Do Tax Cuts for the Wealthy Help the Economy?

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Do Tax Cuts for the Wealthy Help the Economy?

Donald Rumsfeld used to say that people are entitled to their own opinions but they are not entitled to their own facts.  Catastrophically, especially when it comes to Republican economics, that is no longer true.

Speaker of the House Paul Ryan shares a laugh with Republican members of Congress after signing legislation to repeal the Affordable Care Act, also known as Obamacare, and to cut off federal funding of Planned Parenthood during an enrollment ceremony in the Rayburn Room at the U.S. Capitol January 7, 2016. (Photo: Chip Somodevilla/Getty Images)

Only liars and idiots believe Republican claims that their proposed tax cut is about helping the middle class.  Everyone else understands it for what it is: a payoff by the Republicans to their wealthy masters. 

It is a measure of how grievously public discourse has become debauched that anything else can even be entertained.  But it is. 
 
For stalwarts defending truth and facts as a guide to wise policy, the central question for debate is this:  Does cutting the taxes of the wealthy help the economy?  Republicans say it does.  It is the core of their supply side doctrine and their claim for why their tax cut should become law.  
"Let’s not forget, Bush II’s policies created the greatest economic collapse since the Great Depression.  More than 5 million people lost their homes.  More than $8 trillion of working and middle class wealth was destroyed."
 
But what does the data say?  
 
The data from prior administrations that passed massive tax cuts for the wealthy says it isn’t so.  In fact, it’s not even close.  Tax cuts for the wealthy produce middling grow and massive debt.  
 
What should we believe?  The data or the rhetoric?   What will it be?  Sound policy or sycophantic payoff?
 
Ronald Reagan was the original supply sider. He ran in 1980 on a promise to cut taxes, expand military spending, and balance the budget, all at the same time. His opponent, George H.W. Bush, called it “voodoo economics.”  It was, but Reagan won.  
 
He cut taxes on the wealthiest Americans, reducing the top marginal tax rate from 70% to 38%.  What happened?
 
In 1982, Reagan’s first full year in office, the economy shrank by 2.1%.  It was the worst economic performance since the Great Depression.  Worse, he exploded the deficit.
 
Jimmy Carter’s last year produced a deficit of $77 billion.  Reagan’s first full-year deficit, in 1982, was $128 billion, 66% higher than Carter’s worst year.  And they went up from there.  
 
In 1983, the deficit reached $208 billion.  By 1992, the deficits had reached $300 billion a year.  Over the twelve years of the Reagan Revolution, Republicans had added $3 trillion in cumulative deficits, quadrupling the national debt.  And this was at a time of relative peace and prosperity.

Did the massive tax cuts and their concomitant debts produce the robust growth Republicans promised, and still claim?  They did not.  Here’s the data. 

"Did the massive tax cuts and their concomitant debts produce the robust growth Republicans promised, and still claim?  They did not."

Over the twelve years of Reagan/Bush, GDP grew at an average of 2.8% per year.  Bill Clinton raised taxes on the wealthy.  The result?  The economy grew at an average of 3.5% per year over his eight-year tenure, 25% faster per year than under Reagan/Bush. 

Again, it’s not even close.  Raising taxes on the wealthy produced dramatically higher economic growth than did cutting them. 
 
Undaunted by the facts, George W. Bush famously returned to Reagan’s supply side policies.  He enacted not one but two tax cuts for the already wealthy.  The result?  Clinton had handed Bush a $140 billion budget surplus.  Bush turned it into a $158 billion deficit his first year.  
 
By the end of his two terms Bush had more than doubled the national debt, from $5.8 trillion to $12.1 trillion. Did the debt produce exceptional growth?  In a perverse way, yes.  
 
The economy grew at a sluggish 2.0% per year under Bush II.  But remember, it grew at 3.5% per year under Clinton, or 75% faster per year.  That is a significant difference over eight years.  How significant?
 
The Clinton economy added 23 million new jobs.  Bush II added 5 million, the lowest level of job creation for any eight-year period outside of the Great Depression.  Bush’s record of economic growth was the lowest for any eight-year period since World War II. 
 
And let’s not forget, Bush II’s policies created the greatest economic collapse since the Great Depression.  More than 5 million people lost their homes.  More than $8 trillion of working and middle class wealth was destroyed. 
 
Donald Rumsfeld used to say that people are entitled to their own opinions but they are not entitled to their own facts.  Sadly, indeed, catastrophically, that is no longer true.  The likes of Trump and his Republican complicitors manufacture lies with impunity, and the only recourse is that they are rewarded. 

But if you are interested in facts, the facts are undeniable.  Massive tax cuts for the wealthy produce middling growth and massive debt.  They are a prescription for economic disaster. 

Robert Freeman

Robert Freeman

Robert Freeman writes about economics and education. He is the author of The Best One-Hour History series which includes World War I, The Vietnam War, The Cold War, and other titles.

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