Where Did Reagans Tax Cut Go?
J. Bradford DeLong delong@econ.berkeley.edu http://www.j-bradford-delong.net/ 834 words Two decades ago Ronald Reagan campaigned for president, promising to shrink the size of the federal government. And in America’s political mythology Ronald Reagan’s victory started the rollback of the social insurance state. Reagan pushed his immense supply-side tax cut through Congress and so starved and shrank the beast Leviathan that is the government. This is the mythology. But it is not the economic history. In the current budget year–in fiscal 2000–the share of GDP collected by the federal government as taxes will amount to about 21%, up from an average of 18.7% in the last five pre-Reagan years 1976-1980. How did this come to pass? What happened to the supply-side line in the sand drawn by Reagan? The story of how the 1981 tax-cut shift in America’s political economy was eroded away to nothing has three parts: the 1980s deficits, the early 1990s forecasts, and the late 1990s boom. Reagan’s
