Skip to comments.Some Hard, Harsh Truths About the Cult of Reaganomics ("It's the GOV's Money; Not YOURS!")
Posted on 06/10/2004 10:01:06 AM PDT by KentTrappedInLiberalSeattle
Ronald Reagan did some fine things, but the economic theory that bears his name was not one of them. Reaganomics made the world safe for today's reckless tax-cutting. And the public hardly understands the social upheaval these policies will soon unleash.
Reaganomics held that cutting taxes and reducing the size of government would let loose the nation's entrepreneurial juices and lead to economic growth. Note that the theory comes in two parts. The fun part is cutting taxes. The not-so-fun part is reducing government. Do the first part without the second, and you end up with budget deficits and an exploding national debt.
That's what happened. And far from cutting government, Reagan expanded it, mainly through increased defense spending. The debt tripled.
To his credit, Reagan raised taxes when the deficits got out of hand. Not to his credit, his tax increases mostly targeted working people. We refer to the infamous 1983 hike in Social Security taxes.
Social Security is supposed to be a pay-as-you-go program. That is, today's workers pay Social Security taxes to support today's retirees. The program had been running a small deficit. Rather than fix it with a small increase in Social Security taxes, Reagan pushed through a big hike, thus giving birth to the Social Security surplus.
The idea was that Americans should start paying more Social Security taxes to prepare for decades hence, when the enormous baby-boom generation retires. But not a cent was ever set aside for that purpose. The Social Security surplus was simply spent. Overtaxing for Social Security reduces pressure on the income tax, which hits upper-income Americans the hardest. Many workers with low or moderate incomes saw their total tax bills actually rise under Reagan.
Reagan also raised a bunch of excise taxes, which he liked to call "revenue enhancements." One of them, a 5-cents-a-gallon tax on gasoline, was not bad energy policy, but it was a tax that affected the rich and poor equally.
But what about all that economic growth in the Reagan years? How can we call that dumb luck? Easily.
When Reagan took over, the American economy was in bad shape. No doubt about it. But it was already on the launching pad for takeoff. It didn't matter who was president.
Jimmy Carter's new Fed chairman, Paul Volcker, had just killed the inflation monster, but at the price of a deep recession. OPEC was collapsing at that time, along with energy costs. So what greeted the new President Reagan? An economy ready for an upturn, with falling gas prices and inflation gone. You didn't need a rocket scientist to get that baby off the ground.
Economic growth can run largely on debt for a while, but eventually the markets get nervous, which they did in October 1987, when they crashed. Adding to the excitement, Reagan had deregulated the savings-and-loan industry, leaving the taxpayers to guarantee the S&Ls' junk-bond investments. The game eventually ended, and the first President Bush had to clean up the mess.
Like Reagan, the current President Bush is a big spender. Unlike Reagan, Bush has done nothing to slow the snowballing deficits.
And there's another difference. When Reagan took office, the baby boomers were approaching the peak of their earning power. Thus, the nation was better able to pay down its debt. But the boomers will soon start to retire. They will drain tax dollars, not contribute them.
So only simpletons will insist that as a percentage of gross domestic product, Bush's deficits are lower than Reagan's and therefore of no consequence. This totally ignores the "implied" debts to the baby-boom generation, which make for terrifying numbers.
Imagine a childless two-income couple that earns $80,000, borrows $20,000 and has no savings. Now think of another couple with the same finances but that plans to send triplets to college next year. They're not at all in the same financial boat.
The awful thing about Reaganomics wasn't so much Reagan's actual economic policy, even though it got mighty sloppy. It is the cult of Reaganomics: the idea that cutting taxes is a free lunch, and never mind spending or future obligations. In a very few years, when tomorrow's retirees find themselves at war with younger taxpayers, everyone will wish they had never heard the word.
I am sorry but what policy did Carter enact that lead to the recovery?
Huh??? That's the most fun part!
I didn't need to read beyond this line. Typical liberal condescension
I knew there was a reason I don't read the Seattle Times. Thanks for reminding me.
Tough to spend something that you don't have. Though liberals and some Republicans do try.
Isn't it interesting how Liberals always are looking through the wrong end of the telescope. Maybe that's why they never reach the right conclusions about historical data.
I hope that people on this board remember the smirking and sneering of Sen. Majority Leader George Mitchell (D-Commieland) on television as he was quizzed about another lie and broken promise made to the President?
And as far as Rep. Rostenkowski ("Don't be too tough on Rosti" - David Broder) he was a common thief and crook.......as well as head of the Ways and Means Committee.
Lies lies and damn lies from the Left as always.
He turned down the White House thermostat and put on a sweater. He put on a sweater, man!
No, wait, that's what he did for the energy crisis.
This one ranks with "risky scheme" as a flag with the words "I'm an idiot" emblazoned on it. Reagan's tax cuts resulted in increased revenues, clearly, unequivocally, and immediately. This should have been good news for the social spenders, but in fact, they've never forgiven him for it.
Back in 1993 or 1994 there was an editorial in the WSJ (likely written by Bartley) called "Hillary Rodham Laffer?"
It states that she had the Rose Law Firm pay her a large chunk of her 1993 income in December of 1992 (or was it 94 and 93?) to ensure that less of HER money would be subject to her husband's tax increase of the following year.
She single-handedly proved the Laffer Curve and supply-side.
Economic ignorants like the writer of this editorial want to cling to the "static analysis" of the effect of tax cuts. But it requires only common sense -- NOT a degree in economics -- to figure out that changes in tax policy/law will change the financial behavior of those subject to said tax policies and laws.
It also helps if you don't have so much of your ego invested in APPEARING to care about the downtrodden that you are actually willing to HURT said downtrodden in order to maintain that APPEARANCE...
When Reagan came into office, the top marginal income tax rate stood at around 70%. When he left office, there were only two income tax rates of 15% and 28%. Somebody explain to me how that constitutes a tax increase.
And who was he going to increase taxes on, the non-working people?
What a moron.
Lowering inflation, interest rates and taxes is a bad thing?
Froma Harrop, call me if you ever escape la-la land.
Reaganomics defeats socialism at its source. It cuts off its money supply and lets it choke to death. That's the socialist author's hidden motive against it. Deficits and debt are no way to run a prosperous business, however these same tools are very cost effective for making an enterprise non-prosperous: the government.
Reckless tax cutting? What about reckless welfare statism and the endless teat of mama guv?
This article sounds more like it's coming Froma Moron...
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