The Largest Tax Cut In U.S. History?

No.  That was President Reagan.  But this tax cut proposal is still a good one.

The best measure of a tax cut is the revenue effect as a percentage of gross domestic product.  As analyst Jerry Tempalski wrote in 2006, this measure “eliminates the effects of inflation, real economic growth, and the size of total federal receipts.”  Over a four-year average, the revenue effect of #President Reagan’s 1981 tax cut was 2.89 percent of GDP.  (Reagan’s cut also had the largest impact as a percentage of federal receipts over a four-year average.) That’s the most of any cut in the Treasury report, going back to 1940.

The cost estimate for the current Republican plan is an average revenue effect of 0.9 percent of GDP over the 10-year period. That’s also lower than the cuts implemented in 2010 and 2013.  It is also lower than the tax cuts of 1948, 1945 and 1964.

The GOP plan would have to be doubled or tripled in order to surpass the 1981 cut.

The GOP framework is still missing some details.  The final bill hasn’t yet been agreed by both houses of the Congress.  But the Trump administration’s claim of the “largest” tax cut in history remains unsupported.  

Support for the current tax reduction proposal is well founded.  Nevertheless, it is not right to overstate the merits of this proposal.  Even assuming the present proposal is passed into law, concerns about the size of government in this country and elsewhere remain.

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