The 1990 Bush " Tax Increase " Reduced Taxes

The late President G.H.W. Bush famously reneged on his “no new taxes” pledge and signed the “Bush tax increase” on November 5, 1990, to take effect the following January.   The new law was intended to raise more revenue from high-income households and unincorporated businesses.  It was supposed to raise revenue partly by raising the top tax r ate from 28% to 31% but more importantly by phasing-out deductions and personal exemptions as income on a joint return climbed above $150,00  (the phase-outs were calledthe PEP and Pease provisions).   Treasury estimates expected revenues after the 1990 budget deal to be higher by a half-percent of GDP.  What happened instead is thatrevenuesfell from 17.8% of GDP in 1989 to 17.3% in 1991, and then to 17% in 1992 and 1993.  Instead of rising from 17.8% of GDP to 18.3% as initial estimates assumed, revenues fell to 17%.  In fact, revenues did not climb back to the 1989 level of 17.8% of GDP until 1995, despite much higher excise taxes since 1991.Another way to gauge the 1990 and 1993 tax increase is to measure the revenue gains in real 2009 dollars, adjusted for inflation.  According to Table 1.3 of the Historical Statistics in the U.S. Budget, real revenues (in 2009 dollars) soared from $1,308.8 billion in 1980 to $1,654.6 billion in 1990 (26.4%), as the top tax rate fell from 70% to 28%.  After the Bush tax increases in 1991 and retroactive Clinton tax increases i n 1993, by contrast, revenues were virtually no higher ...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs