Hopefully we can avoid GD territory and keep this one strictly factual.
Without delving too deeply into the minutia of the scheme, did Reagan’s tax cuts stimulate growth, and if so was there any downside?
Reagan’s general policies (of which tax cuts were only a part) relied on the “trickle down theory.” The theory was that if you give tax cuts and other incentives to the wealthy, that their increased spending would trickle down through the economy all the way to the bottom. I don’t pretend to be an economist, but it seemed that later most folks agreed that the trickle down theory didn’t in fact trickle down, and that the tax cuts only benefited the wealthy. Reagan’s overall economic plans were judged to be so bad that “Reaganomics” became a rather popular word with very negative connotations.
Ultimately, his successor, George Bush, had to renege on his “read my lips” pledge and raise taxes to reduce the Reagan deficits. More than anything else, this cost him the election in 1992.
Things like this is what exactly will get this post booted from GQ.
In short, there’s really no “good” way to answer the OP in this forum.
I hear you Balthisar. But you must admit that there’s a fine line. I mean there are people who believe that the Earth is flat and others who believe that Americans never landed on the moon. You may even find persons of authority who claim to have “evidence” supporting these ideas.
Most well-adjusted economists would agree with engineer_comp_geek. As would I. But I agree that this should be in IMHO or GD.
The basic concept behind Reaganomics is that rich people don’t hoard their money in giant vaults like Scrooge McDuck. Instead, if you let them keep the money they’ve earned, they’ll invest it in businesses which will then use it to hire people and expand.
I found this site that show incomes (adjusted for inflation) skyrocketing during the 80’s.
http://www.nationalreview.com/balance/balance081701.shtml
A brief excerpt:
(The table is messed up, I know. Please follow the link to see it with full HTML.)
Jackknifed Juggernaut wrote
I’m sorry, did you just say you were a well-adjusted economist? Please list a thing or two you’ve done of substance so we can evaluate your credentials.
And well you’re at it, please cite your claim that “most well-adjusted economists” think engineer_comp_geek’s nonsense was non-nonsensical. That’s quite a claim, so I’m sure you have something to back it up.
Reagans ideas aren’t without merit; but the timing of tax cuts is EXTREMELY important to there success.
That’s why I’m lead to believe Bush’s tax cuts wont be effective; people are in a spending shell, saving, and diverting money away from the economy. Tax cuts won’t change that. However, if they’re already spending, and you give them a tax cut, they’ll tend to spend the excess.
I think the biggest problem with tax cuts are temporary ones; people tend to save all moeny earnt off them. Convince the people that your tax cut is permanent, a much better outcome is achieved (if the outcome is higher consumer spending).
Some people (me for example) seem to think income taxes aren’t a great way to stimulate the economy; corporate tax is the best way. Corporations are always spending money, expanding, just naturally. This means give them a tax cut, the benefits to the economy roll in very quickly. Very very simplistic way to look at it, but the more factors you throw in the more pointless it gets analyising.
Actually, I didn’t say I was an economist at all. But I’ve taken enough classes taught by enough economists to know. “Supply side” and “Trickle down” economics are similar to creationism. Sure, there are plenty of people who believe in them. But there is no evidence that cutting taxes without cutting gov’t spending has ever worked anywhere, ever. OTOH, there is plenty of evidence that shows otherwise.
http://mirrors.korpios.org/resurgent/23More.htm This is the first thing I saw on my Google search.
Just google “supply side economics” and you’ll get your cites. Once again, I shouldn’t have to provide cites for something as nonsensical as this. It’s like asking me to provide cites to show that the earth is not flat. I have MacroEcon books that also agree with this, but I don’t type fast enough.
In other words you are so right, you can’t be bothered to explain why you’re right.
As to the OP economics is so complicated that it is very difficult to track why things happen and what would have happened had certain things not been tried. However since 1982 we have had 20+ years of economic growth accompanied by low interest rates, low inflation, and low unemployment, and only two very mild recessions. This could be a result of Reaganomics or it could be a coincidence.
What about the continual spikes in housing and the increase in credit card debt? I don’t have exact cites (sorry), but I recall seeing such reports on CNN.Money, MSNBC, and Time. Don’t these two factors indicate quite the opposite? An increase in the buying and construction of homes (either old or new - though the evidence is stronger with new) is indicative of increased spending. These same reports also mention how it is Joe Public Six-Pack who is keeping this economy going. Which is why I somewhat disagree with your next statements. However, now we’re entering GD territory, so I’ll leave it at that (besides, I don’t have time to argue).
Look. All I’m saying is that if this question is in GQ, the closest thing to “facts” are the theories of the established economic community. Just today, Greenspan announced that Bush’s tax cuts should be made permanent, but only if there are gov’t spending cuts.
http://www.nytimes.com/aponline/business/AP-Greenspan.html
Whether this is good or bad is questionable, but it is sound fiscal policy based on established theories.
