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Phillip Schuman
Lawrence Kudlow is knowledgeable enough to know that the spin he has
put on the Reagan legacy in this address is far from true.
He asks, evidently assuming his audience will not know better, that if
supply side economics' tax cutting were NOT responsible for boosting economic
activity so greatly, just as the Laffer Curve predicted, that tax revenues
came piling in at greatly increased totals to the government, even at
the lowered rates, just how did nominal revenues 'almost double' (about
83% up in nominal terms) and actually increase about 30% in real terms,
over Reagan's 8 years in office?
Since he thinks no one knows a better answer, by process of elimination
(or lack of alternatives), it must have been the promises of supply side
to raise revenues by cutting the tax rates, QED.
Kudlow's claim is patently dishonest, because as a former Reagan Treasury
official, he surely knows better. For starters, the Reagan Treasury policy
people projected a dead loss of $750 billion in tax revenue from his tax
cuts, not any increase at all.
Maybe Kudlow is genuinely so ill informed or forgetful about Carter's
policies that he honestly didn't know, or had forgotten, as your other
respondents have remarked, that it was Carter who appointed Volcker, and
Carter who deregulated transportation, deregulated natural gas, and put
in place the deregulation of oil prices, to be done over a several year
period (with Reagan's policy simply accelerating Carter's deregulation
timetable). Maybe he never saw the Stockman Office of Management and Budget
report that calculated that the deficit one year would have been fully
$80 billion smaller under the Carter tax and budget policies prior to
Reagan's passing his own. Maybe he wasn't familiar with the Carter term
reduction of the top marginal rate for earned income to 50% (the higher
70% marginal rate applied no longer to salary or wage income, but only
to so-called 'unearned' income like interest income, royalties income,
patent earnings, etc.). It is more polite to suggest Kudlow was simply
ignorant, rather than deliberately lying about these facts, and maybe
that's even the case.
But Kudlow must know that Reagan signed very substantial tax HIKES in
each of his last 7 years in office, after the size of the deficits (over
$100 billion per year, as far out as the eye could see, in Stockman's
memorable phrase) became apparent.
The first tax hike came in 1982, when Sec. Transportation Drew Lewis
convinced Reagan to raise the federal excise tax on gasoline by 12 cents
a gallon, by telling him it wasn't really a tax at all, but a 'user fee.'
Also in 1982, then-Senate Finance Chairman Bob Dole authored a huge tax
hike called 'The Deficit Reduction Act.' It substantially repealed the
entirety of the ruinously profligate Reagan business tax breaks (grossly
padded by Democrats as well, when Stockman said 'the hogs were really
feeding at the trough'), including the accelerated depreciation schedules,
the 'safe-harbor' leasing of tax credits, etc.
Later years saw Reagan raising the Social Security FICA tax rate by almost
50%, from 4.2% to 6.2%, but that wasn't the half of it. The increase in
FICA tax was far greater than 50%. For, in addition to raising the rate
by nearly 50%, the wage ceiling limiting how much earned income was subject
to the FICA tax was raised tremendously. The maximum a high earner could
end up paying in FICA tax actually went up to 500% of the maximum he could
have paid under the previous rate and ceiling.
These two tax increases ranked at the time as the largest tax hikes in
nominal (current dollar) terms in United States or world history. In real
terms (using constant dollars) they remain larger than either the Bush
$500 billion/5 year hike, or the similarly sized Clinton tax hike. And
these two gigantic hikes in the Reagan years were accompanied in that
7 year stretch by at least one sizable tax hike per year, in the range
of $30 to $50 billion each. Because payroll taxes were raised so much,
and prior existing tax deductions like those for income averaging, and
consumer interest on credit cards and car loans were taken away from the
people, the average American was paying as high a percentage of their
income in total federal taxation in 1986 as they were in 1980, before
Reagan's tax cuts were enacted.
The St. Louis Federal Reserve branch, noted for its strong economic research
activities, looked into the causes for the increase in federal revenue
during the Reagan years. The tax hikes he passed each year from 1982 to
1988, together with the effects of inflation, accounted for **93%** of
the increase in revenues, they found. Only **7%** of the increase could
be traced back to 'dynamic' Laffer Curve effects of the tax breaks and
their fostering of increased economic activity.
