If there were ever a bigger and more fanciful case of wishful thinking than Krugman’s New York Times article, today [1], I’ve never seen it. He’s going well over and above his usual fantasy mongering, here:
Maybe Mr. Obama was, as his supporters insist, simply praising Reagan’s political skills. (I think he was trying to curry favor with a conservative editorial board, which did in fact endorse him.) But where in his remarks was the clear declaration that Reaganomics failed?
For it did fail. The Reagan economy was a one-hit wonder. Yes, there was a boom in the mid-1980s, as the economy recovered from a severe recession. But while the rich got much richer, there was little sustained economic improvement for most Americans. By the late 1980s, middle-class incomes were barely higher than they had been a decade before – and the poverty rate had actually risen.
When the inevitable recession arrived, people felt betrayed – a sense of betrayal that Mr. Clinton was able to ride into the White House.
Oh, please.
Krugman’s relationship with the facts can only be described as having it’s roots in an alternate universe. First of all, you will recall I said over the weekend that most American voters wanted another Reagan. Clearly, Kurgman senses this, too, and sees what a threat it is to liberalism. So how does he react? By downplaying Reagan and his positive impact on the country, both in terms of economics, but everything else. In his desperation to downplay Reagan, however, he is as usual lacking fact.Consider that Krugman holds Jimmy Carter in high esteem and let’s let it pass at that.
But there’s more of course. More, in the form of actual economic facts… ones that Krugman won’t tell you.
Let’s break these out one at a time:
Yes, there was a boom in the mid-1980s, as the economy recovered from a severe recession. But while the rich got much richer, there was little sustained economic improvement for most Americans.
We turn to Lawrence B Lindsey [2]
We often hear that “under Ronald Reagan the rich got richer and the poor got poorer,” and that the 1981 tax cuts were a big windfall for the rich and only for the rich. it would seem to be common knowledge. But what everyone knows isn’t always true, and in this bit of common knowledge there is no more than a tiny kernel of truth.During the early part of Reagan’s first term, the rich did get richer while most of the rest of the country stayed even. Some lost ground. The causes were not the tax cuts but record high interest rates and the back-to-back recessions of 1980-82. When interest rates go up, lenders get richer and borrowers get poorer. Since the lenders tend to have more money than the borrowers in the first place, high interest rates do make the rich richer. Recessions reinforce this process because recessions are costliest to middle-and working-class people who lose their jobs, while the rich rarely become unemployed.
Common knowledge stumbles at this point because rising interest rates and higher unemployment began well before Reagan became president. For example, a common bit of evidence used by Reagan critics is that the poverty rate rose after the tax cuts. Actually, the poverty rate bottomed out at 11.4 percent in 1978. It hit 13 percent in 1980 and 14 percent in 1981, the year Reagan took office but before his economic program was in place. The poverty rate peaked at 15.2 percent in 1983, by which time the tax cut was still only three-quarters in place. In short, two-thirds of the rise in the poverty rate occurred before Reagan’s tax and budget policies could take hold, and all the rise occurred before ERTA [the Economic Recovery Tax Act of 1981] was fully in place. By 1985 the poverty rate was back down to the level it was at when Reagan took office. It dropped even further during his last three years in office. Thus, though the poverty rate rose in three of [Jimmy] Carter’s four years as president, it fell in six of Reagan’s eight years.
Consider the “rich got richer” critique.
When interest income rises as a share of national income the rich get richer. This is because the rich derive more of their income from investments than most people. Interest income did increase its share of national income during Reagan’s first term. Again, however, the trend had started under Carter. In 1976, the year before Jimmy Carter took office, interest income was 9.2 percent of personal income. By 1981, when Ronald Reagan entered the White House, it was up to 13.3 percent. The interest share of personal income peaked in 1985 at 14.4 percent of income. Thus three-quarters of this windfall to the rich occurred before Reagan took office. Like the poverty rate, interest income as a share of personal income fell in the latter half of the Reagan presidency.
Who got richer under Reagan? Taking into consideration data from both Reagan terms, the answer is that, on average everyone did. The real income of the median family rose over $3,000 under Reagan, after falling that same amount between 1973 and 1981 (the largest such retreat since the Great Depression). Continuing the trend of the late 1970s, families above the median did best early in the administration, with everyone else catching up later as the economic recovery continued apace. This situation had more to do with macroeconomic trends than with the direct effect of the tax cuts however.
The phrase “tax cuts for the rich” has become a staple of the rhetoric of anti-Reagan politicians. Even the most cursory look at the evidence, however, shows ERTA raised the share of the tax burden borne by the rich. The top 0.1 percent of all taxpayers (roughly speaking those making over $200,000 a year) saw their share of income tax payments rise from 7 percent in 1981 to 14 percent in 1986.
The share of taxes borne by the top 2 percent of taxpayers (roughly those making over $60,000) rose from 26 percent in 1981 to 34 percent in 1986. Taxpayers on the bottom half of the income scale saw their share of tax payments fall from 7 percent at the start of the decade to only 6 percent by 1986. The great American middle class, people earning between $20,000 and $60,000 in the early 1980s saw their tax share fall from 67 percent to 60 percent between 1981 and 1986. They received the bulk of the Reagan tax cuts. If the rich ended up paying a bigger share of taxes, everyone else must have taken a bigger cut than the rich.
We’ll reinforce this, with a little of the talkmeister himself, Rush Limbaugh, [3] from his book “See, I told you so”:
* Average real family income grew by well over 15 percent from 1982 to 1989, according to the U.S. Bureau of the Census.
