For the past eight years, politicians have been blaming their deficits on Reagan's tax cuts. Who are they going to blame now that they have pushed through a large tax increase and the budget deficit jumped to unprecedented heights?Once again the economy is providing dramatic proof that tax increases do not reduce the deficit.
In 1989 the deficit was $152 billion, an amount considered too high to allow the Federal Reserve to help the economy by lowering interest rates. There were no tax cuts in 1989 or 1990; yet the 1990 deficit jumped to $220 billion.For fiscal year 1991, which began in October, the deficit is estimated by the Congressional Budget Office (CBO) to be $320 billion - and that is despite the tax increase, which, according to the budget deal, was supposed to reduce the deficit.
Not even the large Reagan tax cuts produced a deficit that big. Moreover, according to the CBO, it may grow bigger before the year is over. The economy may worsen and the costs of Bush's Iraqi adventure - estimated at $25 billion a year without a shot being fired - are not included in the $320 billion deficit estimate.
In exchange for higher taxes on gasoline and income, the American people were supposed to get deficit reduction, not a record large deficit. Moreover, according to CBO the deficit will grow to at least $337 billion in 1992.
These deficits are much larger than the deficits associated with the Reagan tax cut. For example, in 1982 the combination of the recession and the Reagan tax cut only produced a deficit of $128 billion.
The reason Reagan could produce a smaller deficit with a larger tax cut than the current government can produce with a major tax increase is that Reagan's supply-side policy managed the economy better.
Reagan's eight years of economic growth and 20 million new jobs did a lot more for the government's finances than a tax increase that is helping to usher in recession.
When the economy turns down, no amount of tax increases can reduce the deficit. But that won't prevent the government from using the jump in its deficit as an excuse to raise taxes again.
Already Rep. Leon Panetta, D-Calif., of the House Budget Committee has put additional gasoline taxes and an income-tax surtax on the table as options to deal with the growing deficit.
Seeing the demise of the Reagan prosperity, money is leaving the country as people look for better investment opportunities abroad.
For the past eight years, politicians have been blaming their deficits on Reagan's tax cuts. Who are they going to blame now that they have pushed through a large tax increase and the budget deficit jumped to unprecedented heights? No one could possibly believe the Reagan tax cut of a decade ago caused the deficit to increase from $152 billion in 1989 to $320 billion in 1991.
Now unemployment is rising, and the government is preoccupied with the Middle East. If we do go to war, there will be a lot of unemployed people for the army.
Before it's all over, we may miss the Reagan peace as well as the Reagan prosperity.