I recently heard my Congressman, Tom McClintock, opine that “the only proven way to revive an economy is to cut the top marginal tax rates.” But such statements are evidence of neocon amnesia, not historical fact.
The contrast between the fruit of public policies in the decades following F.D.R.'s New Deal and post-Reagan couldn’t be clearer, as the first graph below indicates. The New Deal included high marginal income tax rates, while Reagan cut taxes on the rich, but raised payroll taxes. The steadily rising blue line of median family income appears in the wake the New Deal, which included higher taxes on the rich (the red line), from the 1940s to the advent of Reagan’s “trickle-down” economics in the 1980s and beyond.
The “Reagan revolution” that reduced those top tax rates starts in the early '80s with the second large drop in marginal income tax rates (Kennedy reduced top rates to around 70%, but tightened many loopholes). Before Reagan, median family income rose essentially without interruption from the late ‘40s until 1973, when oil shocks changed the economic playing field. Post-Reagan, the median income rise was considerably less vertical, and was interrupted more often, until most recently it went virtually flat. In addition to debunking the meme that Reagan produced some miraculous “morning in America” recovery for most of us, this graph actually understates the loss of income most families experienced because of another factor: Women entering the workforce.
Between 55-58% of women joined the workforce until just before the Reagan years (1980). After that, women’s employment outside the home really took off. So the “family income” in the first graph came at the cost of an additional worker, and the loss of some stay-at-home moms.
The philosophical differences behind these two approaches to public policy are also clear. One premise of the New Deal was that better public amenities would profit everyone. Farm-to-market roads, for example, insured produce would reach consumers unspoiled by transportation delays. For F.D.R., tax revenues could produce everything from victory in World War II to world-class infrastructure, public amenities and research.
Reagan believed the U.S. population consisted of consumers, not citizens. We don’t owe each other anything -- and we certainly owe nothing like a safety net to the widows and orphans, why they’re just welfare queens! To Reaganites, taxation is legalized theft (of “your money”), and public amenities are wasted on the undeserving.
It’s also instructive to remember where Reagan began and ended. Before his administration, the U.S. was the world’s largest creditor. After: the world’s largest debtor. Before: the U.S. had a trade surplus; after: a trade deficit. Until the recent financial scandal, Reagan also held the record for the largest political and financial scandal in U.S. history (the S&L bailout). To be fair, the Democrats were complicit, but Reagan campaigned as a deregulator, and deregulation is what led to this scandal that was orders of magnitude larger than, for one example, Teapot Dome.
The worst part of the Reagan legacy, however, was that it made such historical amnesia respectable. McClintock can, and often does, spout the Reagan memes. It would be comical if so many people weren’t suffering because of it.