What is the Full Cost of the Reagan-Bush Tax Cuts?

- by mojo (VA)

I argue that most of our deficit and debt has been caused by extraordinary tax cuts for the top 5% that President Reagan and George W. Bush implemented.

It's impossible to know the precise cost of those tax cuts (again, only for the top 5% -- millionaires and billionaires). The best we can do is estimate. And, of course one has to figure in what the top 5% made since 1981 and how the rates changed from year to year.

The most solid number I found was put out by Citizens for Tax Justice and estimated the cost (as of January 2012) of the Bush tax cuts for the top 5% at 1.2 trillion dollars.

But, of course, the Bush cuts were quite small compared to the Reagan cuts. I have not found any estimate of the cost of the Reagan cuts, but I can tell you that he reduced top rate from 70% to 50% in 1982 and eventually to 28% in 1988. So, he cut the top tax rate more than half.

Clinton raised the top rate to 39.60 in 1993. Then, W decreased it again to 35% in 2003 and that's where we stand today. So, to figure the cost of the Reagan tax cuts, for the wealthy, we have to figure in the dramatic drop in the top rate over a 30 year time period. I really do not know for sure, but I do know that if the cost of the comparatively small Bush cut has been 1.2 trillion over 8 years, then surely the Reagan cuts are closer to maybe 10 trillion dollars.

It seems very reasonable to estimate the cost of the tax cuts to the wealthy (top 5%) at 10 trillion (at least) and thus account for more than 2/3 of our national debt.

That's rather shocking since it suggests that we'd likely have no fiscal problems at all if the rich had simply continued to pay even close to the same rates they'd paid since FDR in the mid-30's. In fact, there was a time in the mid-40's the rich paid 94% on their top income.

Conservatives often talk about the "good old days" in the 50's. I say, great, let's go back to that. The wealthy paid over 90% tax all through that decade. The rich averaged 70% all the way until the Reagan Revolution. And, as we now know, that was also when our deficits and debt exploded. Coincidence? No way.

This doesn't even figure in the cost of estate tax cuts and increases in exemptions.

Conservatives will quibble with my estimate arguing it fails to account for "dynamic scoring." And, they have a good point. When you change tax laws you change taxpayer behavior and also impact the economy. Conservatives, who believe in "trickle-down" economics argue that by giving the wealthy tax breaks, that money will be re-invested by them in business, create jobs and thus "trickle-down" to the rest of us.

Progressives (who I mostly agree with) argue that the positive effect of any trickling down is miniscule compared to the alternative "push-up" option. They believe that it is better economically (and morally as well) to, instead of cutting taxes for the wealthy, either cut them more for lower income people or spend the money on job or education programs that help propel lower income people up. Since lower income people are far more likely to spend all or most of their additional income, the positive impact on the economy, including the wealthy, will be much greater.

Additionally, how do you measure the impact on interest rates of reduced borrowing by the Federal Reserve? And, what impact would those lower rates have had on the economy?

So, what is the static number, the cost of the Reagan-Bush tax cuts for the top 5%?

$10 Trillion is the best number I've come up with. Do you have an idea?

Sources:

• Phased-in 23% cut in individual tax rates over 3 years; top rate dropped from 70% to 50% phased-in increase in estate tax exemption from $175,625 to $600,000 in 1987
• Reagan-Bush Tax Cuts and the Theft of Your Money
• When Raising Taxes is Fiscally Conservative
• David Stockman (Reagan's Director, OMB):

It's very dismaying," he adds, "to see that 30-year descent into the kind of nihilism, know-nothingism that is represented by the Republican Party today.

Comments for What is the Full Cost of the Reagan-Bush Tax Cuts:

Crooks and Liars (GOP) - by Anonymous

Check out this article that debunks various cynical Republican lies and misleading statements about taxes -- like -- the allegations that eliminating Bush tax cuts for wealthy would harm small business or that the estate tax harms lots of family farms, small businesses, etc.

Of course, the truth is that the Republican leaders lie about these things to please their wealthy patrons and they know Americans are too dumb and lazy to notice.

In fact, they decreased total income by nearly 3 trillion.