Donald Trump and the Republican Party passed a hefty tax cut and tax reform that is perfectly in line with the types of tax cuts provided by Ronald Reagan and George W. Bush. Here is a short summary of the tax cuts and changes that have occurred since the “Reagan Revolution” and economic effects from them.
In the 1920’s a Republican controlled government lowered taxes four times and refused to regulate wild asset speculation. After the tremendous growth of the economy, and the first real indications that there could be a modern middle class, something went terribly wrong. The stock market crashed and the general economy soon failed, with estimates that as many as 25 percent of the work force was out of a job.
The crash occurred in 1929, late in the first year of the administration of Herbert Hoover. Republicans were telling us that recovery was just around the corner and that the federal government should not regulate markets, nor should it subsidize citizens directly. Little was done to repair the economy as the years ticked by, although Herbert Hoover finally reversed some of the earlier tax cuts in 1932.
By then, Franklin Delano Roosevelt promised that he would intervene to get the economy moving again. Immediately upon taking office in 1933, FDR stopped the bleeding at banking institutions. But the road to recovery was long. FDR presided over a tenuous economy for years, but the Great Depression eventually ended.
After World War II, the United States entered the modern liberal period where government kept taxes upon the wealthiest Americans progressive and high. Also, businesses were regulated, unions were encouraged, and in the later years, civil rights for those who traditionally were left out of the market were advanced. This period lasted about 37 years.
In those 37 years, standards of living rose. The economy was the best ever. Black people and women entered the work force. The American dream became realizable for many more. What had been tasted in the 1920’s before the crash became a general reality.
In 1980, just six years after Republican president Richard Nixon was forced to resign in criminal disgrace, Ronald Reagan won the White House in his third time running. Republicans also won control of the Senate for the first time in 22 years.
The pendulum swung hard to the right. Ronald Reagan was an ideologue who brought back the economics of Herbert Hoover. In his first year in office, he brashly promoted oligarchy with what was then the most lavish inaugural ball in history. He set about immediately to tear down society with deregulation, sabotage of government agencies, threats and destruction of unions, and of course a giant income tax cut for the wealthiest Americans. During the Ronald Reagan period, he also deregulated banking, media, and allowed America’s businesses to merge into giant conglomerates.
REAGAN REVOLUTION TAX CUTS
The 1980’s became known as the “Reagan revolution.” Although Ronald Reagan came into office complaining about the size of government and the national debt, he granted the first truly huge tax cuts for the rich, lowering the highest rates from 70 percent to 28 percent in two massive pieces of legislation in 1981 and 1986.
After his first tax cut, the economy fell into a severe recession, with unemployment over ten percent for the first time since the Great Depression, and the highest post World War 2 unemployment to this day. Tax cuts for wealthy people have never coaxed the economy to growth. Growth requires additional consumer demand. Tax cuts for the rich would not provide such stimulus, but the money would become available for other investments, pumping up stock markets, housing markets, and asset bubbles.
At the same time, Ronald Reagan’s Federal Reserve squeezed the money supply so tight that it played a major role in the 1982 great recession.
But when the long recession finally ended, the economy was transformed. No longer would there be significant rising standards of living for workers. Fast increasing productivity would not be matched with wage increases. Technological benefits accrued almost entirely to the wealthiest people. We are still in the economics of the “Reagan revolution.”
The net effect of the Ronald Reagan tax cuts was to shift a large chunk of the American tax burden from the rich to the middle class and even to the poor. We know this mathematically by looking at aggregate numbers. In 1980, total federal revenues were about 18 percent of Gross Domestic Product (GDP). By 1990, that number had not budged — still about 18 percent. But along the way, wealthy people had their tax rates cut from 70 percent to 28 percent, while a series of tax increases hit other people. The most significant tax increases were Social Security and Medicare taxes, sometimes called “payroll taxes” or OASDI or FICA. Today, SSA and Medicare has increased to 34 percent of all federal revenues, whereas income tax has dropped to 45 percent.
