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Thread: The historical myth that Reagan raised $1 in taxes for every $3 in spending cuts

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    The historical myth that Reagan raised $1 in taxes for every $3 in spending cuts

    The historical myth that Reagan raised $1 in taxes for every $3 in spending cuts

    http://www.washingtonpost.com/blogs/fact-checker/post/the-historical-myth-that-reagan-raised-1-in-taxes-for-every-3-in-spending-cuts/2012/12/13/58a33e4c-4555-11e2-8061-253bccfc7532_blog.html

    “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?

    It’s not hard to find the source of this story — Reagan’s own memoir, “
    An American Life.” Here’s 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.”) Let’s go back in time to show what really happened, using documents, news reports and memoirs of the period.


    The Facts

    Despite Reagan’s 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 Reagan’s three-year tax cut was at risk unless revenue could be raised in other ways. Under Dole’s leadership, the Senate Finance Committee led the way in crafting a big tax bill, fending off efforts by Democrats to halt Reagan’s tax cut.
    Key people on Reagan’s 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.
    Here’s 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.)
    Revenues: $98.3 billion (26 percent)
    Defense cuts: $26.4 billion (7 percent)
    Nondefense cuts: $34.8 billion (9.1 percent)
    Entitlement cuts: $30.8 billion (8.1 percent)
    Other reductions/offsets: $7.8 billion (2 percent)
    Freeze federal pay raise: $26.1 billion (6.9 percent)
    Management savings: $46.6 billion (12.3 percent)
    Net interest: $107.7 billion (28.4 percent)
    Total non-revenue: $280.2 billion (74 percent)
    Total: $378.5 billion
    We will never know if Reagan saw this specific breakdown. On the surface, one could plausibly believe there was a ratio of 3 to 1 in terms of lower outlays to higher taxes, as Reagan put it in his speech. But a reduction in “outlays” is not the same as cutting spending on programs.
    Indeed, almost half of the “cuts,” such as interest savings on debt (from lower interest costs and reduced deficits) and “management savings,” were beyond the control of Congress. At best, the spending savings that Congress could deliver, including defense cuts, amounted to a 1-to-1 ratio.
    Congress passed $30 billion in spending cuts (mostly on entitlement programs) at the same time as the tax bill, according to news reports; The Washington Post described the twin congressional actions as “enormous bills by historical standards.” Lawmakers then struggled much of the next year to cut spending even more. But news reports also show the administration repeatedly failed to deliver on its side of the spending-cut bargain.
    Stockman says the $46 billion in management savings “was just a made-up target that never really had any content” in order to reach the 3-to-1 ratio. Meanwhile, Defense Secretary Caspar Weinberger simply refused to comply with the agreement, and so Reagan’s future budgets ignored the requirements for proposing defense cuts. Stockman says the entitlement cuts — mainly price controls on Medicare billing — were implemented but “got lost in higher-than-expected Medicare inflation.”
    “In essence, the funny numbers, meant to impress voters and maybe the markets, fooled the president. They also fooled Donald Regan and Ed Meese,” write White and Wildavsky. “To Stockman, Baker, [Richard] Darman and congressional leaders, this sense of betrayal was ludicrous; no one ever said Congress would pass three-for-one. The [congressional budget] resolution was clear enough about that.”
    Stockman, in his memoir, “
    The Triumph of Politics,” blames the late Rep. Jack Kemp (R-N.Y.) — later Dole’s vice presidential running mate — for convincing Reagan that he had been “hornswoggled” by Congress. By Stockman’s accounting, Congress did reasonably well in meeting the terms of the deal, but the administration failed to live up to its end of the bargain. “Reagan did get tricked — mainly by Weinberger and his own Cabinet,” Stockman said this week.
    Dole felt compelled to send Reagan a letter on Jan. 16, 1984, clarifying what had actually happened:
    The most frequently voiced objections to packaging new spending cuts and revenue increases together is that Congress would enact the new taxes but renege on the spending cuts. These critics cite as evidence the alleged failure of Congress in 1982 to deliver any of the promised three dollars in spending cuts for each dollar of tax increase. I respectfully submit, Mr. President, that you were not “taken in” by this budget plan.

    In fact, historical budget data show that Congress did reduce spending. From 1982 to 1983, nondefense discretionary spending fell from 4.3 percent to 4.2 percent of the overall economy (gross domestic product) — and then kept falling until it reached 3.4 percent of GDP in 1989. Defense spending kept going up until 1986.


    The Pinocchio Test

    It is time to abandon this myth. Reagan may have convinced himself he had been snookered, but that belief is based on a fundamental misunderstanding of the deal he had reached.
    Congress was never expected to match the tax increases with spending cuts on a 3-to-1 basis. Reagan appeared to acknowledge this in his speech when he referred to outlays (which would include interest expenses), rather than spending cuts. In the end, lawmakers apparently did a better job of living up to the bargain than the administration did.
    If people want to cite the lessons of history, they need to get the history right in the first place.

    Four Pinocchios

  2. #2
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    David Stockman clarified this many times since those days, but it's one of those zombie lies that always returns as common knowledge.

    Let's see-- Reagan's own Wunderkind budget expert, former Congressman David Stockman, head of his Office of Management and Budget (OMB), and then Senate Finance Committee Chairman Sen. Bob Dole, agree that it didn't happen, but Reagan thinks it did? Gosh, who is more believable on this issue? "Who are Stockman and Dole, Alex?"
    A medium sized fish [...]

