President Ronald Reagan dramatically reduced taxes in 1981, his first year in office. The $38 billion tax cut represented 1.91 percent of the Gross Domestic Product. The theory was that these cuts, which mostly benefitted corporations, would trickle down to working families in the form of job growth and higher wages. It didn’t work that way.
Immediately after the 1981 cuts, the country went into a recession. The GDP dropped by nearly two percent and the unemployment rate jumped more than two full percentage points, spiking to 9.7 percent. The following year, Reagan raised taxes dramatically and other increases followed.
MIDDLE-CLASS GAINS WERE ELIMINATED
In 1982, Reagan increased taxes on corporations and individuals by about $17 billion – the largest peacetime tax increase in American history. That same year he also raised the gasoline tax.
In 1983, Reagan hiked taxes again, more than undoing any gains for middle- and low-income families from his 1981 income tax cuts.
Reagan also significantly increased taxes through the Deficit Reduction Act of 1984, the Tax Reform of 1986 and the Omnibus Budget Reconciliation Act of 1987.
Even when Reagan lowered the tax rate again in 1986, it didn’t help the middle class.
The 1986 tax reform eliminated many of the deductions used by middle-class families, which ended up raising taxes for a lot of people who had benefited from the 1981 cuts.
To be fair, GDP did improve briefly after Reagan’s initial tax cuts, but returned to fairly typical three to four percent growth during the rest of his tenure. Unemployment barely declined in 1983 and didn’t reach 5.3 percent until 1989, when Reagan left office.
A BAD IDEA REPEATED OVER AND OVER
Today, President Trump and the GOP are going whole-hog on trickle-down theory and doing Reagan one better by including only illusory cuts for working families in their tax plan. Those cuts will be wiped out through the elimination of standard middle-class deductions and already projected cuts to Medicare, Social Security and other social safety net programs.
Kansas Gov. Sam Brownback and the GOP-majority Kansas Legislature tried this all-in approach to trickle-down theory by enacting massive tax cuts in 2012.
Instead of a booming economy, Kansas residents suffered a sharp decline in state revenues, sluggish growth and brutal cuts to government programs.
Between 2013 and 2016, Kansas’ real gross domestic product grew by only 3.8 percent, compared to national growth of nearly seven percent. Employment rose just 2.6 percent, compared with a 6.5 percent national average. Private sector employment grew by just 3.5 percent, compared to 7.6 percent nationally. Economic and job growth never happened.
And now, Republicans in Congress, armed with this clearest example of the folly of full-blown trickle-down theory, want the American people to believe that massive tax cuts for the 1% are going to help working people.
They never have.