Whenever it comes time to drum up support for one of their tax bills, conservatives are quick to cite the legacy of the sacred cow of Republicanism himself, Ronald Reagan. We're told that, among other things, the Reagan tax cuts reduced the deficit, reduced unemployment, and grew personal income. Here, we're going to carefully examine the right-wing mythology surrounding the Reagan tax cuts.
The economic growth that took place during his administration was caused by many different factors, including a lowering of interest rates, a post-recession recovery, and government spending that stimulated the economy. Rarely mentioned in right-wing circle-jerks is the fact that Reagan also increased many taxes while he was president—and the net effect of his tax legislation was to raise taxes on the lowest-earning Americans.
Finally, when presenting statistics to glorify the Reagan tax cuts, conservatives often use very misleading tactics such as not accounting for inflation or portraying the rich getting richer as everybody getting richer.
We read articles about the Reagan tax cuts with such effusive titles as "Reagan Cut Taxes, Revenue Boomed"; "REAGAN TAX CUT HELPED BOTH RICH, POOR"; "I Think About The Reagan Tax Cuts While Fucking My Fat Wife."
Aside from being tax cuts passed by Reagan, what, exactly, were the Reagan tax cuts? These refer to two main pieces of legislation that he passed, one in 1981 and the other in 1986. Regarding the first set of cuts, Investopedia writes that:
"The biggest tax cuts were for wealthy Americans, with the top rate cut from 70 percent to 50 percent over three years. The bottom bracket was cut from 14 percent to 11 percent."
They also write that the law included:
". . . a reduction in the capital gains tax from 28 percent to 20 percent; and a higher estate tax exemption."
About the 1986 tax cuts, Investopedia writes the following:
"The Tax Reform Act of 1986 lowered the top tax rate for ordinary income from 50% to 28% and raised the bottom tax rate from 11% to 15%. . . . For businesses, the corporate tax rate was reduced from 50% to 35%."
To really understand the impact of these bills on the income tax, you have to look not just at the rate changes but also the bracket changes. As we can see in these extremely exciting tables provided by TaxFoundation.org, when you compare 1980 against 1982, you see that the number of brackets was reduced from 17 to 14. The top rates were brought down, as well.
When you jump all the way to 1990—when the Reagan tax cuts were fully phased in—you see that there were only two brackets, with the rate either being 15% or 28%, with the cutoff point between the two brackets being $19,450. So the basic impact of the Reagan tax cuts was to sharply reduce the top marginal rates and make our tax system much less progressive.
It's difficult to understand what effect these changes would have on people in various income groups without running the numbers—which I painstakingly did because I care about the truth (and I also don't really have anything better going on, so, I mean, here I am. ["Hey Anton, come hang out with us tonight!", "I can't; I'm too busy calculating the tax rates people would've paid in the 1980s."])
Let's imagine individuals in 3 income tiers, with one making $8,000 per year, another making $19,450 per year, and another making $500,000 per year. Accounting for inflationary differences, in today’s dollars, these would be $20,900, $50,700, and and $1,300,000—so basically, lower-class, middle-class, and upper-class. And since $8,000 per year does sound absurdly low, keep in mind that the minimum wage in 1982 was $3.35/hour. $3.35 x 40 hours x 52 weeks = about $7000—so that's slightly above the minimum wage.
So what impact did the Reagan tax cuts have on these 3 income tiers? Let's start with the person making $500,000 per year. According to the 1980 brackets, they would've paid about $330,000 in taxes, or an average of 66%. According to the 1982 brackets—which were modified according to the first tax bill—this person would now be paying $241,000 per year, or 48.3%. Finally, according to the 1990 brackets—the point at which the Reagan tax cuts were all phased in—this person would now be paying $137,000, or an average of 27.5%. So the average percentage paid in taxes by a very wealthy individual went from 66% to 48% to 28% under Reagan.
What about the middle-class earner making $19,450? In 1980, they would've paid $4000, or 20.5%; in 1982, $3600 or 18%; and in 1990, $2900 or 15%. So the average percentage paid by this middle class individual would've dropped from 21% to 18% to 15% under Reagan.
Finally, what would the person making $8000 pay? In 1980, they would've paid $1000, or 12.2%; in 1982, $900 or 10.8%; and in 1990, $1200, or 15%. So this lower-class earner would have paid an average rate of 12%, then 11%, then 15% under Reagan.