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    A bit like when raygun sayd that he returned 10% of their tax to companys in california when he returned just 1%.
    mac.

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    Quote Originally Posted by cushioncrawler View Post
    A bit like when raygun sayd that he returned 10% of their tax to companys in california when he returned just 1%.
    mac.
    That's one I hadn't heard before, or I've forgotten it. That's just a typical bit of political puffery, even as it is a lie as well.

    One claim from him that was far more serious is that he said early in the '80s that the Soviets had outspent us on the military by $100 billion the previous 10 years, and had achieved superiority while we had languished behind in investing in armaments and capabilities. The truth was that WE had outspent them by that same amount in the prior 10 years, as the Soviets well knew.

    Using that bogus claim as a reason we should ramp up the defense budget to double its prior level (in nominal dollars) convinced them he was a real war monger, and set up the near 3rd world war scenario we barely dodged without even knowing it, during the Operation Archer joint NATO exercises.
    A medium sized fish [...]

  5. #5
    You are totally misunderstanding the issue.

    In the 1970's the USSR in fact spent far more on weapons than the US ... and, in fact, had more tanks, more planes, more ships, more artillery, more missiles, more guns, more bullets, more soldiers than we had.

    The US did have a higher military budget ... which isn't the same thing ... because we paid our soldiers multiples of what the USSR paid theirs, and housed them better, and fed them better, and offered a better pension, and the GI BILL.

    I remember Jimmuh Cahtuh ... and the inability to mount an attack on Iran, and having to buy my own ammo to range qualify as a reservist.

    Had the Soviets moved into western Europe in 1980, NATO would have been left with a choice between surrender and nuclear war.

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    Semi-true at best. The fact was that to ramp up the scare factor, the US spending and equipment and personnel was compared without the rest of the NATO alliance's spending and equipment and personnel, as against the Russians in combination with the Warsaw Pact.

    Once the true order of battle was stated, the apparent lead of the Soviets Warsaw Pact totals was greatly reduced. By standard military doctrine, the aggressor needs several multiples of the defense to prevail-- 3-1, 4-1-- something of that order. 2-1 wouldn't get it done, and NATO was typically within less than 2-1 deficit comparisons.

    Besides, it was ALWAYS our doctrine that we would semi-immediately go nuclear against a Warsaw Pact invasion attempt, using smaller tactical nukes on the battlefield. In fact, the forward placement of nuclear artillery, nuclear howitzers, etc., meant that we knew we'd be in a very early situation of use them or lose them. It is true that in all the war-gaming of such a conflict, the use of tactical nukes led to the use of strategic nukes, and a general exchange. That was why the SIOP plan was being replaced by first-strike capable decapitation weapons, targeting CCC capabilities, as represented by the MX missile, the Trident missiles, the Pershing IIs, and Stealth manned penetration bombers. (All developed, procured, built and emplaced under Jimmy Carter's policies.)
    A medium sized fish [...]

  7. #7
    Quote Originally Posted by Soflasnapper View Post
    Semi-true at best. The fact was that to ramp up the scare factor, the US spending and equipment and personnel was compared without the rest of the NATO alliance's spending and equipment and personnel, as against the Russians in combination with the Warsaw Pact.

    Once the true order of battle was stated, the apparent lead of the Soviets Warsaw Pact totals was greatly reduced. By standard military doctrine, the aggressor needs several multiples of the defense to prevail-- 3-1, 4-1-- something of that order. 2-1 wouldn't get it done, and NATO was typically within less than 2-1 deficit comparisons.

    Besides, it was ALWAYS our doctrine that we would semi-immediately go nuclear against a Warsaw Pact invasion attempt, using smaller tactical nukes on the battlefield. In fact, the forward placement of nuclear artillery, nuclear howitzers, etc., meant that we knew we'd be in a very early situation of use them or lose them. It is true that in all the war-gaming of such a conflict, the use of tactical nukes led to the use of strategic nukes, and a general exchange. That was why the SIOP plan was being replaced by first-strike capable decapitation weapons, targeting CCC capabilities, as represented by the MX missile, the Trident missiles, the Pershing IIs, and Stealth manned penetration bombers. (All developed, procured, built and emplaced under Jimmy Carter's policies.)

    Are you honestly claiming that Warsaw Pacts forces in Europe didn't outnumber NATO forces in Europe?

    Also ... don't tell the Wehrmacht that they needed a 3:1 advantage ...

  8. #8
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    Are you honestly claiming that Warsaw Pacts forces in Europe didn't outnumber NATO forces in Europe?
    No (see above), but you are dishonestly asking that question, if you are able to read.

    All kinds of tricks were played in hyping the hollowed out Soviet threat. That their personnel costs were the same or comparable to ours (they were not), which padded their alleged military spending figures tremendously with so many men at arms. That their differently sized divisions, typically not even fully manned, were the same as our sides'. That 'throw weight' or launcher numbers were the most important factor in strategic nuclear arms (they had more of those), instead of numbers of accurate and deliverable warheads, where we consistently led from our earlier implementation of MIRV technologies (and since our payloads were far more accurate, needed less explosive power). That's not to mention the decimation of the Soviet forces by rampant alcoholism, and the dicey idea that the captive East European countries would be reliably fighting for the Soviets, instead of perhaps turning against them, or simply deserting.
    A medium sized fish [...]

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