Blind tax cuts without looking at anything else, like Reagan and Bush Jr. have done, are not. And no well-adjusted economist in the world thinks that they are. Sorry, that’s just the facts. And please don’t bring up jokers like Laffer and Mundell. Their “theories” have been disposed of over and over again.
Look. All I’m saying is that if this question is in GQ, the closest thing to “facts” are the theories of the established economic community. Just today, Greenspan announced that Bush’s tax cuts should be made permanent, but only if there are gov’t spending cuts.
http://www.nytimes.com/aponline/business/AP-Greenspan.html
Whether this is good or bad is questionable, but it is sound fiscal policy based on established theories.
Blind tax cuts without looking at anything else, like Reagan and Bush Jr. have done, are not. And no well-adjusted economist in the world thinks that they are. Sorry, that’s just the facts. And please don’t bring up jokers like Laffer and Mundell. Their “theories” have been disposed of over and over again.
And you know these tax cuts were “blind” how? Supposition on your part. This isn’t supposed to be a debate. And even if it were, you’d have to provide support for your claim.
Tax cuts always work.
Reagan’s tax cut worked… it took a while but just before Clinton went into office they started taking effect. The good years lasted until the effects of Clinton took the country down, before Clinton left office the economy had started down.
Since Bush’s tax cuts the economy has started improving more than many years.
Now if Bush can just get the tax cuts made permanent the country will do well.
But some people love taxes, they are the ones that don’t pay taxes.
Do you have any data at all to support your suppositions? What, exactly, were “the effects of Clinton” which allegedly “took the country down”? This forum is supposed to be for fighting ignorane, not spreading it.
Many people forget that in addition to cutting income taxes, Reagan eventually raised the Capital Gains tax. If anything, one might expect the Capital Gains tax rate to have a larger influence on investment than most other tax rates, Corporate Tax Rate being perhaps an exception. Capital Gains rate cuts should lead to savings/investment, which should lead to capital spending and production. Most people don’t work more or less based on their income tax rate, hence productivity should be unaffected. But individual spending or savings should increase from a tax rate cut. In the USA it seems that consumption (spending) increases with individual income tax rate cuts. This can nudge the economy, but it’s doubtful it would make it explode, and it might not even nudge it. But cut the Capital Gains tax rate and you create an incentive to invest (savings) instead of spending.
Sounds like wishful thinking to me. If Reagan’s tax cuts were so great for the economy, why did the economy get worse while he was in office? And why didn’t they improve during George Bush Sr.'s term? Or are you simply assigning economic credit and blame to presidents based on their party affiliation?
Again, it sounds like wishful thinking to me. We’re still short 2.3 million fewer jobs now than we had four years ago, and the current election campaign appears to be hinging on how bad the economy is.
Anyway, to address the OP, I remain unconvinced that “trickle-down” theory is anything more than “pissing on the poor.” Seems to me that even if the rich willspend more when they get more tax cuts (and that’s a big if), the beneficiaries are primarily going to be the folks who they deal with – which may be great for the Mercedes dealers and the folks at the Persian Rug Mart, but won’t do much for the rest of us.
The architect of the Reagan plan, David Stockman, later refered to it as “flawed”.
olefin, were we supposed to take that seriously?
Sure, tax cuts work. They are a marvelous tool in economics, but comparing Reagan’s tax cuts with Bush’s is whacked.
Basic economic theory: Taxes in a recession hurt, taxes during a boom don’t. If there is a recession, cut taxes to spur growth. Some types of tax cuts are more effective and faster, some less effective and slower. This causes deficit spending. Defecit spending over long term is bad, but is completely harmless in the short term. Once the economy is booming, reintroduction of taxes is used to pay off any defecit that was created.
Reagan’s failure to slowly reintroduce taxes gave many economists fits, and ultimately the whole mess fell on Bush Sr.'s lap. But, most economists will agree that Reagan’s tax cuts worked. He just failed to reintroduce taxes responsibly when it was required.
Bush’s tax cuts differ from Reagan’s vastly. Bush’s are way less effective, far slower, and by every measurement create long term defecits. Massive defecits drive up interest to a point where even the fed isn’t able to control it to the degree that they now can. Business will be less willing to reinvest in infrastructure during periods of high interest, so the economy gets hit. A large percentage of the economy is basically wasted on interest payments, so a percentage of the economy is wasted also. To cut taxes during times of boom is irresponsible, and Bush is pushing for cuts beyond economic situations that any economist can forsee.
Many say that Bush’s ultimate goal is to force the government to go broke, so that it has to be cut drastically. His massive amounts of spending can be seen as his way of speeding that along. Reagan never had that kind of goal.
And blaming Clinton for a normal economic cycle is just as stupid as blaming Bush jr… Presidents can only influence the economy, not control. Economics is a slow science (read: art). Things done today don’t have results until the future. When there are results, it’s not always known what caused them. Clinton’s policies can at be seen as far more responsible.
Fighting what? Before making wise cracks learn to spell. 