Is Trump's tax cut the biggest ever? Probably not

Last Updated Apr 27, 2017 1:38 PM EDT

In rolling out the Trump administration's plan to lower taxes and stimulate the economy, Treasury Secretary Steven Mnuchin called it "the biggest tax cut and largest tax reform in the history of our country," echoing his boss. It would be big all right, but likely not the biggest. Ronald Reagan's appears to be the winner here.

The best way of measuring the cuts, according to the independent Tax Foundation research group, is by charting the dollar amount of tax reduction as a percent of gross domestic product. 

By that gauge, the honors clearly go to Reagan, whose 1981 reduction amounted to 2.9 percent of GDP. A reputable research group's estimate puts President Donald Trump's version at 2.6 percent.

A lot of details on President Donald Trump's plan have to be filled in. But since the framework Mnuchin announced Wednesday adheres closely to the plan that Mr. Trump released during last year's election campaign, it's fair to use the analysis from the nonpartisan Tax Policy Center, which finds its impact at 2.6 percent.

Of course, there are many different ways of looking at data. In raw dollar terms, as adjusted for inflation, the largest was in 2010 under President Barack Obama, the Tax Foundation reports. Now, Mr. Obama is not well-known as a tax cutter, but he did need fiscal stimulus in the aftermath of the Great Recession. So one thing he did was to extend the tax cuts enacted under his predecessor, George W. Bush.

In its first year, that amounted to $420 billion. The Tax Foundation says that, adjusting that for inflation, "Trump would have to cut taxes by at least $486 billion in 2018."

Another approach is to see how how much tax rates dropped, which is customarily done by looking at the top bracket. Mr. Trump wants to lower the top rate to 35 percent from the current level of 39.6 percent -- or 4.6 percentage points.

By that yardstick, his plan is a piker. The largest decrease came under Warren G. Harding in the early 1920s, who faced a towering rate of 73 percent -- the legacy of World War I, when the U.S. was scrambling to enlarge the military. Under Harding, the top rate fell 29.5 percentage points. 

In modern times, since World War II, the largest reduction came from the 1986 tax reform, enacted when Reagan was president and Democrats controlled both houses of Congress. In addition to wiping out many loopholes in the tax code, the tax overhaul dropped the top rate by 22 points, to 28 percent from 50 percent. 

Second place, post-war, goes to Lyndon Johnson, who decreased the rate by 21 points, from 91 percent to 70 percent (a phased-in cut initiated under John F. Kennedy).

 

  • Larry Light

    Larry Light is a veteran financial editor and reporter who has worked for the Wall Street Journal, Forbes, Business Week, Money, AdviceIQ and Newsday.