Nor did supply side policies result in the savings/investment boom its
supporters said it would. Business investment rates fell 50% from what
they were in the bad economic days of the '70s (from 3% of corporate revenues
to 2% of revenues), and personal savings rates also plummeted. Consumer
and business debt increased so dramatically that new bankruptcy records
were set every year of even the Reagan recovery. The annual federal deficits
soared so high that they exceeded the entirety of the plummeting private
national savings available to finance them, requiring the sale of US national
debt to foreign capital. Rather than some new surge of fixed capital investments
in plant and equipment, US businesses instead shuttered, permanently closed
and wrote off huge capital investments, in steel, automobiles, machine
tools, and other major industries, permanently decreasing the workforce
in those industries by millions of employees, devastating such rust belt
industrial cities as Youngstown, OH, Pittsburgh, Cleveland, etc.
Under Reagan's fiscal and anti-union policies, US industrial workers
went from the world's best paid in 1980, to 18th best paid in 1988. The
average wage of a white high school graduate fell 30% in real terms during
his term of office. Real wages averaged a nearly zero annual increase
rate, coming in at very meager 0.2% per year for his 8 years. The net
worth of the majority of Americans actually fell during the '80s. The
numbers below the poverty line increased by millions, and the rate of
poverty remained higher than Carter's worst year's figure until 1988,
when it went below Carter's worst figure by barely 0.1%, before shooting
up above Carter's figure immediately the next year.
Given that Kudlow so utterly misrepresents the '80s and '70s, it is no
surprise that his analysis of the '90s economic boom as the result of
Reagan's tax cuts of '81 is also utterly false. For, between the tax cuts
of '81 and the boom years of the last half of the '90s were 7 years of
Reagan himself raising taxes to counteract the revenue losses of his 1st
year's cuts, Bush famously having to agree to a very large tax increase,
and then, more famously still, Clinton having to do the same thing and
about as much as Bush did.
In fact, to the contrary of supply side claims, '82 through '00 represent
one historical example where a country appears to have TAXED itself into
prosperity.
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Michael and Priscilla Bloom
It's a big speech, and it'll take me more than one sitting to get through
it. The first thing that jumped out at me was that Paul Volcker was a
Carter appointee, but somebody else caught that first. (Which was as it
should be, since it was glaringly obvious.)
The first thing I remember happening after trickle-down economics went
into effect was that U.S. Steel used its tax break to buy up Marathon
Oil, following which they changed their name to USX and got out of the
steel business, eliminating thousands of (well paying, unionized) manufacturing
jobs in the process. This scenario was to played out over and over again
through the Reagan years and beyond, as mergers and acquisitions became
way more profitable than actual production. I don't know where Kudlow
came up with the notion that millions of jobs were created, since my recollection
is that millions were lost-- good, long term, skilled jobs with benefits.
I remember also that the Reagan administration decided to quash an antitrust
suit against IBM that had been in the works, if memory serves, for eight
years (which means it wasn't just a liberal democratic idea of Jimmy Carter's,
but has been initiated under Ford). I was then (and still am) a programmer,
and virtually all of my professional experience has been on IBM mainframe
systems. So I know something of how IBM works, and in my opinion, the
suit was justified. The Reagan team's abandonment of the suit was yet
another signal that prosecuting corporate malfeasance was, to say the
least, not going to be a priority of this administration-- although in
the long run it wasn't as horrible as Anne Burford Gorsuch collaborating
with known polluters.
There was an event during Reagan's first term that I remember vaguely,
but I can't find any record of it on the net. (Maybe you can.) The administration
polled business leaders, asking what were the most burdensome federal
regulations impeding their ability to conduct their business. No doubt
they were hoping for pointers to inefficiencies and redundancies between,
say, filings required by the SEC and the IRS that could be streamlined.
But as I remember it, every one of the top ten requests from the business
community involved laws that were supposed to protect workers and/or the
environment. American business found it burdensome to have to inform their
workers that the chemicals they handle are toxic. They found it intolerable
that OSHA could come in and witness their industrial processes and rate
them for safety, and so forth. Ultimately the regulatory agencies involved
all had their budgets slashed, in the name of reining in Big Government.
Strange how many more news reports of salmonella we see nowadays.