Comparing the pre- and post-Reagan numbers, we find that the very wealthy individual's average rate dropped by 38%, compared with the middle-class drop of 6% and the lower-class increase of 3%. As we can see from this analysis, the overwhelming benefits of these tax cuts went to the very wealthiest Americans, whereas middle-class earners received modest benefits and lower-class individuals actually ended up paying more in taxes as a result of the fabled Reagan tax cuts.
This is why it's so important, when talking about tax cuts, to ask a series of follow-up questions: Tax cuts for who? Cuts on what specific taxes? Republicans have a long and rich history of trying to misleadingly sell their tax cuts to Americans by framing them as dramatic reductions that all of us will experience—hammering us endlessly with terms like "middle-class tax cuts" in a shameless attempt to make them palpable. The reality of the situation is that the overwhelming majority of benefits very often go to the ultra-wealthiest of Americans who are already doing spectacularly well.
The laundry list of praise for the Reagan tax cuts seems virtually endless. Republicans point to such things as GDP growth, income growth, deficit reduction and unemployment reduction as proof that the cuts were a success.
Let's start out by examining the deficit under Reagan. For all three of you who don't know what that is, "the deficit" basically describes the amount that the government spends each year in excess of the revenue that it takes in.
The conservative spectrum of what impact the Reagan tax cuts had on the deficit range from "tax cuts pay for themselves" to "the tax cuts modestly increased revenue." What are the facts?
It's time for an A Skeptical Human Fact Check™, brought to you by TheDailyFact.com! No, I'm totally joking—and I just made that website up right now! What if I, like, thought that was cool and tried to make that a thing on my channel: The Skeptical Human Fact Check™? "It's time for your Fact Check Replay™ of the night, brought to you by Blue Cloud Insurance!" (People are like "This is weird...")
The starting point of this analysis is simply to look at the deficit under Reagan, who was president from 1981 to 1989. As we can see in data presented on TaxPolicyCenter.org, in 1981, the deficit was $180 billion. This increased to about $400 billion from 1983 to 1986, then decreased to about $250 billion by 1989—$70 billion more than when he took office.
Deficit numbers can be misleading, however, because two different components contribute to the final statistic: government revenue and government spending. Even if revenue stayed perfectly constant—or even increased—from year to year, the deficit could increase if spending went up. Indeed, as we can see, spending under Reagan did increase from $1.5 trillion to about $1.9 trillion.
More important for our purposes is to look at the revenue numbers. As we can see, after the passage of the first tax bill, revenue dropped, from $1.36 trillion in 1981 to $1.21 trillion in 1983. From that point on, it increased quite significantly, all the way up to $1.6 trillion in 1989. So does that prove that the Reagan tax cuts did, indeed, pay for themselves by promoting explosive economic growth? No, it doesn't, and that's because there are many other factors we need to take into consideration.
First and foremost is that the tax code isn't the only variable that changed over this time period, so we can't confidently say that the tax cuts were entirely responsible for the revenue increases. Rather than individual policy changes taking place in a vacuum, in the complicated real world, many different laws are being passed simultaneously that affect many different sectors of the economy, so pinpointing the precise effects of one particular policy change becomes very difficult—at least for an armchair researcher like myself. (And of course, I don't mean "armchair researcher" in the sense that I'm a person who spends his time researching armchairs. [I'm like "Oooh, that one looks comfortable!"])
We also need to take into consideration demographic changes that could impact these numbers. The most obvious one is population growth. The US population increased by about 17 million from 1981 to 1989. Now obviously newborn babies aren't going to be contributing to the pool of revenue straight out of the uterus—those fuckin' lazy moochers!—but a steadily increasing population means more people paying taxes, and thus, a larger amount of revenue collected each year.
Something else that would impact the numbers is inflation. Now the numbers I'm showing you here are inflation adjusted, but sometimes, Republicans will take the deceptive route of showing us the non–inflation adjusted numbers to make the revenue increases appear even more pronounced. Sometimes even this isn't enough for them and they just outright lie about the numbers. Tim Pawlenty, for example—former Governor of Minnesota and author of the modestly-titled book Courage To Stand—said that
"When Ronald Reagan cut taxes in a significant way . . . revenues actually increased by almost 100 percent during his eight years as president."
No, actually, they didn't. Even using the non–inflation adjusted numbers, we see that revenue increased from $600 billion in 1981 to $1 trillion in 1989. An increase of $400 billion from a starting point of $600 billion is not a 100% increase; it's a 67% increase—or 65% if you use the exact revenue numbers.
