Home for the holidays after passing the eighth-largest tax cut in United States history, Republicans could be forgiven for reveling in the warm embrace of nostalgia.
Who
among them won’t raise a glass to Ronald Reagan, a welcome ghost of
administrations past, the revered Republican president whose first State of the Union address
promised the biggest tax cut ever to “expand our national prosperity,
enlarge national incomes and increase opportunities for all Americans”?
Speaker Paul D. Ryan might chuckle fondly at Reagan’s tale of woe from a worker in the Midwest — a precursor to Mr. Ryan’s “Cindy”—
who made the everyman’s case for a tax cut by complaining, “I’m
bringing home more dollars than I ever believed I could possibly earn,
but I seem to be getting worse off.”
For
all the backslapping over a job well done, however, Republicans are
proving notably more reluctant to acknowledge the true impact of the tax
changes that Reagan wrought.
That’s because Reagan’s cuts didn’t quite work as advertised.
Gross
domestic product grew quickly during his two terms, averaging about 3.5
percent a year, pretty decent compared with the current measly pace.
For one in two Americans, though — those in the bottom half of the
income pile — income actually shrank on Reagan’s watch. In 1980, the
year he was elected, they earned $16,371 a year on average, in today’s
dollars, according to the World Wealth and Income Database. By 1988, Reagan’s last year in office, they had to make do with $16,268.
Reagan
promised to “continue to fulfill the obligations that spring from our
national conscience,” to help those who legitimately could not help
themselves. But even throwing in the impact of taxes and transfers from
all government programs, Americans on the bottom half of the income
scale did not fare much better. By 1988, they were taking in $21,614, on
average, $8 more than in 1980, after inflation.
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The
sliver of America that did get ahead was, you guessed it, the one at
the tippy top: the richest Americans, those in the highest 1 percent of
the income distribution. Their earnings grew by about 6 percent a year.
Whatever
gains that Republican tax cuts have bestowed on the economy in the
years since Reagan promised voters a city on a hill, they have all
shared the same distributional peculiarities. President George W. Bush
passed two rounds of tax cuts, in 2001 and 2003, arguing that the United
States had a budget surplus “because taxes are too high and government
is charging more than it needs.”
To make his case, in 2001 Mr. Bush deployed the Ramos family
of Pennsylvania, which he said would save $2,000 from his first round
of cuts. “If we had the money,” Steven Ramos, a school administrator,
told somebody on the president’s staff, “it would help us reach our goal
of paying off our personal debt in two years’ time.”
And
yet, during Mr. Bush’s two terms, the average income of the bottom half
of Americans slid from $17,827 to $17,473, accounting for inflation.
After factoring in taxes and transfers, that sum did increase — 3.5
percent, or about 0.4 percent a year.
The
bottom half of Americans fared better under President Bill Clinton, who
actually raised taxes. On average, their incomes rose by a fifth over
his two terms, after taxes and transfers, a gain of over 2 percent per
year, after accounting for inflation. Their lot also improved during
President Barack Obama’s administration, census data shows. (The series from the World Wealth and Income Database ends in 2014.)
Who Gains From Tax Cuts?
Tax cuts have been followed by fast income growth at the
very top of the pyramid of prosperity. But among the bottom half of
Americans they have delivered little.
Average pre-tax U.S. incomes
Highest marginal
income-tax rates
income-tax rates
in 2016 dollars
100
%
$1.5
million
$50
thousand
FOR THE TOP 1%
FOR THE BOTTOM 50%
80
40
1.2
30
60
0.9
0.6
20
40
0.3
10
20
0
0
0
’62
’70
’80
’90
’00
’10
’14
’62
’70
’80
’90
’00
’10
’17
’62
’70
’80
’90
’00
’10
’14
Over
a 34-year stretch starting in 1980, a period during which the nation’s
top income tax rate plunged from 70 percent to as low as 28 percent,
settling at just under 40 percent today, the grand Republican promise of
faster growth has proved to be, if not necessarily false, at least
irrelevant for the very segment of the electorate for which it was
directed.
In
2014, the economy was 2.5 times larger than it was in 1980, but the
bottom half of the population made only 21 percent more, on average,
even after including government benefits. America’s middle — families
earning more than the bottom 30 percent but less than the top 30 percent
— gained only 50 percent in those 34 years. By contrast, the after-tax
incomes of Americans in the top 1 percent — families like President
Trump’s or Senator Bob Corker’s — tripled.
That
is less surprising when one realizes that for all the stories about
harried workers in the Midwest shouldering an unbearable tax burden, tax
relief since Reagan’s fateful State of the Union speech has mostly been
aimed at benefiting the well-to-do: The average tax rate for Americans
in the bottom half of the income pile was higher in 2014 than it was in
1980. The rate at the top declined.
After
multiple repetitions, the Republican promise that the road to paradise
is paved with tax cuts may have finally lost its power. Only about a third of voters seem to support the current Republican strategy — a much smaller proportion than the one that favored the tax cuts passed in 1981, under Reagan, and 2001, under Mr. Bush.
Still, Republicans are having a hard time letting go of Reagan’s message. Mr. Trump’s Council of Economic Advisers claimed
that the corporate tax cuts proposed by the president would give
households in the middle of the income scale a boost of $3,000 to $7,000
a year.
Mr.
Ryan offered a single mother named Cindy, an assistant manager at a
local restaurant who was created by Republican staff members of the
House Ways and Means Committee. She makes $30,000 a year, according to
Mr. Ryan, and will be mighty pleased with the extra $700 a year she will
get from the Republican tax cuts.
The
question now is whether the actual harried working-class voters who
helped deliver Mr. Trump to office buy the story. The president they
voted into power did not campaign on a platform of tax cuts for the
rich. His latter-day embrace of Reagan’s tax-cutting agenda might strike
them as a betrayal. It has been going on for a very long time.
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