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Contributor requests to remain anonymous
Hi there... I'm an amateur historian who has a huge interest in Russian
and Soviet history... I have a bone of contention with the following statement:
"Today, as we meet, it is a different ball game. The Cold War
is over, the
United States is supreme. American ideas, values, and economics dominate
the
world scene. I believe firmly, with respect to the great success President
Clinton has had in this economy, that it was President Reagan that gave
him
the ground he is standing on."
This sort of statement grants far too much credit for the collapse of
the USSR to Reagan. It rests on the Republican premise that Reagan had
forced the USSR to continue the crushing burden of maintaining military
parity with the US, and it was those economic stresses which forced the
collapse. However, I think that's a vast oversimplification of history
and fails to take underlying factors into account. Americans are always
quick to overestimate the ability of their country to "make things
happen" in foreign nations.
The vast majority of historians who look at the collapse of Communism
will say that the Soviet regime collapsed from the inside as a result
of its numerous flaws. Indeed, the system carried within it the seeds
of its own destruction, and these flaws had been present long before Reagan
had entered politics.
The Soviet regime was, of course, a vicious system which held human
life and the human spirit in contempt. Reagan was, rightly, vehemently
and voiciferously opposed to it. However, the fact of the matter is, the
USSR shows signs of going into decline well before Reagan was elected,
and I go so far as to put-forward the hypothesis that the USSR would probably
have collapsed regardless of who was in the White House in the 1980s.
It is impossible to prove these sorts of scenarios, of course, but I've
noticed that Reagan gets a lot of credit from Republicans for 'winning
the Cold War' which we were well on our way towards winning anyway. Are
we really to think that if Carter had won the 1980 election or if Walter
Mondale had won the 1984 election, the USSR would have survived?
There is evidence that the Soviet Union was on its way to collapse as
early as the 1960s and 70s. In the past twenty years, historians have
found that the first major strikes and riots in the USSR appear to date-back
to a 1959 incident in Temirtau where workers staged a large-scale protest
that bordered on creating a full-scale revolt. A 1962 strike in Novocherkassk
resulted in at least 70 people being killed. (It is also important to
mention that the watershed event of the Solidarity movement in Poland,
which had done so much to encourage Eastern Europe to free the USSR's
grasp also predated Reagan's presidency.)
The following is a line from Andri Amalrik's "Will the Soviet Union
Survive Until 1984?" (Written in 1969). It would hint that the USSR
had reached an impasse in its existance and a general paralysis.
"Obviously we have already reached that dead-end where the notion
of power is linked neither to a doctrine, nor to the personality of a
leader, nor to a tradition, but only to power as such...
Naturally the only aim of such a regime, at least in domestic affairs,
must be self-preservation... The regime neither wants to restore Stalinism
nor to persecute the represenatives of the intelligentsia, nor to give
fraternal aid to those who do not ask for it. It wants only that everything
remains as before: that the authorities are recognized, that the intelligentsia
shuts up and that the system not be shaken by any dangerous or unexpected
reforms. The regime does not attack, it defends itself. Its motto is:
don't touch us and we won't touch you."
Russians refer to the time of Brezhnev as the "era of stagnation".
The USSR was beset by increasing bureaucratization of the economy: the
number of industrial ministries increased from 45 in 1965 to more than
70 in 1985. Soviet GNP and worker productivity declined throughout the
pre-Reagan period... although the exact numbers are in dispute, the trend
is not.
In the words of the historian Martin Malia in "The Soviet Tragedy":
"The deeper cause of "stagnation" was to be found in the
basic structures of the Soviet system itself, and not a result of the
external pressures of Reagan's military buildup:
"...none of the Soviet Union's external problems- from Solidarity
to Afghanistan- would be capable of shaking the system unless there were
first a crisis at home. And there were numerous latent elements of crisis
in the Soviet Union at the start of the 1980's- from the stagnation of
the economy to the sclerosis of the Party to geopolitical overextension.
Yet none of these elements could emerge into the open or congeal into
general crisis with a precipitating shock. And this shock could originate
only at the top, for the structure of the system was such that all initiative
had to come from on high...
Because the system was so centralized, there would be no way out of this
predicament until the (Brezhnevite) gerontocrats had physically passed
from the scene. This circumstance resulted in a three-yer interregnum
during which, one by one, they were interred beside the Kremlin wall.
