Carter, Reagan, Revenue

Paul Krugman's blog
NYT

One common reaction of conservatives, when you point out that the experience of the last 20 years offers zero support for the idea that tax cuts pay for themselves, is to start shouting “Jimmy Carter! Reagan! Supply side roolz!”

So I thought it might be worth presenting a bit of evidence from an earlier 20-year stretch. Here’s real federal revenue, in 2005 dollars, from 1970 to 1990. I’ve plotted the log, because it’s easier to look at trends:

A couple of points. First, the Carter years, contrary to legend, were not a period of economic stagnation and falling revenue because high tax rates were strangling the economy; there was a nasty recession starting in 1979, largely thanks to an oil shock, but overall growth was respectable and revenue growth reasonably high.

Second, the revenue track under Reagan looks a lot like the track under Bush: a drop in revenues, then a resumption of growth, but no return to the previous trend.

This is exactly what you would expect to see if supply-side economics were just plain wrong: revenues are permanently reduced relative to what they would otherwise have been.

(The article is here.)