Reagan tax cuts
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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 the main principle of 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 to 28% from 20%. [1]
At the time, people actually weren't credibly 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] Though it does show people approved of Reagan as he won 49 states in the 1984 US election, likely because of the tax cuts. Despite all this, the tax cuts changed the US for the better or the worse.
Historical Tax Rates
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 event 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, a recession occurred. The tax cut and the slow of inflation caused to lower revenues caused most of the tax cuts to be reversed.
Economic Implications
The economy changed in many ways in the 1980s and is a highly controversial topic. There were many good things that came out of the tax cuts, but also many bad things. Nevertheless, it changed for the better or the worse.
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 7.3% 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 180 to 1,032 billion in 1990. [9]
- Inflation fell from 11.8% when Reagan entered office to 4.7% when he left.[10]
- The Unemployment Rate went from 7.6% when Reagan entered office, to 5.5% when he left.[11]
- The Poverty Rate fell from 14% when Reagan entered office to 12.8% when he left. [12]
Economic Costs
- 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]
- 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 and a tax increase was given. The Tax Equity and Fiscal Responsibility Act of 1982 was an agreement between Reagan and the Congress which raised revenues for the next many years. Following that increase, there were 3 other tax increases from 1983-1987 for other various reasons. Overall, because of the first tax cut, the US lost over $200 billion in 2012 chained dollars in the first four years and around $1 billion for the second tax cut. The four tax increases from 1982-1987, added an extra $137 billion in revenue.[14] Overall there was a clear net decrease in taxes in Reagan's Presidency.
See also
External links
References
- ^ a b Arthur Laffer (June 1, 2004). "The Laffer Curve: Past, Present, and Future". Retrieved June 21, 2019.
{{cite journal}}: Cite journal requires|journal=(help) - ^ Legisworks - Retrieved 28 May 2019
- ^ 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}}: Cite journal requires|journal=(help) - ^ Daniel Mitchell (August 13, 2003). "The Historical Lessons of Lower Taxes". Retrieved May 28, 2019.
{{cite journal}}: Cite journal requires|journal=(help) - ^ Median Household Income - Retrieved 28 May 2019
- ^ US Average Income - Retrieved 28 May 2019
- ^ US GDP Growth Rate - Retrieved 28 May 2019
- ^ BLS: US Unemployment Rate - Retrieved 28 May 2019
- ^ a b c CBO "Historical Budget Data" - Retrieved 28 May 2019
- ^ Historical Inflation Rates - Retrieved 21 June 2019
- ^ BLS - Unemployment Rate History - Retrieved 21 June 2019
- ^ Arthur Laffer (June 17, 2017). "How much did poverty rise under Reagan?". Retrieved June 22, 2019.
{{cite journal}}: Cite journal requires|journal=(help) - ^ Thom Hartmann (June 17, 2017). "Reaganomics killed America's middle class". Retrieved April 19, 2014.
{{cite journal}}: Cite journal requires|journal=(help) - ^ 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.