You might think I'm splitting hairs here, but the numbers really do matter. Imagine a kid that comes home from school after a long day of active shooter drills and getting high in the bathroom. His parents are like: "How'd you do on the test today?" He got a 65% on the test, or a D, yet he's like: "I did great! I almost got a 100%!"
This isn't just a minor difference in phrasing or perspective; this is a gross exaggeration. Using the inflation-adjusted numbers, you arrive at a much more modest revenue increase of 20%, from $1.36 trillion to $1.64 trillion.
But ya know, I think the title of Pawlenty's book is quite appropriate, because it takes some serious balls to publicly distort easily verifiable facts like that. I'm just waiting for the sequel to his book entitled The Courage To Stand And Lie To Your Face.
Also rarely talked about in conservative circles is the fact that Reagan, several times, did the unthinkable and increased taxes when he was president. ("No...it's not possible! It can't be!" Yes, it is possible.) As Nicole Lewis writes for the Washington Post,
". . . Reagan receives a lot of praise for lowering taxes, but his tax increases are often overlooked. Even before the 1981 tax cut took full effect, under pressure from Congress, Reagan boosted taxes several times: in 1982 with the Tax Equity and Fiscal Responsibility Act, again in 1983 with the Social Security Amendments, and in 1984 with the Deficit Reduction Act. Many of these tax increases aimed to increase federal tax revenue, after it declined following initial cuts."
None other than a former domestic policy adviser under Ronald Reagan explains this in a 2011 paper entitled "Reagan’s Forgotten Tax Record." As Bruce Bartlett puts it,
". . . [Reagan] eventually endorsed the 1982 Tax Equity and Fiscal Responsibility Act. According to a Treasury Department analysis, it raised taxes by close to 1 percent of GDP — equivalent to $150 billion per year today — and was probably the largest peacetime tax increase in American history. That was just the first of 11 tax increases that President Reagan endorsed and signed into law.
. . . According to a table in Reagan’s last budget (fiscal 1990), the cumulative legislated tax increase during his administration came to $132.7 billion as of 1988 ($367 billion today), compared with a gross tax cut of $275.1 billion. Thus, Reagan took back about half the 1981 tax cut with subsequent tax increases."
So, much of the revenue generation that we see during the Reagan administration actually comes from the virtually untalked about Reagan tax raises. Not only that, but there were additional Reagan policies that stimulated the economy and generated tax revenue.
As Bruce Bartlett writes in a Washington Post article,
"Reagan’s defense buildup and highway construction programs greatly increased the federal government’s purchases of goods and services. This is textbook Keynesian economics."
It's very ironic that conservatives try to give their preferred policies credit for the economic gains made under Reagan, when really, many of the policies that they oppose contributed to these economic gains—whether we're talking about tax increases or Keynesian spending.
I also think it's kind of funny when conservatives point out, as if they're correcting us, that Reagan's defense-spending increase contributed to his deficit. They're like, "No, it was this other shitty Reagan policy that jacked up the deficit!" Ohhh, ok! Thanks for clearing that up.
It's also worth looking specifically at GDP growth under the Reagan administration, because conservatives argue that it dramatically increased as a direct result of the Reagan tax cuts. As an example, Sarah Huckabee Sanders—who is notorious for her factually correct statements—provides the following list of accomplishments and implies that the Reagan tax cuts were responsible.
"While arguing over President Reagan’s 1981 tax cuts, Democrats claimed it would only benefit the rich. The Democrat speaker of the House at the time, Tip O’Neill, called them royal tax cuts, because he claimed they favored the wealthiest Americans. What really happened was more than 14 million new jobs were created over five years; incomes grew by over 22 percent for the next seven years; and the economy grew by over 3.5 percent, on average, for the rest of the decade."
I'm about to say something that's probably going to scandalize many of you: I am not impressed by GDP growth. The reason I say that is because GDP growth is the norm. Look at this Federal Reserve graph that goes all the way back to 1947. As we can see, unless we're in a recession, GDP is always growing.
So whenever a person of any political party points to the GDP growth under their preferred president, I couldn't give less of a fuck. They might as well point out that water was flowing downhill during their administration. (Now the Carter administration! That's when shit got real weird and streams started flowing uphill... It was chaos! No, I'm kidding. Obviously. [People are like, "Wait, did that really happen?"])
