"In politics, nothing happens by accident. If it happens, you can bet it was planned that way. "
Franklin Delano Roosevelt
You can get up now, the war is over. Look upon your ruined cities, look upon your devastated economy! Look upon your diminished wages and contemplate upon your children's decimated futures. It is perfectly normal for the populace to be confused once the war is lost. To look back over their shoulders and to ask themselves, "how did this come to be? How did we get here?
They warned that even though, we spend more on weapons than the rest of the world it still wasn't enough! Fortunately for us, they had friends that could build us super weapons. The most advanced weapons in the whole world and super expensive to boot. They would build for us an antimissile defense shield and even if it costs billions upon billions of dollars they would continue on with the research for decades, if need be, until they made the system work. Now keep in mind, you can't depend on a system like this to defend us from cruise missiles or from short range missiles. For long range intercontinental ballistic missiles though, the system will work great, well, 75 percent great.
For starters, to bring us prosperity they explained, we needed to free up our economy from all of those pesky and unneeded banking regulations! Without all those regulations the people would be freer to invest in the economy. The other leg of their platform was tax cuts, tax cuts would allow people to invest more into the economy. They reasoned if you cut taxes the people would have so much extra money that the economy would really hum.
So in 1981 they cut the top tax rate from 70 percent to 50 percent. They marginally lowered the dozens of other tax brackets leading to the top bracket at $215,400 in income. Now say for example you earned $215,500 then your taxes decreased from $150,850 to $107,750 and your after tax income rose from $43,100 to $107,750. If you earned a million dollars your taxes decreased by $200,000.
If you were an average middle class family family your tax rate fell from 31 percent to 28 percent, a whopping three percent! If you earned $100,000 in 1980 your federal taxes fell from $31,000 to $28,000. "Call the Cadillac dealer Honey and tell them we're on our way! Tell them we have $3,000 burning a hole in our pocket!" Now if you didn't earn $100,000 in 1980 your savings were considerably less. You know what? Its a funny old world, because for some reason the economy just dropped like a ball rolling off the table. Personal consumption went into the tank for two years and durable goods orders fell but there was some good news. Gross private domestic investment more than doubled yet wages were stagnant.
In 1964 the average private worker's wage was $2.53 per hour and that wage doubled in twelve years to $5.06. Before that $5.06 would double again it would be 1990 or fourteen years years. It would take 1990's $10.20 to ...well, it hasn't doubled again yet. So if you're going to wait on that train, you had best pack your lunch. In the 1990's (90 to 99) the average workers wages have risen only $3.29 per hour to $13.49 per hour. From 2000 till today average workers wages have risen $5.17 to $19.19.
What happened? It all sounded to good! We were all going to get tax cuts and money was going to be so plentiful we would have to sweep it off the porch at night. Personal consumption for the two years following the Reagan tax cut was -2.7 percent.
From 1970 to 1979 average worker wages rose 5.3 percent per year against an average inflation rate of 7.75 percent.
From 1980 to 1989 average worker wages rose 2.6 percent per year against an average inflation rate of 7.72 percent.
Well then, apparently tax cuts don't work? They do work, if you're in the top 20 percent of wage earners. Those people in the top 20 percent that we gave those big tax cuts to, their share of the wealth grew from 43 percent in 1980 to 52 percent of the economy by 2001. The public was confused, where was that wealth that their benefactors had been promising?
Their benefactors explained, we didn't cut taxes enough, and that's why its not working. There are just too many tax brackets, and that's confusing, isn't children? Well, we'll make it all better, by doing away with all those nasty tax brackets. The next round of tax cuts in1986 gave the middle class a 5 percent tax cut and the wealthy a 10.4 percent tax cut. Now that's fair for everybody isn't it? Let's review! From 1980 to 2000 the wealthiest Americans received a 30.4 percent tax cut and the middle class received a 5 percent. Now because they did away with all those nasty tax brackets some people got slightly more than 5 percent and the lowest income workers got nothing!
Well thank God, trickle down economics works or our budget deficit would have... exploded. I just can't understand it, you cut taxes and you cut taxes and for some unknown reason all of a sudden the deficit just explodes. At the end of WW2 our budget deficit was 120 percent of GDP and it had steadily gone down until it was about 22 percent of GDP by 1980. Our budget deficit then rose to over 40 percent of GDP in just ten years! Despite massive cuts in social spending.
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