Before 1985, frequent tax cuts were necessary just to prevent large tax increases over time because the tax code was not indexed to inflation. The result was a natural upward "creep" in tax collections over time, as ongoing inflation pushed individuals into higher tax brackets. To see how this worked, assume that the current tax code was not indexed to inflation. If a taxpayer's income merely kept pace with inflation, his or her purchasing power and standard of living would not increase. The taxpayers' tax liability would increase, however, because the standard deduction, the personal exemption, and other features of the tax code would not be adjusted for inflation. The taxpayer's tax liability would rise over time for a second reason as well — the tax rate brackets would not be adjusted for inflation, so a taxpayer could be pushed into a higher tax bracket if his or her wages simply remained even with inflation. For these reasons, under a tax code that is not indexed, taxpayers pay a higher percentage of income in taxes with each passing year even when their income gains merely keep them even with inflation or lag behind inflation. By contrast, when the tax code is indexed — as it is today — taxpayers' tax liabilities do not increase unless their incomes rise faster than inflation.
The lack of indexing in the tax code before 1985 consequently produced an automatic upward creep in tax collections over time. As a 1998 Treasury Department paper noted, "Without indexation, bracket creep occurs, which increases federal revenue as a percentage of GDP without any legislative action....In fact, when inflation is relatively high and bracket creep is particularly intense, as it was through much of the 1970's, policy makers have to cut taxes repeatedly to maintain the desired level of taxes."(2) In other words, regular tax cuts were necessary just to keep taxes steady as a percentage of taxpayers' incomes and to avert tax increases over time.
During this period, current law thus contained built-in tax increases at any point in time. Policymakers cut taxes every few years to offset much or all of the tax increases that otherwise would occur, but the Congressional Budget Office was forced in constructing its revenue baseline to assume that taxes would rise over time as a share of taxpayers' incomes, because the baseline reflected current law. Under this system, CBO "scored" legislation that merely kept tax burdens steady as a tax cut, even though families would feel no benefit from it: Their taxes would not change as a share of their income. The baseline against which the Reagan tax cut (the Economic Recovery Tax Act of 1981) and other tax cuts were measured thus was an artificially inflated baseline as a result of the lack of indexing in the tax code.
The size of the Reagan tax cut was measured by using this inflated baseline. That increased the apparent size of the tax cut, since the tax cut was measured relative to a baseline that assumed significant tax increases. As the Congressional Budget Office noted when the Reagan tax cut was first proposed, "While the Administration proposal would reduce revenues by large amounts in those years, it is important to keep in mind that, without a tax cut, income taxes rise continually because of the effects of inflation on the graduated income tax rate schedule...a large share of the Administration's proposed tax cut would simply offset these tax increases [emphasis added]."(3) Table 1 shows the percentage of the Reagan tax cut's cost that was due solely to measuring the tax cut against a revenue baseline that assumed future tax increases as a result of the effects of inflation.(4)
Since 1985, the tax code has been indexed to inflation, and the baseline consequently no longer includes large, automatic tax increases over time.(5) In other words, ongoing inflation no longer causes a large upward movement in taxes over time in the baseline. Under the current baseline, any tax cut that reduces tax burdens on families by a given amount would be scored as costing less than the tax cut would cost if it were measured against a baseline that did not include indexing.
Comparing the Bush tax cut to the Reagan tax cut thus is misleading: A large component of the Reagan tax cut merely prevented an increase in taxes that would have otherwise occurred because of the lack of indexing in the tax code.
http://www.cbpp.org/2-6-01tax2.htm
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Way to go Scarborough, we need Republicans that stop giving tax cuts to the rich, and who stop wasteful spending. Stop voting for Republicans that favor the rich!! Stop voting for Democrats who tear down Christian principles every chance they get!!
coolguy98 5 months ago
our country is on the verge of collapse, there is radiation spreading all over the world, and WWIII has been underway for quite sometime. Build an arsenal, stockpile MREs and seeds, and DON'T vote for either the democrat or republican parties. We need to take the ENTIRE government down from the bottom to the top!
RebornInChaos 9 months ago
No one in this country needs tax cuts. If we're to ever get out of the deficits Bush left us we need to raise taxes. But as soon as Repubs win the election they start boasting of their tax cut plan while in the same breath whining about the deficit. We keep voting for idiots hoping they'll be geniuses when they get to DC.
seymourbbest 1 year ago
If "We the People" pay the majority of the taxes, then let OUR taxes pay for OUR needs. Nation Build & Subsidize on your own effen coin!
GameICY 1 year ago
I can't believe that you were a Republican Joe. I need those tax cuts to help pay for my new vacation home in Aspen. I'm just tired of having to vacation in The Hamptons all the time.
jimitl5 1 year ago
The top 5% that own 80% of the wealth do not have anything in common with the rest of the 95% of Americans. That is why they have not problem selling America out. The top 5% are working for the top 5%. Trickle down economics was a lie. The wealth is not shared.
hbsegura 2 years ago
Wait, where's the part where he says the rich don't need tax cuts? I would like to see the whole clip because, with the title of this vide, you are implying something that he might not have meant to say. You might be right too, but I would still like to see the whole clip before making a judgement.
buffalowingmediabias 3 years ago
Shut up Joe.
quiescency 3 years ago
i can't believe this
Annie22203 3 years ago
wtf
justcallmesoso 3 years ago 2