I think GDP is one of those metrics that's praised or ignored depending on who's in office whenever the numbers work in your favor. You see something similar take place with unemployment numbers as well as the deficit. I like to call numbers like these that are only examined selectively, with a double standard, "tribal metrics"—because functionally, they're only looked at and highlighted by political partisans whenever it's convenient for their political team.
(And when I say "I like to call them tribal metrics", I mean I just made that term up right now and I've never used it before until 5 seconds ago.)
Don't get me wrong: I'm not saying that GDP is unresponsive to government policy; obviously certain policies can contribute to the growth or shrinkage of GDP. But given that GDP continues to steadily grow during every single administration regardless of their political views and regardless of the policies that they enact, let's not pretend that the particular policy that you're pointing to is necessary to bring about such GDP growth, or that a similar level of GDP growth wouldn't have taken place anyway without the enactment of that policy. Given historical trends, I think GDP would continue chugging along even if a president literally just sat in the Oval Office all day and masturbated—or as Donald Trump calls it, "executive time."
Now you might say, "Hang on a sec, Anton: It's not just the mere fact that GDP was growing under Reagan that's impressive; it's the high rate of GDP growth that stands out!"
I ran the numbers, and the average GDP growth rate under Reagan just doesn't strike me as that remarkable. From 1948 to 2018—the largest period for which data is available—the average GDP growth rate was 3.19% per year. During the Reagan administration—from 1981–1989—the average growth rate was 3.53%, which is a whopping 0.34% higher.
Yes, this is above average, but not by very much. By comparison, the average GDP growth rate under Clinton was 3.41%—despite the fact that many taxes, including income and corporate taxes, actually went up under Clinton.
Here's something else to note about the timeline of the Reagan presidency: His tax cuts were passed right after a recession. What happens after an economic recession? Economic expansion. As Bruce Bartlett puts it,
". . . there was the simple bounce-back from the recession of 1981-82. Recoveries in the postwar era tended to be V-shaped — they were as sharp as the downturns they followed. The deeper the recession, the more robust the recovery."
So if you're comparing the numbers just before or at the start of the Reagan presidency with those at the end of the Reagan presidency, you're obviously going to measure significant improvements if your starting point is a recession. When your baseline is an exceptional low point, whatever comes after that point will look incredible by comparison. Making minor adjustments to the start and end points, however, can have dramatic impacts on your conclusions.
The same thing can be said about other metrics like unemployment. As Nicole Lewis puts it,
"By the end of 1982 the unemployment rate reached an all-time high of 10.8 percent, with nearly 2.9 million jobs lost since the onset of the recession. Some of the [employment] gains Sanders cites are due to the bounce back after the decline."
Another thing that likely contributed to the accelerated economic growth starting in 1983 was the Federal Reserve lowering interest rates. As Nicole Lewis continues,
"In 1981 federal interest rates soared to 19 percent, making it expensive to borrow money and tipping the country into a recession. By the end of 1982 the interest rate dropped to 9 percent. Low interest rates make it cheaper to borrow money, and economists generally tend to agree low rates have a stimulating effect on the economy as people are more likely to make investments to expand their business.
Can all of the growth in the ’80s be attributed to lowering interest rates? No, but it is a factor."
It's also worth taking a look at income growth under Reagan. According to Sarah Huckabee Sanders, after the Reagan tax cuts were passed, "incomes grew by over 22 percent for the next seven years."
Sounds pretty fucking awesome, right? Well to really understand what's going on here, you need to look beyond the surface and examine the stratification of income growth under Reagan. As Eduardo Porter writes in a New York Times article,
"For one in two Americans . . . — 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.
. . . 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.
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."
This is a classic Republican tactic right here: Take something that only the very wealthy benefit from, and portray it as if it's something that all of us will experience. They do the reverse of this, as well: They take something that will only impact the very wealthiest—such as raising the top marginal tax rate to 70%—and they frame it as if every one of us will experience that level of tax increase.
Both tactics have one core function, and that is to protect the mega-rich by deceiving us into believing that their interests are synonymous with our interests. Whether she's aware of it or not, this is exactly what Sarah Sanders does when she describes the rich getting richer under Reagan as if it's something that everybody experienced.
Her presenting these statistics is also a clear example that you can deceive people even when providing them with technically correct information. A real estate agent could tell you that the guy next door is very quiet and clean. True, but he's also a meth-dealing, neo-Nazi serial killer. An employee could tell you that he can't make it into work today because he's having car trouble. Translation? He was driving drunk after robbing a bank and crashed into a mailbox—ironically while on his way to buy meth from that neo-Nazi! Employee of the Month, I know!
