Reagan tax cuts

From Wikipedia, the free encyclopedia

The phrase Reagan tax cuts refers to changes to the United States federal tax code passed during the presidency of Ronald Reagan. There were two major tax cuts: The Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986. The tax cuts popularized the now infamous phrase "Trickle-down economics" as it was primarily used as a moniker by opponents of the bill in order to degrade supply-side economics, the driving principle used to promote the tax cuts.

  • The first tax cut (The Economic Recovery Tax Act of 1981) among other things, cut the highest Personal Income Tax rate from 70% to 50% and the lowest from 14% to 11% and decreased the highest Capital Gains Tax rate from 28% to 20%.[1]
  • The second tax cut (The Tax Reform Act of 1986) among other things, cut the highest Personal Income Tax rate from 50% to 38.5% but decreasing to 28% in the following years [2] and increased the highest Capital Gains Tax rate from 20% to 28%.[1]

At the time, people weren't substantially informed about the tax cuts, as an ABC News Poll in September 1986 showed that 63% of Americans didn't know enough about the Tax Reform Act of 1986 to say if it was good or bad.[3]

Historical Tax Rates[]

Top Marginal Tax Rates 1913-2010
Top Marginal Tax Rates 1913-2010

The Personal Income tax rates went up massively during World War I. These taxes were quickly cut massively in the 1920s and revenues continued to climb. However, The Great Depression caused the economy to start failing and the revenues went down. President Herbert Hoover wanted programs to help the people. So in the Revenue Act of 1932 the top marginal tax rate was raised from 25% to 63%. These increases were not reduced under FDR and the taxes even went above 90% during World War II for the largest tax bracket. Unlike post-World War I, the taxes weren't massively cut and stayed that high for decades. During this time the Social Security Act created a Social Security tax, adding more to the taxes paid by individuals. It wasn't until 1964 that the taxes were finally decreased in the Revenue Act of 1964. In that act, there were tax cuts all around the board including the top rate lowering from 91% to 70%. The tax rates continued to go up and down in the late '60s and '70s. Due to high inflation and inflation-adjusted tax bracket changes being slow, there was high demand for a tax cut.[4] In 1980 Reagan promised those cuts and over his next 2 terms, he cut taxes to the lowest since the 1920s when the top Personal Income Tax rates were lowered from 73% to 25% in the Revenue Act of 1921, the Revenue Act of 1924, and the Revenue Act of 1926. When the tax cuts were finally put into the tax code, one of the longest peacetime expansions in history began.[citation needed]

Economic Implications[]

Economic Gains[]

  • The US Median Household Income grew by 10% adjusted for inflation from 1980–1989.[5]
  • The US Average Income grew by 75% from 1980–1989.[6]
  • The US Real GDP Growth rate was 3.5%+ every year from 1983–1989, including 1984 when there was a 7.2% Growth Rate.[7]
  • The unemployment fell from 7.5% in 1981 to 5.4% in 1989, though it spiked to 10.8% in November 1982 during the Early 1980s recession.[8]
  • The Federal tax revenue doubled from $517 Billion in 1980 to 1,032 billion in 1990.[9]
  • Inflation fell from 11.8% when Reagan entered office to 4.7% when he left.[10]
  • The Poverty Rate fell from 14% when Reagan entered office to 12.8% when he left.[11]

Economic Costs[]

  • While the average income grew 75% and the median income grew 10% from 1980-1989, this disparity shows that while top earners made huge gains, bottom earners' income grew slower than the inflation rate for the same decade.
  • The US Federal Tax Revenue as % of the GDP decreased from 18.5 to 17.4 from 1980–1990.[9]
  • The budget deficit increased from $74 billion in 1980 to $221 billion in 1990.[9]
  • Real US GDP Growth for the decade beginning 1981 fell 30% from the prior decade beginning 1971, including 1978 when there was a 14.8% growth rate.[12]
  • The budget deficit as a % of GDP increased slightly from 2.6% in 1980 to 2.7% in 1989.
  • The tax cuts are often blamed for the Wealth inequality in the United States and the Middle-class squeeze.[13]

Tax Incentives Post-Tax Cut[]

After the Economic Recovery Tax Act of 1981 revenues fell by 6% in real terms. This promoted a tax increase that passed the House in late 1981 and the Senate in mid-1982 called the Tax Equity and Fiscal Responsibility Act of 1982. This act was an agreement between Reagan and the Congress that raised revenues for the following years. Following that increase, there were 3 other tax increases from 1983-1987 for other various reasons. In total, the US lost over $200 billion in 2012 chained dollars due to the original tax cut in the first four years and around $1 billion for the second tax cut. The four tax increases from 1982-1987 added a total of $137 billion in revenue which adds up to roughly $64 billion in net revenue lost because of the cuts.[14]

See also[]

External links[]

References[]

  1. ^ Jump up to: a b Arthur Laffer (June 1, 2004). "The Laffer Curve: Past, Present, and Future". Retrieved June 21, 2019. Cite journal requires |journal= (help)
  2. ^ Legisworks - Retrieved 28 May 2019
  3. ^ Tom Kertscher (December 18, 2017). "Paul Ryan claims 1986 tax reform, like the current one, had low public support just before passage". Retrieved May 28, 2019. Cite journal requires |journal= (help)
  4. ^ Daniel Mitchell (August 13, 2003). "The Historical Lessons of Lower Taxes". Retrieved May 28, 2019. Cite journal requires |journal= (help)
  5. ^ Median Household Income - Retrieved 28 May 2019
  6. ^ US Average Income - Retrieved 28 May 2019
  7. ^ US GDP Growth Rate - Retrieved 28 May 2019
  8. ^ BLS: US Unemployment Rate - Retrieved 28 May 2019
  9. ^ Jump up to: a b c CBO "Historical Budget Data" - Retrieved 28 May 2019
  10. ^ Historical Inflation Rates - Retrieved 21 June 2019
  11. ^ Arthur Laffer (June 17, 2017). "How much did poverty rise under Reagan?". Retrieved June 22, 2019. Cite journal requires |journal= (help)
  12. ^ US GDP Growth Rate since 1948 - Retrieved 27 March 2021
  13. ^ {{cite journal
    • The average hourly wage went down from 1980-1989.
    |author=Thom Hartmann |title=Reaganomics killed America's middle class |date=June 17, 2017 |url=https://www.salon.com/2014/04/19/reaganomics_killed_americas_middle_class_partner/ |accessdate=April 19, 2014}}
  14. ^ Kessler, Glenn (10 April 2015). "Rand Paul's claim that Reagan's tax cuts produced 'more revenue' and 'tens of millions of jobs'". Washington Post. Retrieved 16 October 2015.
Retrieved from ""