US GDP growth year by year 1961 - 2015 and tax cuts discussion

With DJ Trumps newest tax cut proposals which were released today (4/26/2017), one of the claims he made is that US GDP will go up due to his tax cuts and this will make up for the lost revenue.

That claim can be examined by referring to the attached chart of GDP growth year by year for 1961 - 2015.

As an overview, GDP growth over this period had peaked near the beginning of this ear in 1966 at 6.5%.

It seesawed down and up to 5.6% in 1973, the year Nixon resigned. These years can serve as our benchmarks for normal growth expectations.

Then it crashed with the recession of 1974 under Ford down to - 0.5 [negative not growth] where it stayed in 1975 as well.

With the election of Carter it recovered to 5.3% in 1976 where it stayed until 1980 where it then crashed again to - 0.2 [negative not growth].

Now we arrive at the first key point in time in our analysis which was under Reagan.

In 1982 it continued crashing to - 1.9 [negative not growth]. This was the year Reagan and Congress under Tip O'Neil passed the first major tax cut in recent history and the economy immediately recovered to 7.2% -- a miracle of sorts -- in 1984.

This is what DJ Trump and his economic advisors are hoping for.

For the next 9 years however growth shrank until it crashed again in 1991 under GHW Bush to - 0.07% [negative not growth].

The Reagan-Bush years leveled out briefly in 1987 to 3.5% however before continuing to crash. This is what most observers are currently considering "normal growth".

From the crash in 1991 the economy grew for the next 8 years under WJ Clinton to 4.7% in 1999.

During GW Bush's first year growth was 4.1%.

With 9-11-2001 it crashed to 1%

By 2004 it had risen slowly to 3.8% again.

This was when GW Bush instituted his own Reagan-esque massive tax cuts and the economy crashed immediately to - 2.8% [negative not growth] by 2009.

So Dubya (forgive the popular designation) had 4 years of anemic growth after 9-11 followed by 4 years of shrinkage and the big crash in 2008 just before BH Obama was elected.

So this is what DJ Trump and his economic advisors are hoping WILL NOT HAPPEN again, since Dubya's tax cuts did NOTHING to improve the economy and GDP growth. Instead it nosedived.

Under BHO by 2010 growth grew to 2.5% and was flat at 2% for most of Obama's presidency.

The attached chart of GDP growth by the World Bank summarizes these data.

http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2015&locations=US&start=1961&view=chart

 

Does anybody think DJ Trump will get his "boost" if he cuts taxes massively?

His odds seem to be 50-50.

For Reagan this trick worked.

For Dubya it failed.

The chart supra tells the story.

Is this claim by DJT just a crap shoot (table game in Vegas / Atlantic City)?

Or does it stand a chance of holding water?

Comments / views ?

 

bump ... .

There must be some economics geniuses here somewhere ?!

 

I think corporate tax rate need to go way down like 15-20%. Combining our local/state/fed level in corporate taxation it goes to 40%. It is a double tax as because of taxed personal income.

Money was not being used correctly in years due to both parties. We need to encourage growth via personal tax rates and corporate.

Trump is doing something right as well in the fact that Janet Yellen has finally raised our historically low interests. This is a product of People being optimistic about the economy alone (polls show statistically).

I support Trump being NASA back. He is building the pipelines, loosen up the redtape, etc.

Major business are sitting on record profits but Obama insane policies now would invest. We need to repatriate the money in the coffers and beyond the sea; not in the form of authoritarian but habitual business standards not seen in a while. But you want money to exchange hands.

I guarantee Trump is going to get the economy going, unless congresses screws it up, like everything. That would, if happened, have a consequences in the polls.

 

Every one of those time periods are different, and there literally dozens and dozens of factors in each one them that makes them unique. What it actually shows is that tax cuts don't do anything in and of themselves, though.

 

If they did away with the 'corporate personhood' scam and giving out limited liability to anybody who starts a corporation, I would agree; but it isn't double tax for those who hide their personal wealth from bankruptcy of the corporate entity they formed, and same for shareholders;if they aren't responsible for the failure and debt then they can make up the difference and pay for their own failure out of their own pockets. If they're not willing to take real responsibility then it's tax on two different incomes and it should be.

 

It shows one case with a recovery and another one without. That's exactly what it shows.

 

Shows what? In other news, the WSJ has an article in its Friday edition that points out the amount of productivity gains that get off-shored, to places like Ireland and Bermuda; you can tack another $250 billion a year to GDP for the last couple of decades or more to account for that.

 

There is a cumulative tax proposal by DJ Trump and Ryan that proposes to tax Apple, Microsoft, Google, Walmart etc for their tax shelters.

But that is a completely different topic.

You have now gotten off track with your red herring.

 

As your data shows, and notwithstanding conservatives' claims, we really do not see any significant correlation between tax cuts and economic growth, especially in recent time periods.

IMO, whether tax cuts provide any stimulus to economic growth is a complicated question.

The basic argument of the "supply side" or "trickle down" theory is that a tax cut will incentivize more effort, resulting in greater economic growth. If people get to keep more of their money, they'll work harder. From this theory comes the "Laffer curve" theory, which provides that tax cuts will provide more revenue (through stronger growth) up to a point, but then further tax cuts will reduce revenues.

It makes some sense, to a point. If you have 90% tax rates, and cut them to, say, 70%, the means that each marginal dollar earned returns (after tax) $.30, instead of $.10. That is three times the reward for the effort, which arguably could have some incentive effect. Revenues are $.20 less on the dollar of income earned, which is roughly a 20% decrease.

