year agreement, according to a June 1982 chart prepared by the GOP-controlled Senate Budget Committee staff, which appears in the 1989 book The Deficit and the Public Interest, by Joseph White and Aaron B. Wildavsky. (Note: The numbers represent reductions from anticipated, inflation-adjusted outlays.)
The historical myth that Reagan raised $1 of taxes in exchange for $3 of spending cuts - The Washington Post
In 1982, Ronald Reagan sat down with the Democrats and they had a deal a $3 cut in spending for every dollar they raised in taxes. Guess what? They raised the taxes, and they never cut the spending.
oft-repeated story told in Washington during fiscal cliff negotiations
It had become an article of faith by conservatives that President Reagan reluctantly agreed to raise taxes in his first term in office and that Congress then failed to follow though on promised spending cuts. The frequent recitation of this story during the current fiscal debate made us wonder: What actually happened three decades ago?
Its not hard to find the source of this story Reagans own memoir, An American Life. Heres what he wrote: I made a deal with the congressional Democrats in 1982, agreeing to support a limited loophole-closing tax increase to raise more than $98.3 billion over three years in return for their agreement to cut spending by $280 billion during the same period; later the Democrats reneged on their pledge and we never got those cuts.
When Reagan made a nationally-televised speech in support of the tax hike trying to refute charges that it was the biggest tax increase in U.S. history he also cited a 3-to-1 agreement:
Revenues would increase over a three-year period by about $99 billion, and outlays in that same period would be reduced by $280 billion. Now, as you can see, that figures out to about a 3-to-1 ratio $3 less in spending outlays for each $1 of increased revenue. This compromise adds up to a total over three years of a $380 billion reduction in the budget deficits.
The Washington Post did not have a Fact Checker column back then, and this speech certainly would have been ripe for fact checking. (We would have been suspicious of his use of the word outlays.) Lets go back in time to show what really happened, using documents, news reports and memoirs of the period.
The Facts
Despite Reagans claim that he made a deal with the Democrats, the Senate at the time was controlled by Republicans. Sen. Bob Dole of Kansas then chairman of the Finance Committee and later the majority leader and Republican nominee for president was a driving force behind a big tax increase because he was concerned about soaring deficits after Reagan had boosted defense spending and slashed taxes.
Dole warned the White House that the final year of Reagans three-year tax cut was at risk unless revenue could be raised in other ways. Under Doles leadership, the Senate Finance Committee led the way in crafting a big tax bill, fending off efforts by Democrats to halt Reagans tax cut.
Key people on Reagans team especially budget director David Stockman and White House Chief of Staff James A. Baker III were eager to rein in the deficit. But others, such a Treasury Secretary Donald Regan, were skeptical of a deal. Regan, in his memoir For the Record, proudly notes that he demanded a ratio of $1 in tax increases for $3 in spending cuts.
Stockman, in an interview, acknowledged that we needed a 3-to-1 ratio to get the deal accepted by Reagan and the Adam Smith tie boys (e.g. Ed Meese, et al). But it appears that Reagan and Regan did not actually understand the mechanics of the agreement. It turns out that much of the savings were not from spending cuts and many of the savings were dependent on actions by the Reagan administration.
Heres the actual breakdown of the three-year agreement, according to a June 1982 chart prepared by the GOP-controlled Senate Budget Committee staff, which appears in the 1989 book The Deficit and the Public Interest, by Joseph White and Aaron B. Wildavsky. (Note: The numbers represent reductions from anticipated, inflation-adjusted outlays.)
The historical myth that Reagan raised $1 of taxes in exchange for $3 of spending cuts - The Washington Post
