Economix Blog: Deficit Deals Weren’t Always So Antitax

I had an article over the weekend about how previous deficit-reduction deals were much more tax-heavy than anything on the table today — until, that is, 1997. Here’s a breakdown of the deficit reductions that came from higher tax revenue versus spending cuts in the deals passed in the last 30 years:

Sources: Congressional Budget Office, Center on Budget and Policy Priorities, Simpson-Bowles Commission, Senator Toomey’s office.

As you can see, the five major deals of the 1980s and early 1990s relied much more heavily on tax increases to do the dirty work of deficit reduction. On average, tax increases accounted for 61 percent of deficit reductions (and much more during the early Reagan years, despite President Ronald Reagan’s reputation as the taxpayer’s friend).

But by 1997, tax increases were wholly ruled out as a source of deficit reduction. In fact, Congress — finally with a Republican majority by that point — decided to cut taxes, which meant spending cuts had to be even greater to make up for the loss in tax revenue. That’s why the chart above shows that tax changes subtracted from total deficit reductions by 71 percent.

The compromise proposal offered by one of the Republicans on the deficit “supercommittee” was significantly less reliant on tax increases than the ’82-’93 deals, offering 24 cents in tax increases for every dollar the deficit was reduced. But still, there was some sense that deficit reductions should come from both sides of the ledger.

Now, with the supercommittee reportedly disintegrating, the deficit reductions are going to look a lot like the 1997 deal: Without a supercommittee proposal, automatic spending cuts of $1.2 trillion over the next decade will kick in, and no tax increases. Congress also looks ready to extend the Bush tax cuts, which are currently scheduled to expire at the end of 2012.

That means that once again, tax changes would detract from, rather than contribute to, deficit reduction.

Article source: http://feeds.nytimes.com/click.phdo?i=07874075cb5bd559ea3358fded3ddee3