Ronald Reagan is seen as a deity by a large portion of our population. According to Conservatives, he single-handedly defeated the Soviet Union and ended the Cold War, he cut taxes for everyone and brought our nation to its rightful place as the 'shining city on a hill' for the rest of the world to aspire to be. This... is a bit of a reach. Beyond the Iran-Contra scandal - which simultaneously implicated the Reagan Administration in helping an enemy state (Iran) as well as illegally arming Guerrillas in Nicaragua in direct violation of Congressional decree - the one aspect that Reagan was most popular for (Reaganomics) is deeply flawed.
Reading in textbooks, it's a bit difficult to understand what Reaganomics was exactly. We're simply supposed to nod and agree that it was great for everyone. The crux of Reaganomics was the theme of 'Supply side economics' - that if more money was given to the wealthy (the business owners), that would spur them to hire more workers, create jobs and grow the economy. To facilitate this, Reagan passed the biggest tax cut in American history. Taxes were cut for everyone, but the vast majority of them were given to the wealthy. The highest tax rate was lowered from 70% to 28%.
At first, this doesn't seem bad. We're told that tax cuts are good for everyone. No one likes taxes. But, a government needs funds to function. And while Conservatives may rail against 'Big Government,' no one can actually decide what to cut. This is a phenomenon that occurs again and again in polling. Americans want to shrink government (buying into a Conservative talking point), but when asked exactly what programs to eliminate they cannot name one. Social Security, Medicare, Unemployment insurance, Military and Education funding are hugely popular. So, with all of these programs needing funding, tax revenue needs to track their increases. This was completely undercut by Reagan's tax cuts. How was the gap bridged? Through borrowed money, adding to the National Debt. This tactic was relied upon by every single 'fiscally conservative' President from Reagan onward. Here's a link to a chart showing how the debt progressed from Jimmy Carter through George W. Bush: http://www.pensitoreview.com/Wordpress/wp-content/themes/mimbo2.2/images/Natl_Debt_Chart.jpg
This might be worth it if the growth of the economy grew exponentially. After all, these tax cuts should directly lead to job creation. There is a flaw in the Supply Side model, one that is quite obvious. If the only ones who are getting more money are the wealthy business owners, why should they hire more workers? The number of consumers wouldn't rapidly increase because those not in the top tax rates have the same amount of money. In economic terms, with demand stagnant there is no catalyst for supply to grow. If the money isn't put back into the economy, then it has to go one place - right in the richest people's pocket. In 1980, the average CEO made roughly 42 times more money than their average employee. Today, they make more than 300 times. With all this wealth concentrated in the hands of the few, it doesn't circulate through the economy. There are really only so many yachts and houses you can own. And as the rich get even richer, the poor get poorer.
The whole point of the high tax rate on the wealthy was to promote reinvestment in business. Through the high tax rates, business owners faced a stiff penalty if they decided to keep an astronomical amount from their business. If they weren't going to keep the money, then profits were usually put right back into businesses. This reinvestment paid for new factories, technology, research and development and, yes, jobs. These jobs gave the American public a larger portion of the income in the nation and increased the demand for products and services. It is this increased demand that can grow the economy consistently.
Our nation is now riddled with debt that has mainly been piled on during Republican administrations. From two perpetual wars, to even more tax cuts for the wealthy, to the Medicare Prescription Drug entitlement, huge costs have been put on the nation's credit card. The national debt is now over $14 Trillion, and Republicans are pushing to close the gap by cutting Social Services (i.e. Social Security, Medicare). These cuts will hurt low income individuals almost exclusively. I see another option - roll back the Reagan tax cuts and have the wealthy pay their share while stabilizing our economy.
The economy did grow during Reagan, which seems odd. It deceivingly appears to confirm Reaganomics' validity. Two other factors were key factors in why the economy grew and are also explanations for why our economy is in such dire shape now - deregulation and reliance on bubbles, and offshoring labor. Since this blog is huge already, I guess I'm going to have to break it into three parts. If you stuck with me this far, Thank You! This isn't the most interesting subject in the world but it's VERY important. I'll try to have Part 2 done this weekend and Part 3 done next week.
I spent this late night ranting and listening to some old school Saliva. I figured you should be able to have the same experience
4 comments:
Stumbled across your site while perusing fellow Albanian blogs. Interesting topic. You touched on too many things to respond to point by point, so I will focus on just a few. You cited a chart from what I think you will agree with me is a left-wing website. Assuming it's completely accurate, it fails show who was in control of congress year to year. The Democrats controlled congress (and thus, spending) throughout Reagan's administration. Bill Clinton enjoyed the fruits of massive military cuts during the Cold War draw down, as well as a fiscally conservative Republican congress for the last six years of his tenure. And spending exploded under George W. Bush once Nancy Pelosi became Speaker.
And did you know that in 1983, with social security facing a fiscal crisis, Reagan made a deal with Tip O'Neil that raised payroll taxes and saved the program.
You described supply-side economics as more money being given to the wealthy. Excuse me? Whose money is it? Keeping more of your money is not the same as being given money. As far as the tax rates among the highest earners going from 70 to 28 percent, you realize that no one actually paid the 70%? Lowering the rates allowed business to invest and grow, which is exactly what happened.
Real economic growth (i.e. adjusted for inflation) was higher under Reagan than Carter, George H.W. Bush and Bill Clinton. Interest rates, inflation and unemployment all fell under Reagan. And the real median family income rose $4,000, far higher than the pre or post Reagan years.
