How Reaganomics Gutted the American Economy©

By: Dan Reed - American Citizen

Most Americans agree that our great country is currently facing enormous economic challenges. However, the American people are severely divided over the root causes. Conservatives claim the root causes are: high taxes, big government spending, expensive business regulations, and union collective bargaining. Progressives claim the root causes are: the U.S. economy has been tax gutted, deregulated, free traded, off-shored, outsourced, and military weapons bloated for thirty consecutive years. So, I decided to investigate what really happened.

As a public service, I researched the legislation passed by the 97th through 111th congresses, and signed into law by Presidents: Obama, Bush Jr., Clinton, Bush Sr., and Reagan. I devoted three months too carefully gathering data, organizing the data into categories of information, and analyzing the results. The following report provides an outline of what I learned. I've organized this report into the following categories:

1. The political makeup of the U.S. Government from 1981 through 2013.

2. The impact of U.S. Tax laws passed by the 97th through 111th Congresses.

3. Growth of the U.S. national debt from Reagan in 1981 to Obama in 2010.

4. Recaps of the fourteen major laws that impacted our Economy the past 30-years.

FIRST - I gathered information on the ideological and political makeup of the 97th through 111th congresses. This period coincides with the beginning of "The Reagan Revolution!" My analysis discovered the following:

A. Republican Presidents have governed America for 20 of the past 30 years,

B. Republicans held the majority in the U.S. Senate for 17 of the past 30 years,

C. Democrats held the majority in the House for 18 of the past 30 years,

D. Conservative held a majority on the Supreme Court for 67% of the past 30 years,

E. Conservative economic and tax policies have been in place for 30 years!

1981 TO 2013 - POLITICAL MAKE UP OF THE U.S. CONGRESS  

Congress	Years	President	House Republican	House Democrat	Senate Republican	Senate Democrat
97th	1981-1983	Reagan	192	243	53	47
98th	1983-1985		166	269	54	46
99th	1985-1987		182	253	53	47
100th	1987-1989		177	258	45	55
101st	1989-1991	Bush Sr.	175	260	45	55
102nd	1991-1993		168	267	44	56
103rd	1993-1995	Clinton	176	258	43	57
104th	1995-1997		230	204	52	48
105th	1997-1999		226	209	55	45
106th	1999-2001		223	222	55	45
107th	2001-2003	Bush Jr.	221	214	50	50
108th	2003-2005		229	205	52	48
109th	2005-2007		231	204	55	44
110th	2007-2009		198	237	49	51
111th	2009-2011	Obama	178	257	43	57
112th	2011-2013		242	193	47	53
Republican	Majorities		13		17
Democrat	Majorities			18		12

Ronald Reagan and his conservative allies were elected in 1980 on a campaign platform of Government is too big and taxes are too high! They pledged to "Starve the Big Government Beast". Their pledge became known as the the Reagan Revolution. The Reagan Revolution is an economic ideology that advocates small government, low taxes, limited regulation of business, and opposes union collective bargaining.

Reagan's Revolution was a direct assault on Roosevelt's New Deal. To be fair, American history clearly shows that from 1935 through 1980, the United States created the greatest period of exceptionalisum and economic growth in modern world history! This period of exceptional American achievements was greatly influenced by Roosevelt's New Deal economic policies.

SECOND - At this point, America has experienced thirty consecutive years of the Regan Revolution. The U.S. Economy is in really bad shape, and the American people continue to hear conservatives claim 'Washington doesn't have a revenue problem, it has a spending problem." So I decided to make some comparisons:

1. Washington does not have a revenue problem:

a. In 1980, fifteen graduated income tax brackets raised tax rates from 15% to 70%.   
    Today, four income tax brackets raise tax rates from 10% to 35%. 

b. In 1980, the capital gains tax rate was 28%.   
    Today, it varies between 0% and 15%.

c. In 1980, the estate tax was 70% on estates over $600,000.  
    Today, the rate is 35% on estates over $5 million.

d. In 1980, Tariff taxes were paid on most imported goods entering the USA.   
    Today, "Free Trade Agreements" have eliminated tariff taxes on foreign imports. 

e. In 1980, the corporate tax rate was 46%. 
     Today, corporate tax rates vary between 0% and 35%. 