In 1986, the next phase of Ronald Reagan tax cuts came. They called it “simplification,” but it lengthened the Internal Revenue Code. The next year, the stock market crashed. The October 1987 crash was the worst in history. On a single day, it fell over 500 points or 22 percent, and it fell in the days before and the days after.
The next six years the economy was generally poor. The term “jobless recovery” entered the zeitgeist, describing a long period where official economic statistics were nudging upwards, but where people were not feeling the “boom.” At the end of the Reagan/Bush period, the national debt had quadrupled.
Democrat Bill Clinton came into office in 1993. Democrats once again controlled Congress. They wanted to restore tax rates. In August, a reconciliation bill passed the Senate 51 to 50, with Vice President Al Gore casting the deciding vote. The highest tax rate was increased from 35 percent to 39.6 percent — still well below rates before the Reagan tax cuts. Republicans swore that this bill would blow a hole in the deficit and destroy the economy. They insisted that nobody would be able to blame Republicans for the projected damage.
Republicans were wrong. After a few years of moderate growth, the economy eventually boomed, topping four percent for a few years in the late 90’s. Also, contrary to popular myth, the 1990’s overall growth rate was higher than in the 1980’s.
Just as the decade was coming to an end, government finally ran a budget surplus, with Congressional Budget Office (CBO) estimates as high a 560 billion per year.
On December 12, 2000, a 5-4 majority of the Supreme Court intervened in the presidential election, stopping the vote count in the State of Florida, and handing the White House to George W. Bush on an official margin of 537 votes.
GEORGE W. BUSH TAX CUTS
George W. Bush and the Republican Congress obliterated tax revenue, providing two bills in three years that cut taxes, strongly favoring the rich, and starving the government of revenue from then on forward. Unlike the many Ronald Reagan tax cuts that wound up being revenue neutral, the GWB tax cuts were true cuts. Total receipts fell from 19.7 percent of GDP to a low of 15.3 percent of GDP, then inched upward, recovering today to 17.5 percent.
Unlike in the 1990’s when average growth was 3.7 percent, rates dropped to 1.9 percent on the 00’s. About half of this sluggish growth went to income of the wealthy. Towering trillions of “idle money” went into creating debt and bubbles — destabilizing the economy and eventually causing the huge financial crash of 2008. By then, jobs were bleeding rates hitting as high as 800,000 per month.
BARACK OBAMA CHANGES
Emergency stimulus and other changes by Barack Obama stopped the bleeding and began to reverse economic course. The Patient Protection and Affordable Care Act (ACA or “Obamacare”) expanded medical insurance to tens of millions of Americans. The ACA raised some taxes and extended the ability of the Medicare fund to cover expenses for an additional twelve years, from 2017 to 2029.
The George W. Bush tax cuts were “temporary,” set to expire in 2011. Late in 2010 with the economy still weak, tax cuts were extended for two years. In 2012, with Republicans now back in control of Congress, Barack Obama agreed to make 82 percent of the GWB tax cuts permanent.
The economy improved slowly over the next few years, and the deficit was reduced. The rate of improvement was apparently not satisfactory to a large number of Americans, who voted in a decisive minority to put “outsider” Donald Trump into the White House.
DONALD TRUMP TAX CUTS
Today, Donald Trump and his Republican Party have passed yet another massive tax cut for the rich. This one is a sort of combination of all the Ronald Reagan tax changed combined. This lengthy law provides major tax cuts for corporations and the wealthy. The new law also promises a higher standard deduction for middle class workers, but eliminates preferences and deductions for those people. IRS Form Schedule A, the place where middle class people get to deduct medical, local taxes, mortgages, and more has been gutted.
The tax bill is front loaded. Workers receive tax savings up front, but these will be eliminated in a few years. Large businesses and wealthy earners receive benefits mostly right away, and these benefits do not phase out.
In the end, the current tax cut is more of the same:
- Massive tax cuts for the wealthy.
- Tax increases for most middle class workers.
- Ever increasing deficit and national debt.