Finally, you proposed to "roll back the Reagan tax cuts and have the wealthy pay their share.." Three questions:
1. What should they be paying, given that the top one percent of earners pay 40% of all federal taxes collected?
2. Do you think it's fair that nearly half of U.S. households pay no federal tax?
2. What do you think would happen to the economy if we raised the tax rate by 35%? Unemployment?
You're welcome to look at numbers yourself, although I'd recommend restricting your searches to the treasury department, the nonpartisan Tax Policy Center, or other reputable organizations (as opposed to the Pensito Review, The Daily KOS, Media Matters and other left-wing sites). Looking forward to your next post.
First off, thanks for the feedback! It's good to know that someone actually reads these things. I understand where you're coming from bringing up the budget in relation to the President and their Congress. While Congress is the body that actually passes the budget, it is the President that proposes the guidelines that the entire process is based on. This 'shared' culpability gives Presidents leeway to either take credit when things work out well or pass the blame when they go poorly. Bottom line - you really can't have it both ways.
Next, I support a Progressive Income Tax. To argue that half of Americans pay no federal taxes simply isn't true. Payroll taxes and Social Security and other taxes are taken out of the paychecks of every American. These taxes are regressive and affect lower-income Americans disproportionally. The Social Security tax, for example, has a yearly cap of $100,000: meaning that someone who makes $20 million yearly only pays that tax on the first $100,000 of their income while someone who makes less than $100,000 pays the tax on 100% of theirs.
The Federal income tax helps rectify this injustice and promotes a just ideal - that those who can afford to pay more in taxes should. Wealthier individuals (especially those who own businesses) use more of the 'Commons' (public goods). They use public roads to move their products, they depend on public Police and Fire Protection, they depend on our military protecting trade routes, and they hire individuals who have been educated by a public educational system. If they use these goods more than the average American, they also should pay more taxes than the average American.
Finally, I agree that my postings should be better researched and I will do so in the future. Bias from the left and right is a problem, but facts are facts and I pride myself as someone who searches for them. The Right Wing has put forth an idea that if the tax rate on the rich is increased, then the economy will tank and we'll all be impoverished. But under Republican president Dwight D. Eisenhower the top marginal tax rate was 91%. There was a much larger percentage of unionization and the economy flourished. Unemployment was not rampant. All I ask is that we look at all possibilities before we all agree to slash programs that help all Americans. In a system that allows 400 individuals to own more wealth than the bottom 150 million Americans combined (This fact was verified by Politifact), and corporations like Exxon Mobile and General Electric can pay $0 in Federal Income tax, I think we can at least broach the subject.
Thank you again for the comment and I hope to keep your readership
Hey, I'm just glad to read a blog that isn't a daily journal, a home business, "What my family did this weekend," pictures of the remodeled kitchen, scrapbooking tips, or a detailed profile of someone's cat. I may disagree with your commentary, but at least it's provocative.
OK, where to start. When you say "you can't have it both ways," you seem to be suggesting that I can't give credit to Reagan for his economy without giving credit to Clinton for his, or conversely, give credit to the Republican congress under Clinton without giving credit also to the Democrats under Reagan. To which I respond, YES I CAN!
Reagan achieved success because of his ideas and in part to his ability to build coalitions (the famous Reagan Democrats). But his success in turning the economy around was done in spite of the Democrats, who opposed him at every turn. Clinton didn't become a moderate until the Republicans took office. I give him credit for his willingness to compromise, but he would have never enjoyed his strong economy without Republicans pushing him.
Now I will say that the Republicans and Bush began spending way too much in the 2000s, but it only got worse when the Democrats took over in 2007. And MUCH worse when they got a Democratic President.
As far as your second point, I misspoke - I was referring to the number of Americans who pay no federal income tax. And I'm almost certain the reason people aren't taxed for s.s. on income over $100,000 is because the government couldn't possibly afford to pay the required proportionate benefit - hardly an "injustice."
But here's the greater point about too many Americans not paying federal income tax (and local taxes), there is a fundamental problem when you have a smaller number of people working and paying taxes to fund a ever-growing number of people don't.
A progressive tax system is fine, but the dirty little secret about the Bush tax cuts is how many lower income people got bumped off the tax rolls (despite the left reciting its same old lie about "tax cuts for the rich"). The simple fact is that the wealthy pay the overwhelming percentage of tax receipts collected. As far as Exxon and GE, you're partly right -
http://money.cnn.com/galleries/2010/news/1004/gallery.top_5_tax_bills/2.html
In response to my third question, you said "The Right Wing has put forth an idea that if the tax rate on the rich is increased, then the economy will tank and we'll all be impoverished. But under Republican president Dwight D. Eisenhower the top marginal tax rate was 91%. There was a much larger percentage of unionization and the economy flourished."
Mark, no one paid the 91% rate. The rich have the ability to move their money overseas, into tax shelters, and use all number loopholes. That's why such high rates on the rich do no good. It simply keeps them from creating wealth in our economy through investment, commerce and job creation. The people that are affected by high tax rates are the people trying to get rich. High tax rates kill investment, risk-taking, and small businesses who want to grow. Reagan understood this, which is why he slashed taxes and regulation to stimulate growth. And history has vindicated him, which is why President Obama's own deficit commission has recommended many of the same ideas.
But you still haven't answered two of my questions. How much should the wealthiest pay? Do you really think the government has the right to take 90 cents out of every dollar an individual earns?
And again, I'm asking YOU think would happen to the economy now if we raised tax rates to 70-90 percent on the people employ the rest us?
Finally, you say that we should "look at all possibilities before we all agree to slash programs that help all Americans." Mark, WE HAVE TO CUT, CUT, CUT! We need to raise revenue also, but we cannot avoid financial collapse without major cuts and reforms. Government is too big, too costly. As Margaret Thatcher once said of socialism, "Eventually, you run out of other people's money."
Enjoying the debate. I've addressed a controversial topic on my blog. I'd love to get your perspective.
http://shazammm.blogspot.com/
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