Sunday, May 12, 2013

Sorry, Conservatives. Reagan's Trickle-Down Powered Economy Wasn't As Awesome As You Think

I was watching a few old episodes of Real Time With Bill Maher the other day, many of which that had Wall Street Journal hack, Stephen Moore as a panelist. Moore, like all modern day conservatives, has this obnoxious habit of invoking the Reagan years as the bestest, most awesomest period of economic growth ever in the history of civilization, every time he appears on T.V. Being very skeptical of anything coming out of Moore's pork trap, I thought  I'd dig into the historical jobs numbers and see just how the great the Gipper's jobs record actually was.

To start off, we'll compare Reagan's record with the record of his immediate predecessor, Jimmy "History's greatest monster (until Obama showed up)" Carter. If you'll recall from every right winger in existence, Carter's record on the economy, just like his record on everything else, was abysmal. But how abysmal? Here's all the monthly jobs numbers from 1977 to 2000:





And here are the yearly net job gains/losses from 1997 - 1980:

1977:  3.96 million
1978: 4.26 million
1979:  1.995 million
1980:  267 thousand

Total: 10.48 million jobs.

So it appears Carter started off really strong during his first two years, and then things started slowing down during the last two. It's important to note that the top tax rate under Carter was a whopping 70% throughout all four years of his presidency. Did all the the job creators suddenly realize their tax rates were at 70% and decided to go on strike in 1979? Not exactly. That mainly had to do with the energy crisis that was going on at the time, which Carter didn't have much to do with. This ended up causing a recession that lasted a few years.

Now let's see how Lord Reagan fared:

1981:  -52 thousand
1982:  -2.128 million
1983: 3.454 million
1984: 3.877 million
1985: 2.500 million
1986: 1.897 million
1987: 3.150 million
1988: 3.237 million

Total: 15.94 million jobs.

So Reagan's first two years were pretty bad, but in fairness, those job losses can't be attributed to him, since he inherited a recession (I'm sure there's a bunch of conservatives equally generous enough to also give Obama a pass on inheriting his recession). But after 1982, things started looking pretty dang good. In fact, even I have to admit some of those numbers were far more impressive than I thought they'd be.

But, here's where it starts to get a little complicated. Whenever supply-siders talk about how Reagan cut taxes, they perform a little sleight of hand where they point out how Reagan cut taxes from 70% to 28%. This is technically correct, but they constantly, some would say intentionally, neglect to mention that it didn't occur all at once. So let's break it down.

In  August of 1981, Reagan signed into law his first big tax cut, that decreased the top marginal rate from 70% to 50%. As the first law of Supply Side Economics states: any time there's a cut in the top tax rate, job creation increases substantially compared to pre-tax cut rates. Well, any job creation didn't occur until way over a whole year after the tax cut was signed into law (first positive month of job growth came in January of 1983). So if this was supposed to take us out of the recession, it sure took a while. In fact, one could make an argument that the tax cut exacerbated the recession since way more jobs were lost immediately after the tax cut was enacted (if the economy started growing right away, you can bet your butts the Republicans would credit the tax cuts).

But it gets even more interesting because in September of 1982, the great tax cutter signed into law, what was called "the largest tax increase in American history". Supply-siders warned that this would deepen the recession, but of course, the economy started booming again a few months later. Some conservatives will quibble that this tax hike didn't touch marginal rates, so it's not a big deal. True, the revenue was generated not by increasing rates but by lowering some deductions, repealing other deductions that were scheduled to take place, and increasing excise taxes.

This may seem like a slightly compelling argument, but there's two problems I have with it. First, while it's true that conservatives generally value to protect marginal tax rates above all else, let's not sugar coat this: a tax is a tax is a tax. It would be one thing if these taxes were offset by tax cuts elsewhere, but they weren't.

But wait! Even including these hikes, wasn't the overall tax burden reduced?  Isn't that the only thing that matters?

I'm glad you asked! This brings me to the second law of trickle-down economics: Whenever a tax cut is enacted, that new rate then becomes the absolute maximum rate that the job creators will tolerate. Anything higher than that will result in catastrophic consequences for the economy.

In other words, in 1980, the top rate was 70%, and then in 1981 the top rate was 50%, therefore, taxes can never be higher than 50%. You cannot then raise it even to something like 51% using the argument that 51% is technically a smaller number than 70%. Sorry kids, it doesn't work that way in Conservaworld, and the same applies to limiting deductions. So those pretty sweet  jobs numbers in 1983 and 1984 should never have manifested. And yet they did. Hmm...

Anyway, moving along, job creation was still good, but slowed a bit in 1985 and 1986. It was then in 1986 that Reagan signed into law the most cherished law in all of Republicandom: his final tax cut, which brought the top marginal rate down to 28% (while the bottom rate increased from 11% to 15%.), a number not seen since the late 20s!

Republicans would no doubt gloat about how 1987 and 1988 showed great numbers. Indeed, 88 and 87 were better than 86 and 85...but notice how they were both lower than 83 and 84. And just to twist the dagger, did you also happen to notice that 87 and 88 had lower numbers than Carter's 77 and 78? For that matter, just to add a bit of salt, Reagan's 1983 and 84 were both lower than Carter's 77 and 78! Let that sink in. The greatest job creator in the history of civilization never had a better year (or two years) creating jobs than one of the worst presidents ever (in fact, Carter had the highest two years for job growth of any president ever!).

Shouldn't that be impossible?

Sure, Reagan presided over a great economy, but even if we attribute every single new job to his tax cuts, well they never showed any noticeable improvement (if there was any) compared to what was occurring before. Also, Carter only had one term, whereas Reagan had two.

And because this is so fun, let's also take a look at the record of the first Democratic president who sinned against the gods of Reaganomics:

1993: 2.810 million
1994:  3.844 million
1995: 2.157 million
1996: 2.810 million
1997: 3.391 million
1998: 3.014 million
1999: 3.170 million
2000: 1.944 million

23.14 million jobs.

Not bad, eh? And Clinton managed to accomplish this with a devastating 39.6% top tax rate every year of his presidency. Obviously, most of that growth was due to the internet boom, but once again, if we're to believe right-wing economics, such a boom should never have happened in the first place. Once Clinton enacted his tax hike, people like Stephen Moore cried that such a thing would be disastrous for the economy, and the job creators would all close up shop and move to China.

Clearly that didn't happen. Now, some conservatives will argue that the spending cuts and capital gains tax cut contributed to the boom. Sure, the possibility exists, I suppose. But 1) the boom was already well under way, and 2) this line of thinking leads down a very dangerous road. You could then start thinking of the possibilities of mixing tax cuts in one area with tax cuts in another, or spending cuts with tax hikes, and that would make the world a very, very scary place for conservatives.

I'm not even bother bringing up ole' Dubya, whose economy should have make Clinton's look like the Great Depression, if supply-side theory worked the way it was supposed to.

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