To Say Steven Rattner Knows What Isn't So Is To Be Very Kind

Ronald Reagan once famously said, “The trouble with our liberal friends is not that they are ignorant, but that they know so much that isn’t so.” Last Monday, the New York Times showcased this liberal mindset in all its glory when it published an op-ed piece by Steven Rattner titled Trump’s Tax Cuts May Be More Damaging Than Reagan’s. Rattner’s piece is riddled with factual inaccuracies, cherry-picked data, false conclusions, and analytical sleights-of-hand. To say, as Reagan would, that Rattner simply “knows so much that isn’t so” is to be very kind.

Let’s take a look at some of the things Rattner “knows’ (as articulated in his piece) and compare them with reality.

Rattner “knows” that “the Reagan tax cut increased the budget deficit, helping elevate interest rates over 20 percent, which in turn contributed to the double-dip recession that ensued.”

Reality dictates that this assertion is patently absurd on many levels.

First of all, Reagan did not implement a tax “cut." He implemented two major tax cuts, one in the summer of 1981 which took ordinary income tax rates and capital gains rates down roughly 25% across the entire income spectrum and brought the highest tax marginal tax rate down from 70% to 50%. Reagan followed this up with another tax cut in 1986 that brought the highest marginal tax rates down from 50% to 28% and reduced the number of tax brackets (and yes, Reagan had to swallow an increase in the capital gains rate to 28% in order to get this second tax cut passed through a congress controlled by Democrats, whereupon capital gain tax receipts promptly dropped by almost 50%).

For Mr. Rattner’s thesis (about the impact Reagan’s tax cuts had on the increase in the federal deficit) to be correct, these tax rate cuts must have led to a dramatic decline in federal income tax receipts in the years following their enactment. But this decline simply did not happen. Except for a 3% decline in 1983, federal income tax receipts grew significantly and steadily during Reagan’s presidency, averaging 6.4% growth per year from 1981 to 1988 (overcoming the 3% decline in 1983 and the 50% reduction in capital gain tax receipts from 1986 to 1987).

The reason why income tax receipts grew substantially over the course of the Reagan years despite the substantial cuts in tax rates? Economic growth spawned by the incentives generated by these lower tax rates, just as predicted by the supply-siders. Annual GDP growth averaged 3.6% during the Reagan years (nearly double the anemic, ~2% GDP growth experienced during the Obama years).

The budget deficit did grow during the Reagan years, but the data clearly show that the deficit increase was not a result of Reagan’s tax cuts. More accurately, the deficit increased despite the significant increases in federal tax receipts driven by the economic growth generated by these tax cuts. Why? There was another culprit. More on that later.

Returning to the highlighted quote above, Rattner asserts that the growth in the budget deficit in the Reagan years led to elevated interest rates. This is another blatant falsehood. Interest rates were at historic highs when Reagan took office. The U.S. prime rate peaked at 21.5 % in December, 1980, one month before Reagan was inaugurated and eight months before his initial tax cut was enacted. Amazingly, Rattner falsely blames Reagan’s tax cuts for the increase in the federal deficit and then blames these deficits for increasing interest rates, rates that peaked before Reagan even took office!

A factual review of interest rate history shows that the prime rate declined steadily from the 20.0% Reagan inherited in January, 1981 to 15.75% by the end of 1981, to 10.75% by the end of 1984, and to 7.5% by the end of 1986 (after his second tax cut was enacted). The deficits experienced in those years obviously had little or no bearing on interest rates. To the contrary, the economic growth experienced in those years, driven by the Reagan tax cuts, led to a dramatic decline in inflation and interest rates, again just as the supply-siders had predicted.

Returning again to the highlighted quote above, Rattner believes that the interest rate increases allegedly caused by the Reagan tax cuts (completely debunked above) “contributed to the double-dip recession that ensued." In making this assertion, the reader is left with the impression both dips took place under Reagan’s watch. Yet again, Rattner is chronologically-challenged. There was a “double-dip” recession in 1980 and 1981. The initial dip commenced in January, 1980 (one year before Reagan took office!) and lasted six months. The second dip commenced in July, 1981, one month before Reagan’s first tax cut was enacted. In light of this, Rattner’s assertion that Reagan’s tax cuts led to or contributed to the 1980-81 “double-dip” recession is preposterously wrong.

Another thing that Rattner “knows” is that Reagan’s 1981 tax cut “made a bad economy worse." While it is true that the economy suffered through a steep recession from July, 1981 through November, 1982, this recession was primarily caused by the tight monetary policy embraced by the Volcker Federal Reserve late in the Carter years (and extending into the Reagan years), on the misguided assumption that slower growth would wring inflation out of the economy.  In truth, a correction of the inflationary pressures was as simple as a much stronger dollar that Reagan ran on; his support for good money a clear repudiation of the Nixon/Carter weak-dollar 1970s during which economic growth predictably stagnated.  Presidents get the dollar they want.  

Astonishingly (and conveniently), Rattner evidently doesn’t “know” about the post-recession years (1983-1988) of the Reagan presidency, an economic boom period lasting six years, during which:

· the unemployment rate fell from 10.8% to 5.3% (with steady-to-increasing workforce participation rates)

· annual real GDP growth averaged 4.8%, marking the beginning of 92 consecutive months of economic growth, one of the longest such periods in American history

· annual inflation averaged 3.5%, down from the 13.5% rate Reagan inherited when he took office
Some “damage”, eh, Mr. Rattner?

Despite all of the factual inaccuracies contained in the Rattner’s op-ed piece (and there are plenty more not mentioned here), it is what he fails to mention that is his most glaring and unforgiveable error. Rattner writes a 1,000-word essay on the topic of deficit causation, yet not one word (one word!) in the piece is devoted to the other half of the deficit equation: the explosive growth of federal spending. This omission can only be construed to be deliberate, and it alone totally eviscerates Mr. Ratner’s credibility as a pundit on this topic.

There will be much to debate about during the upcoming legislative process concerning President Trump’s tax package. It is a good and healthy debate to have. But, based on history, I suspect that much of what will emanate from the left during this process will mirror the inaccurate and disingenuous positions Rattner put forth in his op-ed piece. Sadly, he will most certainly be joined, during the course of this debate, by a chorus of other liberals who “know so much that isn’t so”.