Recall also that Sarah introduced this data about income growth in an attempt to refute Democratic descriptions of these tax cuts as benefiting the wealthy.
". . . Tip O’Neill, called them royal tax cuts, because he claimed they favored the wealthiest Americans. What really happened was . . . incomes grew by over 22 percent for the next seven years . . ."
When you look closely at the data she's citing, however, you find that it proves exactly what she's trying to refute: that the Reagan tax cuts mostly benefited the wealthy.
By the way, speaking of misleading presentation of data, look at this famous picture of Reagan trying to sell his tax cuts to the public. Notice anything strange about the graph? The Y-axis is completely unquantified; there's just a big dollar sign on the Y-axis. What is the baseline or the peak of this measurement? What is the degree to which our "dollar sign" is being reduced by your tax bill? I have absolutely no fucking clue what the takeaway is from this graph—and that's pretty ironic coming from the so-called "Great Communicator."
Is our tax burden going from 80% to 10%? $5000 to $4000? If you don't label your axis, your graph really isn't telling us anything of value. It's good propaganda, though, because it looks like a very sharp decline in taxation—but depending upon how you present the data on a graph, you could make even a very tiny decrease in taxes look like an enormous decrease.
Check out this graph that I just made. Holy shit! Look at that gigantic decrease in taxes. Whoops! Looks like the measurements on my Y-axis just popped up. Turns out that the amount paid in taxes has only decreased by ten dollars, from $1000 to $990.
Here's another graph I made where the line is sloping downwards even more sharply! Whoah! Look at that: Turns out that the lower on the Y-axis you go, the more you pay in taxes—so what looks, on first glance, like a sharp decrease in taxes is actually a graph that shows everybody going from paying $0 to $100,000,000 in taxes.
"But I don't have a hundred million dollars!"
"Huh, sounds to me like tax evasion! Take her away, boys."
Here's a good rule of thumb: If the measurements on a graph aren't made explicit, the person presenting you with the graph is probably trying to deceive you in some way.
Before I finish up, I should say a few things about tax cuts, generally. I'm not intrinsically opposed to the idea of cutting taxes, and I don't think raising taxes on any income group is a desirable endgoal in and of itself. What it comes down to for me is making sure that we raise enough revenue to fund the government programs that we deem valuable and necessary.
If these programs require a tax increase, it strikes me as common sense that the very wealthiest of citizens should be the ones who shoulder a larger portion of the tax burden—because they have plenty of money to spare. And if we could sufficiently fund these government programs while also cutting taxes, I would be all for that. I think the prime beneficiaries of tax cuts, however, should always be the lowest-earning Americans.
Basically, my tax cutting priorities would be the reverse of Republicans—at least the reverse of Republicans in action, as opposed to in rhetoric: The top priority should be to cut taxes on the lowest bracket; the second-highest priority should be to cut taxes on the second-lowest bracket; and so forth. The reason for this is obvious: People who are earning the least would benefit the most from a tax reduction—and they'd also be more likely to spend that extra income. It just doesn't make ethical or financial sense to me to pass legislation that primarily provides tax relief for people who are already extremely wealthy and probably wouldn't even notice the extra money in their bank accounts.
So what can we conclude about the Reagan tax cuts? The main takeaway is that there's a lot of Republican misinformation surrounding them. Within conservative circles, the Reagan tax cuts have a holy aura around them, and they're credited for everything from GDP growth to income growth to a reduction in unemployment.
When you look past the right-wing propaganda and actually examine the subject, you find that things are much more complicated than they make them out to be. There are several different factors that could account for the economic growth under Reagan. These include the lowering of interest rates in 1983, as well as economically stimulative defense and infrastructure spending.
Recall also that the Reagan tax cuts were passed just as a recession was ending; the trend is always for economic expansions to follow recessions. Also consider that GDP growth is the norm in our economy, and the rate of growth under Reagan was only slightly above the historical average. Given all of these different factors, it simply doesn't make sense to give the Reagan tax cuts all or even a large portion of the credit for the economic growth that took place while he was in office.
Omitted from the romantic history of the Reagan era is the fact that he also passed many tax increases—and the net effect of his tax legislation was actually to raise taxes on the lowest-earning Americans. Finally, income grew under Reagan primarily for the very wealthiest of Americans—a fact that's conveniently obscured when conservatives talk broadly about income growth as if everybody shared in the spoils that mostly the rich walked away with.