Hey folks,
Super quick question. Been debating with a friend of mine over Reagan's accomplishment or lack there of and I presented Rothbard's piece to him. He pointed out that although the tax cuts were marginal, they were still cuts. Rothbard writes:
"Taxes fell from 18.9% of the GNP to 18.3%, or for a better gauge, taxes as percentage of net private product fell from 27.2% to 26.6%"
Source: http://mises.org/daily/1544
Now my question to you; Why did Rothbard compare tax receipts to GNP? What is the point?
If I were to use the same metric, then today's burden of 2.5 trillion in revenue and 15.8 GNP suggests our burden has fallen. But GNP goes up with Government spending, so deficit spending can literally decrease our burden. However that does not help us one bit.
Since Rothbard is much smarter than I am, what am I missing?
thanks!
bumpplz
You are not missing anything. The very same article states:
Sophisticated economists say that these absolute numbers are an unfair comparison, that we should compare federal spending in these two years as percentage of gross national product. But this strikes me as unfair in the opposite direction, because the greater the amount of inflation generated by the federal government, the higher will be the GNP. We might then be complimenting the government on a lower percentage of spending achieved by the government's generating inflation by creating more money. But even taking these percentages of GNP figures, we get federal spending as percent of GNP in 1980 as 21.6%, and after six years of Reagan, 24.3%. A better comparison would be percentage of federal spending to net private product, that is, production of the private sector. That percentage was 31.1% in 1980, and a shocking 34.3% in 1986. So even using percentages, the Reagan administration has brought us a substantial increase in government spending.
...and the very same paragraph from which you quoted states:
But the bottom line on the tax question: is what happened in the Reagan era to government tax revenues overall? Did the amount of taxes extracted from the American people by the federal government go up or down during the Reagan years? The facts are that federal tax receipts were $517 billion in the last Carter year of 1980. In 1986, revenues totaled $769 billion, an increase of 49%. Whatever that is, that doesn't look like a tax cut. But how about taxes as a percentage of the national product? There, we can concede that on a percentage criterion, overall taxes fell very slightly, remaining about even with the last year of Carter. Taxes fell from 18.9% of the GNP to 18.3%, or for a better gauge, taxes as percentage of net private product fell from 27.2% to 26.6%. A large absolute increase in taxes, coupled with keeping taxes as a percentage of national product about even, is scarcely cause for tossing one's hat in the air about a whopping reduction in taxes during the Reagan years.
Was Rothbard not clear enough for you?
I don't have an answer for your question, but I have another question: was Reagan's administration net negative on taxes?
This is a good question and it's not obvious to me that Reagan's policies were ultimately a tax cut. Yes Rothbard says that taxes as a percentage of private product fell from 27.2 to 26.6%. But tax inlays increased basically from 500b to 750b over his double-term. That's a 50% increase. If we account for all of the debt-fueled spending on military contractors, which was the consequence of an increase of federal debt to gdp of ~30% to ~60%, 1.3 trillion dollars, then it becomes plausible in my mind, that the Reagan administration was net tax neutral or even net tax positive.
I suppose at this point we're entering into arguments about 'seen and unseen' and 'crowding out', in determining the extent to which debt-fueled public investment can create economic growth, but it is not obvious to me that Reagan lowered taxes.
The Anarch is to the Anarchist what the Monarch is to the Monarchist. -Ernst Jünger
In possible contrast to the military contractors though, Reagan also regulated the hell out of nearly everything which may artificially boost govt revenue. Basically, it's splitting hairs to say how Reagan increased revenues or how he decreased them.
He increased taxation on voluntary exchanges though because of all the spending.
So Rothbard himself was uneasy with comparing to GNP, so he worked around it by comparing to net private product.
He states:
"or for a better gauge, taxes as percentage of net private product fell from 27.2% to 26.6%"
Does anyone here know how to calculate or derive net private product? Which I take to mean GNP - Government spending?
As to the point that others brought up of net increases in absolute tax numbers, well I am not sure that lookng at that figure one can deduce anything. That is the classic reasoning from the Laffer curve, a more productive country will have a larger overall tax reciept pool. Here again, Rothbard seems to be glossing over - amost on purpose. The Fed credit boom in the 1980s was a giant one and that gave them all the revenue boosts they needed.
@rkd80: I believe Rothbard said to double public spending and substract it from GDP to find out private product.
That seems kind of....nebuluous.
@Rdk80:
(GDP) - (2x public spending) = private product. It is 2x public spending because that is how much private production is being taxed... once for what the govt spends, once for what the private sector lost through taxation.
It may seem kind of nebulous because GDP cannot very easily be broken down... taking it at face value may be issue because Keynes thought central planning could better make GDP higher and actually matter... even though it really doesn't matter.