President Donald Trump has promised to reveal the broad strokes of a plan to cut Americans’ taxes this week — a plan he says will be historic in scope.
If Trump hopes to make good on that pledge, he’ll have tough competition. The ambitious plan Trump put forward during the campaign is smaller, relative to the size of the economy overall, than the cut President Ronald Reagan enacted soon after taking office in 1981.
Here is a look at the largest tax cuts in modern American politics.
Just months after the Allied victory, President Harry Truman signed a bill that was projected to bring down taxes by the equivalent of 2.7 percent of gross domestic product, a measure of overall economic activity. Since then, only Reagan passed a larger tax cut relative to GDP, according to a report the Treasury Department published in 2006.
As it is difficult to compare tax cuts from one decade to another, because what a cut means for ordinary people can depend on how well they are doing financially. Likewise, taxes are typically assessed on some percentage of one aspect of the economy — whether wages, sales, property or investments — so an equivalent reduction in taxes will have a very different effect depending on the pace of economic activity overall.
For these reasons, comparing the size of a change in taxes to GDP gives a good approximate sense of the measure’s significance at the time it was enacted.
Although President Lyndon Johnson signed the next major reduction in taxes in 1964, those cuts are often associated with President John Kennedy, who had advocated them forcefully before his assassination. Overall, the change was expected to reduce revenue by 1.6 percent of GDP, the report shows.
The plan that Johnson, a Democrat, enacted featured what would soon become a typical feature of Republican tax policy: a drastic reduction in taxes for the richest taxpayers. Johnson’s signature reduced the marginal rate on their income from 91 percent to 70 percent.
That was the direction Reagan pursued, arguing that bringing down marginal rates would make federal taxes more efficient. Allowing taxpayers to keep more of their income would encourage them to work and invest, increasing economic activity and resulting in more federal revenue to make up for some of the reduction in rates.
Reagan’s tax cut was projected to reduce collections by 2.9 percent of GDP. Yet Reagan quickly retreated from that enormous cut, in part because the federal government was running short on money. By 1984, he had signed two significant bills increasing taxes, undoing roughly half of his initial cut.
Taking those measures into account, Reagan’s reductions in taxes were similar in size to those enacted by Johnson.
George W. Bush
Reagan’s successors continued to raise taxes. Presidents George H.W. Bush and Bill Clinton both increased revenue, and those increases combined with a robust economy to create a budgetary surplus by the time Clinton left office.
President George W. Bush took advantage of the surplus to bring down taxes. He signed bills in 2001, 2002 and 2003 that were projected to reduce federal revenue by 0.7 percent, 0.1 percent and 0.5 percent, respectively, according to the Treasury report.
By the time Bush left office in 2009, the economy was in a severe recession, and President Barack Obama and Democrats in Congress enacted a substantial tax cut as part of their stimulus. The bill was projected to bring down taxes by 0.6 percent of GDP, according to a Washington Post analysis of federal data.
Obama’s legacy is not usually thought of as reducing taxes, but he did help to extend Bush’s tax cuts. The legislation he signed at the beginning of 2013 not only made many of those cuts permanent, but also extended many provisions from the stimulus.
Doing so prevented a major increase in taxes, although whether that should be considered a tax cut is debatable. In total, that legislation was projected to reduce revenues by 1.8 percent of GDP relative to what would have occurred had Obama done nothing, The Post’s analysis showed.
Donald Trump (planned)
The plan Trump put forward as a candidate would reduce revenues by 2.6 percent of GDP, according to an analysis from the nonpartisan Tax Policy Center. That would be less than the cuts that Truman saw through in 1945 as well as those that Reagan enacted in 1981, at least initially.
The president has said he will give more information about his tax plans Wednesday, although he seems to be maintaining at least one important feature of the earlier proposal. Trump has decided to reduce the rate on corporate income from 35 percent to 15 percent, The Washington Post reported, a change that would reduce collections by about $2.4 trillion over a decade.