Furthermore, while average Americans pay income taxes on their gross income, corporations pay income taxes on their net income after deductions and loopholes! The U.S. tax code currently contains 61,000 pages of highly complex deductions and loopholes, which allow most corporations too reduce their tax obligations to zero.

2. Washington has a spending problem

This is true, but misleading. A better way to express this would be to say Washington has a spending priority problem:

a. Washington spends to much on military weapons systems,

b. Washington spends to much on foreign aid,

c. Washington spends to much on global military deployments and overseas bases,

d. Washington spends to much on Wars,

e. Washington spends to much on subsidies for large profitable industries: Defense, Agriculture, Energy, Health Care, and Banking.

f. Washington spends to much on tax giveaway's to Multinational Corporations, Banks, and Super Wealthy Aristocrats.

g. Washington spends to much on social security and medicare. This is misleading, because social security is fully funded by payroll taxes, and medicare is partially funded by payroll taxes and monthly payments by medicare recipients.

h. Washington spends too little on infrastructure: Schools, Dams, Bridges, Roads, Research, Space exploration, Low interest SBA business loans, etc, etc, etc.

THIRD - From 1981 through 2010, the U.S. national debt grew 1500%, from $900 billion in 1981, to $14 trillion on 12-31-2010. Here is a recap of the thirty-year growth of our U.S. national debt:

1. 1981 to 1989 the debt grew from $900 billion to $2.7 trillion, (Reagan)

2. 1989 to 1992 the debt grew from $ 2.7 trillion to $4.5 trillion, (Bush, Sr)

3. 1993 to 2000 the debt grew from $4.5 trillion to $5.6 trillion, (Clinton)

4. 2001 to 2008 the debt grew from $5.6 trillion to $10.7 trillion, (Bush Jr.) 
   10-08 to 9-09, the debt grew from $10.7 trillion to $12 trillion, (Bush Jr.)**

5. 10-10 to 12-31-2010 the debt grew from $12 trillion to $14 trillion, (Obama)

** Reference Public Law 110-343, signed by Bush Jr.

In summary, the "accumulative impact" from 30-years of conservative economic policies: low taxes on upper incomes, coupled with huge military and foreign aid spending, have efficiently extracted trillions of tax dollars from the U.S. Economic Infrastructure. Conservative economic policies have "Skillfully Redistributed America's Wealth" too the top 5% of income earners: Multinational Corporations, Large Banks, and Super Wealthy Aristocrats. These high income earners used their thirty consecutive tax cut windfalls to finance offshore investments in China, India, Brazil, Asia, and former Soviet Union countries.

FOURTH - Recaps of the fourteen major laws that impacted our Economy the past 30-years.

The 97th through 100th Congresses were split between a democratic majority in the house and a republican majority in the senate. Democrats won significant majorities in both branches of the 100th Congress. However, Reagan enjoyed a large block of southern conservative democrats who voted with republicans.

1. Public Law 97-34, Economic Recovery Tax Act of 1981. (Reagan-I) – Phased in a 23% cut in individual tax rates, and lowered the top tax rate from 70% to 50%.
 

2. Public Law 99-514, Tax Reform Act of 1986. (Reagan-II) – Consolidated the number of tax brackets from 15 levels to 4 levels. Lowered the top rate from 50% to 28%, and “raised the bottom tax rate” from 11% to 15%.

Public Laws 97-34, and 99-514 reduced taxes on upper incomes by more than 50%.

The 101st and 102nd Congresses were controlled by democrat majorities in both the House and Senate. Bush Sr. continued Reagan “Revolutionary Economic Agenda”.