And this macabre process was the final element of crisis that produced
the utimate in Reform Communism, Gorbachev's perestroika."
A researcher by the name of Murray Feshbach (author of Ecocide in the
USSR and Ecological Disaster: Cleaning-up the Hidden Legacy of the Soviet
Regime) notes that in the mid-1970s, there are signs that the Soviet Union
would start to experience a severe demographic decline. This would be
the result of increased infant mortailty rates brought-on by overall poor
health-care and environmental degradation coupled with the decimation
of the peasantry under Stalin, and the reduction in family size brought-about
by the chronic Soviet housing shortage. By the 1970s, this brought-about
a shrinking of the country's labor force accordingly. Indeed, in the last
years of the Brezhnev regime, the life expectancy of males fell from 68
to 64 years while the rate of infant mortality increased from 3 to 7 percent.
Reagan could NOT have caused that.
Mikhail Gorbachev once summarized the troubles within the USSR as "buereaucratic
paralysis, economic stgnation and moral decay." These are things
that an American president could not possibly have put in motion, and
reflect problems that had been long preexisting previous to Gorbachev's
tenure.
The Soviet collapse had multiple causes stemming from deep-set structural
problems /within/ the system.. I feel that Reagan deserves only incidental
mention for the collapse of the USSR, simply by virtue of his being in
the right place at the right time- as an outside factor during the tail-end
of what had been a long process. I mentioned this to a hopeful Republican
candidate who had once run for a seat in the House of Representatives.
He responded somewhat glibly: "That may be true, but Reagan was the
straw that broke the camel's back."
To me, that unprovable statement of his is very weak indeed- how can
you credit one man with such an important, complex historical event?
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| Larry Stephens
I whole heartedly agree that tax cuts are responsible for spurring economic
growth and that Reagan's administration did much to advance this idea.
Label it with any derogatory term you want "Voodoo Economics", "Trickle
Down Economics" - it works. For the simple reason that if the vast populace
of the country is allowed the freedom to do with that money what they
wish, the possibilities for success and prosperity are much greater, by
simple virtue of the fact that there are more possibilities. However,
when the government takes your money and applies it to 'planned" economic
initiatives, like Social Security your prosperity lives or dies with the
success of the single government alternative.
When the government lets you keep your money, you can now take that money
and invest in the stock market, or you can go with real estate if the
conditions are good in your area, or if you're risk averse, put it in
a CD. The point is the choice is up to you and because you have more choices,
your chances of success are much greater than they would be with a single
option government alternative. Sure some people will have more money than
others, but everyone will have the freedom and opportunity to invest this
money wherever the biggest payoff lies for them.
Economic freedom is tightly bound to political freedom. Freedom to invest
as you wish is also freedom of association, whether that investment is
your money or your labor. Why do you think so many ardent anti-communists
jumped on the bandwagon for free trade with China? Many of them know that
economic freedom sows the seeds of democracy. To explain this away as
the result of simply successful lobbying by Nike is far too cynical I
think.
Am I saying it is impossible for a handful of government technocrats
to come up with a profitable solution? No, just that it is highly unlikely
based on the lesson's of the Soviet Union, North Korea, and Cuba. Why
is it unlikely? Because there will always be more smart people outside
of government than in it and the citizenry is not insulated from itself.
If this sounds like a defense of the "Invisible Hand" theory, it is that
too.
Ok, so we get to spend our money the way we want, how does this help
the poor and destitute? What about social justice? Again I would argue
that by leaving the money in the hands of the millions of individuals
that make up this country, we will come up with far more solutions for
these problems than a few government bureaucrats ever could. Besides any
socialist doctrine, regardless of it's ideals, always ends up in less
freedom and fewer choices. Equality is acheived through coercion, rather
than innovation. For a much more eloquent explanation of this viewpoint,
read F.A. Hayek's "The Road to Serfdom".
I would like to add that I, in no way, am an advocate of laisezze faire
economics. Government, when it remembers it's primary role of ensuring
equality of opportunity rather than outcome, is vital to economic success.
Its role in protecting property rights is equally important. In order
for economic freedom to exist, personal freedom must exist. Not freedom
from want, but freedom from coercion, be it economic or otherwise.
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