Category Archives: Taxes

The end of voodoo economics?

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I was never a big fan of President George H.W. Bush although, compared to his son, he was a fabulous president.  And he did get one thing right – his description of Reagan’s theory of trickle-down economics.  That’s right.  It was George, the elder, who first appropriately labeled it “Voodoo” economics. 

The idea that cutting taxes for the wealthy would somehow benefit the rest of us never really made any sense.  It was clear to me that the wealthy would simply spend the extra money on themselves or invest it in the stock markets.  I couldn’t see how the theory would result in more jobs or increased living standards for everyone else.

What did make sense to me was the idea of cutting taxes on companies that created jobs, and Reaganomics did do that.  Unfortunately, the Reaganists relaxed or eliminated many of the regulations and safeguards that controlled corporations.  The result was tax cuts and tax credits for large corporations that took their manufacturing jobs overseas.  And due to the lack of regulation, many corporations created phony “headquarters” in the Bahamas and the Caymans to avoid paying taxes altogether.  Amazingly, Republicans refused to even consider banning these off-shore companies from receiving U.S. government contracts. 

How on Earth were U.S. citizens, other than corporate officers, supposed to benefit from that?

The short answer is that we didn’t.

In an op-ed column for The New York Times, Nobel Prize-winning economist Paul Krugman summarized the real effect of Reaganomics.  “…real incomes of the top .01 percent of Americans rose sevenfold between 1980 and 2007.  But the real income of the median family rose only 22 percent, less than a third its growth over the previous 27 years“.  Krugman also points out that “most of whatever gains ordinary Americans achieved came during the Clinton years “, and that President George W. Bush “…had the distinction of presiding over the first administration since Herbert Hoover in which the typical family failed to see any significant income gains”.

Of course, Krugman’s statistics don’t include the fiascos of 2008 in which the Fed started bailing out banks long before the public noticed; when gasoline prices hovered around $4 per gallon; when foreclosures dragged down the entire economy; and when the Bush and Obama administrations had to bail out Wall Street.  All of these issues are likely to make the final cost of Reaganomics look even worse.

Yet despite all evidence to the contrary and despite the near-disastrous collapse of our entire financial system under their leadership, Republicans still cling to the notion that the failed economic policy of their former leader and idol can cure our present-day problems.  “Make the Bush tax cuts permanent,” they say, “that will bring our economy back.” 

If Republicans should somehow regain control of Congress during the 2010 mid-term elections, be afraid, my friends.  Be very afraid.  Like other apparitions of black magic, voodoo economics may be more difficult to kill than you think.

Return to the “Good Old Days?” Be careful what you wish for.

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I receive a lot of emails, mostly from my conservative friends, of the “Remember When?” variety.  Of course, they focus on the “Leave it to Beaver” days of the 1950 and 60s.  A recent one started me wondering why we look back on those days so fondly. 

After all, the 50s were pre-civil rights and pre-feminism.  They were also the days of Sen. Joseph McCarthy and impending doom from Soviet H-bombs.  And the 60s revolved around the Vietnam War.

So why do we remember those days so fondly?  I’m sure part of the reason is that we were kids and teens who didn’t worry about politics and the ills of the world.  In addition, there was a black and white honesty to those days when right and wrong seemed more clearly defined.  But I submit that one very big reason is that there was less disparity in income.  Around the small town where I grew up, it was more difficult to tell the “haves” from the “have-nots.” 

That was partly due to generational modesty – it just wasn’t polite to show-off. 

It also had a good deal to do with tax codes.  It might surprise you to learn that, during the Republican Eisenhower administration, the income tax rate for the top bracket was 91-92 percent.  In contrast, the tax rate for the bottom bracket was 22 percent.  By 1971, the top rate had dropped to 70 percent while the bottom rate dropped to 14 percent.  And today, the top rate is 35 percent while the bottom bracket is 10 percent.  

Given the fact that income taxes have dropped dramatically since 1951, you would think that most of us would be feeling pretty good about our taxes and government.  Unfortunately, there seems to be a growing anger as evidenced by the “tea-baggers” and “anti-health care reformists” who shout slogans and carry signs demanding their country back. 

Hmmm…I wonder how those people would feel about bringing back the tax structure of the “good old days?”

Those people seem to forget that many of the things we enjoy and take for granted were created by government and subsidized by taxes:  Education, Social Security, Medicare, Medicaid, V.A., the G.I. Bill, the interstate highway system and the national park system to name just a few. 

The truth is we have more than any of the generations before us.  In general, we keep a greater percentage of our earnings than before.  We have more time for recreation than ever before.  And in comparison to the days of McCarthyism and Jim Crow laws, there’s less government intrusion in our lives.  So why do conservatives think the 50s and early 60s were so wonderful?

My theory is that, we didn’t have people like Rush Limbaugh, Bill O’Reilly, Sean Hannity and Glen Beck ranting about how bad our government is and trying to pit one faction of our population against another.