3. Public Law 101-508, The Omnibus Budget Reconciliation Act of 1990 (Bush Sr.) Created a new 31% individual income tax rate, and capped the capital gains rate at 28%.

Public Law 101-508 further dismantled the progressive tax structure. Bush, Sr. vetoed 44 laws passed by democrat congress.  Laissez Faire banking practices adopted during Reagan’s first term, lead to the collapse of Savings and Loan Institutions.

The 103rd through 106th Congresses were controlled by republican majorities in the house and senate.

4. Public Law 103-66, The Omnibus Budget Reconciliation Act of 1993. (Clinton) -  Increased taxes by creating a 36% and 39.6% income tax rate for the top 1.2% of income earners, and created a 35% tax rate for corporations. 

Public Law 103-66 slowed the growth of the national debt and produced the only budget surpluses of the past thirty-years! The law did not receive one “Yes Vote” from conservative republicans.

 

5. Public law 105-34, Tax Payer Relief Act of 1997. (Clinton) – Reagan’s bottom tax rate of 15% was lowered to 10%. The capital gains tax rate was lowered from 28% to 20%.

6. Public Law 106-102, The Gramm-Leach-Bliley Act was passed by the republican congress, and is known as the Financial Services Modernization Act of 1999. It repealed the Glass-Steagall Act of 1933, which “prohibited” any one institution from merging into any combination of: an investment bank, a commercial bank, and an insurance company. This new law repealed depression era banking regulations that had stabilized America's banking system for sixty-six years. Eight years later, the American Banking System collapsed! The 2008 Wall Street Bank crash required a $787 billion bailout (TARP) from the U.S. Treasury, plus over $2 trillion in zero interest Federal Reserve loans, all of which were given to global banks, and multinational corporations without contracted terms.

7. Public Law HR4577 or S2697, The Commodity Futures Act of 2000 (CFMA) was passed by the republican congress in 2000. CMFA stated that most “Over-The-Counter (OTC) Derivatives” transactions between sophisticated parties would not be regulated as “futures” under the Commodity Exchange Act (CEA) or as “securities” under federal securities laws. OTC Derivatives were created by Wall Street bank executives to package and sell trillions of dollars in bogus sub prime mortgages to global investors, which caused the 2008 banking collapse.

The 107th through 110th Congresses were split between Democrats and Republicans. Democrats held a small majority in the  107th House, and shared a 50-seat split in the Senate. Republicans controlled both the House and Senate in the 108th and 109th congresses. Democrats won back the majority in the House and Senate during the 110th congress. 

The conservative 108th and 109th congresses completed their 20-year assault on America’s progressive tax structure, by passing Public Laws 107-16, and 109-222. The 110th congress was forced to pass Public law 110-343, the Emergency Economic Stabilization Act of 2008, to bail out insolvent Wall Street Banks, which collapsed from their highly profitable but fraudulent: sub prime mortgages, OTC derivatives, and credit default swaps.

8. Public Law 107-16, The Economic Growth and Tax Reconciliation Act of 2001. (Bush Jr.) This law increased and expanded Reagan's 1981 and 1986 tax cuts by making major changes to the U.S. Internal Revenue Code. This tax law significantly reduced income taxes for wealthy people and corporations, by:

a. Lowering the top tax bracket rate from 39.6% to 35%,

b. Lowering the second top tax bracket from 36% to 33%,

c. Lowering the 31% tax bracket rate to 28%, and then

d. Lowering the 28% tax bracket rate to 25%,

e. Lowered capital gains taxes from 10% to 8%,

f.  Increased the 10% tax bracket rate by creating three indexed brackets from 10% to 15%.

9. Public Law 109-222, Tax Increase Prevention and Reconciliation Act of 2005. (Bush Jr.) Under this law, long term capital gains and dividend income were taxed at a maximum rate of 15 percent through 2008. These 2008 rates were later extended through 2010, and extended again through 2012. For taxpayers in the 10 and 15 percent tax brackets, the tax rate was 5% through 2007, and Zero through 2008.