But when you cut taxes from, say, 40% to 20%, now someone gets $.80 after tax, as opposed to $.60. Same amount of tax cut in dollar terms, but now your after tax income increases only 33%. Much less of an incentivizing factor than the first example, which yield 3x (or 200%) more income. But in this example, revenue drop 50%, a meaningful decrease.

So when we had a tax cut from 94% to 70% like in the 60s, or even from 70% to 50% as in the 80s, you have a relatively strong incentivizing effect. But when you cut taxes from 40% to 35%, the incentivizing effect is much weaker.

So giving further tax cuts now would not be expected to have a significant incentivizing effect.

Second, apart from the incentivizing aspect, tax cuts may have some stimulus effect. 70% of the economy is based on spending. So if you cut taxes and it results in more spending in the economy, it creates and economic boost.

But if you cut taxes, and it doesn't result in a proportional increase in spending in the economy, there may be little boost.

So when you have tax cuts that mostly benefit m/billionaires, they will take a big chunk of that money and stick it in their offshore accounts or portfolios, where it provides little economic benefit (because our economic is not capital starved with trillions in cash available for investment, there is also little benefit from increasing the amount of capital). OTOH, if you cut taxes for middle class working people, they will spend virtually all of that extra cash, resulting is a proportionally stronger boost.

Those are reasons why, IMO, you say a greater economic jolt with the Kennedy and Reagan tax cuts, but a minimal return with the Bush tax cuts. The Bush tax cuts provided far less incentive and were aimed and rich folks who stuck a lot of the money away as opposed to spending it in the economy, and resulted mostly in the surplus being squandered.

And why, IMO, the Trump tax plan is unlikely to have significant economic benefit. His proposed cuts will mostly go to m/billionaires, and not result in a strong spending increase in the economy. Indeed, as is a time honored Washington tradition, any stimulus it generates will be at the *wrong* time. With unemployment at 4.4% and wage pressure finally starting to result in wage increases, running up more debt to stimulate the economy will very likely result in inflationary pressures.

Of course, as others pointed out, there are lots of other things that affect and economy as well. For example, the Reagan recession was largely a function of the Fed slamming on the money brakes to break the inflation cycle, which sent interest rates skyrocketing in 1980 and again in 1981. When they loosened up the money supply, interest rates fell, and the economy cam roaring back. How much of that if fair to attribute to tax cuts is a degree of speculation.

Finally, it is worth contemplating whether a tax cut is what produces economic growth, or a tax rate. If you want to attribute strong growth in the 80s to Reagan's tax policy, fine, but recognize that the top tax rate was 50% for 6 of his years. Does that mean that a 50% top tax rate is what we should be shooting for?

 

The analysis that I have seen on the financial shows is that back in Reagan's days the taxes were really high and by lowering them significantly he was able to provide more disposable cash for the masses. The rich were not really affected since they already spend as much as they want. So the tax cuts for the rich accomplished nothing. There was no trickle down.

Reagan's deficit spending is what boosted the real economy, same as Adolf did on his own at the time. Adolf was well advised.

The Far Right will not let DJ Trump do the same though. The debt is already too high for them. The Far Right in the GOP is like a separate party of their own.

So he will need Pelosi and Schumer to help with his infrastructure proposals, which BH Obama said himself that he wishes he had started as well. But BHO and his crew though the great recession would be over fast, and it is still not completely over.

 

The '94% top tax rate' on capital gains in the 1950's and 1960's is very often misinterpreted; the top rate was actually 94% of 50%, and almost nobody ever paid that rate. The tax forms at the time only taxed 50% of capital gains, and the rates applied to that 50%, not the full 100% of gains. 50% of capital gains were deductible right off the top, and all the other deductions were also applied to the 50% that was subject to tax, and a lot of those were very generous ones indeed.

 

Nobody is talking about capital gains.

That is a red herring.

 

Well, I lived through the Reagan Era, and before, and I also do my own taxes, so your first premise isn't true. Carter also cut the top rate down, and he also pushed through the home mortgage and interest deductions; Reagan merely copied what he had already done. Volcker is the guy who did the most, and of course he did so by raising taxes on the lower incomes and flushing 'Reaganomics' down the toilet. And, the rich were very much benefited; they were the ones playing the whole housing bubble, Wall Street fiasco, and junk bond madness Reagan's policies encouraged.

In other news, I personally think making interest on anything tax deductible is a mistake and bad policy but that's another topic.

 

Yes we are. You just don't know enough to realize that. There were no salaries or wages anywhere near the top rate, ever.

 

Ad hom.

Iggy list for you.

 

Good. I'm bored with morons tripping my alert flag all the time.

 

What can possibly be the impetus for consumers to create, and sustain, another 2-3% in GDP? And pretending for a moment this did happen, how will inflation effect things...horrific for the have-nots and doable for the haves.

When perhaps 100 million Americans don't even pay income taxes (excluding FICA) how will tax cuts help these 100 million?

I'm all for repatriating the offshore cash but when done how much of this cash will reach the 100 million mentioned above? Obviously bringing billion$ in cash back into the US will have positive impacts but the bigger question should be 'where' will most of that money land?

Lastly, if Trump gives away $1 trillion in tax reductions, unless he also plans to reduce government by $1 trillion, what does this say about debt?