THE BLOG

Tax Cut = Growth? Actually Not So Much

07/12/2011 02:30 pm ET | Updated Sep 11, 2011

Republicans in Congress are threatening to blow up the global economy if President Obama doesn't roll over and accept massive cuts in services and programs for the poor and middle classes, without any tax increases for the wealthy.

McConnell and Boehner have repeated the Orwellian GOP strategy that if you repeat a lie often enough, people will start to believe it (one that worked with Iraq's non-existent WMD).

This time, the falsehood they're promoting is that cutting taxes automatically spurs GDP and job growth, and that raising taxes does the opposite.

But what does history show? Let's look at the data, shall we?

2011-07-12-Reagantaxhikesgdpgrowth.png

In the 3rd quarter of 1981, Pres. Ronald Reagan signed the Economic Recovery Tax Act of 1981, a tax cut of $264 million.

What happened?

GDP fell the next two quarters.

Reagan later signed four tax hikes (not that you'd know that by listening to Republicans today).

And as you can see above, the economy enjoyed 28 consecutive quarters of growth afterward.

So what about George H.W. Bush? Here's another chart:

2011-07-12-GHWBWJC.png

When Bush41 famously broke his "no new taxes" pledge in November 1990 to staunch spiraling budget deficits (see above, re: Reagan tax cuts), the economy was already headed into a cyclical recession. After one quarter of less-severe contraction, the economy expanded for nine straight quarters.

Then Clinton came along and signed another tax hike. What happened? Another four-plus years of consecutive growth.

And as for Bush's son, George W.? Take a look:

2011-07-12-GWBTAXCUTS.png

Well I'd call that a mixed record. Growth pretty anemic most of the time, with a few good quarters and a few crappy ones.

I'm no partisan who asserts the opposite of whatever the Republicans say, so I'm not going to claim that tax cuts cause recessions or tax hikes end them (or spur growth).

But this reflexive distaste for raising taxes, claiming that it limits growth, simply isn't borne by the facts.

It's time for the Democrats to fight back on this point and show the facts. The alternative is dangerous, regressive, and unfair.

Tomorrow we'll look at the connection between tax cuts/hikes and the unemployment rate. (Preview: No correlation.)