The impact of Public Laws 107-16, and 109-222 are well documented. Reagan's 1981 and 1986 tax cuts were increased and expanded upon. Meanwhile, the conservative republican controlled congress:

a. refused to pass a special tax to fund the Iraq and Afghan wars,

b. passed a huge missile defense system,

c. passed a huge Medicare prescription drug subsidy for the pharmaceutical industry,

d. passed huge spending bills to fund the Iraq-2, and Afghanistan Wars.

10. Public Law 110-185, The Economic Stimulus Act of 2008. The Bush administration sent checks of $600, and $1,200 to U.S. tax payers.

11. Public Law 110-343, Emergency Economic Stabilization Act of October 2008. (Bush Jr.) Known as TARP, the law was designed to mitigate the growing financial crisis of 2007-2008-2009 by giving relief to so-called “Troubled Assets. The Law provided authority for the Federal Government to purchase and insure certain types of troubled assets “Sub Prime Mortgages” which were packaged into “OTC Derivatives-Securities Products” and sold around the world by the newly created U.S. Financial Services Industry.

Furthermore, the republican controlled 108th and 109th Congresses refused to exercise their financial oversight authorities, which lead to the Wall Street Bank Collapse. After eight consecutive years of record setting deficits, the national debt doubled from $5.6 trillion in 2001 to $10.7 trillion by the end of the 110th congress in 2008. Then, the 110th congress passed a 2009 budget law that Bush Jr. signed, which added $1.3 trillion to the national debt, bringing it to $12 trillion by 9-2009.

The 111th Congress was controlled by a democrat majority in the House and the Senate. This congress “inherited” the Iraq-2 and Afghan wars, huge missile defense contracts, other large weapons systems contracts, other global military commitments, i.e., Germany, Korea, Japan, and 128 others, plus the giant medicare prescription drug subsidies.

12. Public Law 111-5, the American Recovery and Reinvestment Act of 2009. (Obama Stimulus) This law includes federal tax incentives, expansion of unemployment benefits, and domestic spending on education, health care, and infrastructure. The rationale for the stimulus comes out of the Keynesian economic tradition, which argues that government budget deficits should be used to cover the economic gap created by a drop in consumer spending during a recession. The Obama stimulus added another $800 billion to the deficit, which brought the national debt to $13.3 trillion by the end of 2009, and $14 trillion by 12-31-2010.

13. Public Law 111-203, Wall Street Reform and Consumer Protection Act of 2010. (Obama) The Act was passed as a response to the 2008 Financial Services Industry collapse, and represents a major shift in the federal regulatory environment affecting the U.S. financial services industry. The Act did not restore the 1933 Glass-Steagall law, but should correct the significantly flawed 1999 Gramm-Leach-Bliley Act, and Commodity Futures Act of 2000.

14. H.R. 4853, The Tax Relief, Unemployment Insurance Reauthorizing, and Job Creation Act of 2010. On December 17, 2010, President Obama signed into law H.R. 4853 (hereafter, “the Act”). This bipartisan legislation extends for two additional years many of the so-called “Bush tax cuts” originally enacted under the Economic Growth and Tax Relief Reconciliation Act of 2001 Public law 107-16 . Key provisions of the extended tax cut law:

a. extends the individual capital gains/dividend tax cuts for all taxpayers through 2012,

b. enacts a Social Security payroll tax cut for 2011,

c. provides a two-year AMT patch,

d. establishes a top estate tax rate of 35 percent with an exclusion of $5 million,

e. creates a 100-percent bonus depreciation through 2011,

f. creates a 50-percent bonus depreciation through 2012, and

g. expands Code Sec. 179 expense and investment limits for 2012.

© This document is property of Dan Reed and reproduction requires his prior approval. Approval may be attained through an emailed request to dancar@en.com.