* For the poorest fifth of Americans, real income grew almost 12 percent.
* Families earning more than $50,000 (in 1990 dollars) went from less than 25 percent of families in 1980 to 31 percent in 1990.
* The percentage of families earning less than $15,000 dropped.
* According to the U.S. Treasury’s Office of Tax Analysis, of those who were in the bottom-fifth income brackets during the 1980s. In fact, more made it all the way to the top than stayed in the poorest group.
* Taxpayers were five times more likely to increase their income than have it fall.
* Federal Reserve data show that families with incomes between $10,000 and $50,000 a year experienced a higher percentage of growth in net worth than those in the top-one-fifth income group.
* The top 1 percent paid more than 25 percent of all federal income taxes in 1990, a 40 percent increase over 1980, accordingly to the Congressional Budget Office. The bottom 60 percent paid 11 percent of federal taxes in 1990—20 percent less than in 1980. (“Don’t do a double take here. You hear me correctly. The rich did pay their fair share in the eighties, and Clinton knows it. More on this in a moment.)
* The black middle class grew rapidly, from 2.6 million households with incomes of $25,000 or more in 1979, to 3.9 million in 1989.
* Between 1983 and 1989, the total population under the poverty line decreased by 3.8 million people, with an unprecedented number of poor entering the work force.
* The proverbial misery index took a nosedive: We experienced sustained economic growth without inflation, low unemployment, and low interest rates. Also, some 20 million new jobs were created, 82 percent of which were in the higher-skilled, higher-paying occupations.
* The poor were not neglected: Federal spending on the poor for income, food, health care, housing, education, training, and social services increased.
* Between 1978 and 1982 the number of poor blacks rose by more than 2 million; between 1982 and 1989 the number of poor blacks fell by 400,000.
* The 1980s was a decade of greatly increased personal and corporate charitable giving.
* Despite the change that the rich got richer, the poor got poorer, and the middle class was almost decimated during the 1980s, all income groups from the poorest to the richest experienced real income gains. Yet during the Carter years-when liberalism was flourishing-only the income of the top 1 percent grew. The share of income gains going to the top 1 percent of families was 160 percent higher under Carter than under Reagan.Between 1982 and 1989, real after-tax income per person rose by 15.5 percent, and real median income of families, before taxes, went up 12.5 percent. * Despite the charge that “the rich got richer and pay less tax, the poor got poorer and pay more,” between 1980 and 1992 the wealth not only paid more income taxes in actual dollars, but they paid a greater share of income taxes as a percentage of their income, compared to other income groups. The income taxes as a percentage of their income of all income groups was reduced, with reach of the four lowest quintile groups experiencing greater percentage reductions than those income groups above them. In other words, all income groups paid less taxes as a percentage of their income during the Reagan years, but the poor received the most relief, the middle class the next, and the right, the least. Further the rich paid a greater share of all taxes paid in the 1980s than in the Carter years.
But Rush, you may ask, isn’t it a fact that Reagan cut poverty programs? Didn’t he destroy the social “safety net”?
No. That’s absolutely false. Federal spending on poverty programs in 1991 dollars increased from $140 billion in 1982 to $180 billion in 1991, an annual growth rate of 3 percent. In other words, the welfare state grew under Reagan-and the liberals are still complaining!
But, you may say, l this is all well and good, but during those years the federal deficit skyrocketed. That, my friends, is undeniable; in fact, the deficit did rise to $230 billion in 1985-86; but it was not because of the tax cuts. It was because of unchecked growth in entitlement spending. And don’t blame that on Reagan, either. He tried his best to reduce spending, but every one of his budgets was problem pronounced “dead on arrival” by the Democratic Congress. Plus, if you look at 1987, 1988, and 1989, when the real economic growth reached full steam, the deficit fell to $150 billion, even with the unchecked spending. It fell because of economic growth that crated a bigger base of taxpayers and, therefore, more tax revenue. If Congress had made any strides toward curbing skyrocketing spending during this period, there would have been no deficit by the end of the Reagan presidency.
In the interest of illuminating the present discussion about deficit reduction, it should be pointed out that even President Reagan begrudgingly agreed to sign on to a couple of “deficit reduction” tax increases, one of which was, at the time, the largest tax increase in the nation’s history, which included $2 of spending cuts for every $1 in increased tax revenue. But guess what? In a foreshadowing of its double-cross of George Bush in 1990, the Congress failed to make the budget cuts it had pledged. We are still waiting for them. And you think the promised cuts of 1993 are going to happen? Heh, heh, heh! So I don’t mind telling you that I’m growing weary-in fact, angry-at the duplicitous assertion that the tax cuts caused the deficit to increase. News commentator Sam Donaldson must say it very other week on “This Week with David Brinkley.” Syndicated newspaper columnist George Will is even tired of arguing with him about it. In fact, during the Reagan tax-cut era, IRS collections actually nearly doubled. When Ronald Reagan took office in 1981, the top marginal tax rate was at 70 percent. When he left office in 1989, the top marginal rate was down to 28 percent. Liberal logic (an oxymoron if ever there was one) would thus suggest that the government would collect less money in taxes because the rates have been cut. Right? Wrong. Actual revenues nearly doubled, from $550 billion to about $991 billion. How did that happen? If the liberals would stop ridiculing so-called “trickle-down” economics for a while and take an honest look at reality, they would understand.
It seems clear Krugman isn’t much of an economist and less of a historian. But he does make a nice liberal political hack, doesn’t he?
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