Since the Reagan administration, Republicans have fervently claimed lower taxes will unleash the “makers” — incentivizing them to work harder and invest more, thereby trickling down to benefit ordinary Americans. Moreover, they have consistently claimed that their tax cuts would create such dramatic economic growth that they’d literally pay for themselves. A rising tide lifts all boats! No hard choices to make — just cut taxes!
Instead, the national debt is at a record high, and the gap between the richest and the poorest U.S. households is now the largest it has been in the 52 years the Census Bureau has been tracking it. And that inequality gap started to expand dramatically about the same time the Republican Party started cutting taxes.
More growth during higher-tax eras
The American economy since 1950 offers a chance to consider the impact of these tax cuts. From 1950 to 1980, the top federal marginal tax rates (the rates on income above certain levels) were as high as 92% and never below 70%. Republicans have been slashing the top tax bracket for annual earned income since the early 1980s, and it is now 37% on income above $612,350.
But it turns out U.S. economic growth was substantially higher during the period of high taxes. From 1950 to 1980, average annual growth in real (inflation-adjusted gross domestic product) was 3.9%, while from 1981 to 2018 the comparable number was 2.7%.
Similarly, during the high tax period, median household incomes increased on average (in real terms) by a bit over 2.5% per year. During the low income tax period, average real growth in household income declined to 0.7% per year…..Read more>>