Tuesday, January 31, 2012

Thirty-Years of Starving Tax-Cuts Undermined the U.S. Economy!©

By: Dan Reed, American Citizen 

Everyone has heard GOP conservatives repeated claim “Washington doesn’t have a revenue problem, it has a spending problem”! This has become the standard conservative response to anyone suggesting that taxes need to be raised on the super wealthy and large corporations. The truth is, federal revenues as percent of GDP have been steadily dropping since 2000. 

Click graphic for full story by Robert Borosage
In fact, overwhelming evidence proves the United States Government has a massive revenue problem created by thirty years of starving tax cuts from 1981 to the present: 
1. Tax Rates on Wealthy Individuals have been cut by 50%,  
2. Tax Rates on U.S. Corporations have been cut by over 50%,  
3. Tax Rates on Capital Gains have been cut by 62%,  
4. Tax Rates on Estates have been cut by 60%,  
5. Tariff Taxes on foreign imports have almost been eliminated,
6. Medicare payroll taxes on employers have remained at 1.45%,
7. Excise taxes on gasoline have remained the lowest in the world. 
Furthermore, the size, and scope of the 1981, 1986, and 2001 tax cuts severely damaged the United States infrastructure, economic engine, and American people! Yet, we rarely hear anyone present evidence disputing GOP conservatives false revenue claim? 

So, Compared to What decided to check it out. I began by asking myself the following questions: based on population growth, have federal government revenues increased or decreased? Have American’s forgotten Reagan’s 1980 pledge to “Starve the Big Government Beast”? And, do the American people remember the massive tax cuts enacted in: 1981, 1986, 1990, 1997, 2001, 2005, and 2010? 

The U.S. Population Is Growing and Aging 

It’s mind-boggling that our growing and aging U.S. population seldom gets mentioned in the federal revenue debate! While GOP conservatives: Reagan, Bush-1, and Bush-2 were successfully starving the United States Treasury; the population of the United States grew 35% from 229 million people in 1980 to 309 million people in 2010!

Click for graph story-see National Population
In 1981, a large portion of the U.S. population was in their mid-thirties. In 2011, many of those people reached retirement age and began collecting their “prepaid” Social Security and Medicare benefits! 

“Washington Doesn’t Have a Revenue Problem – What Are They Smoking?” 

Congress has cut taxes on corporations and wealthy individuals seven times over thirty years. Today, Americans pay much less in federal taxes than most other people in the industrialized world! In fact, Americans are paying the lowest percentage of their income in taxes since the mid 1950’s! And U.S. Corporate taxes are currently near historic lows.

Click for Source Information
Meanwhile, our population continues to grow and age, and our schools, roads, bridges, airports, water systems, electrical grids, and space program are rapidly decaying!  

America's Space Shuttle Program Is A Perfect Example. On April 12, 1981, the entire world watched as the first Manned Space Ship Columbia launched from Kennedy Space Center. The United States was so far ahead of the world in space development that Russia, our closest competitor, was vying to get their astronauts on future shuttle missions. The American People Were So Proud! In 2011, the shuttle program was retired, and American Astronauts began hitchhiking rides on Russian space vehicles. Why was a replacement Shuttle never: designed, developed, tested, perfected, and ready for service in 2011? The answer is, the "Big Government Space Program" was starved like most U.S. Investments from 1981 to the present! 

A Thirty-Year History Of Starving Tax Cuts 

Tax cut mania began with Ronald Reagan’s 1980 pledge to “Starve the Big Government Beast”? Since 1981, fifteen U.S. Congresses enacted the starving tax cuts of: 1981, 1986, 1990, 1997, 2001, 2005, and 2010, which crippled the United States economy. These starving tax cuts slashed federal tax rates paid by corporations and the super-wealthy by more than 50%. These tax cut wounds are still bleeding the U.S. economy! The following chart depicts the enormous drop in individual, corporate, and capital gains tax rates from from 1981 through 2011:

Click graphic for source information about this chart

1. The History of Individual Income Tax Rate Cuts From 1981 through 2011  

From 1916 through 1980, Individual income tax rates were determined by a fifteen bracket progressive tax structure, which incrementally increased marginal tax rates as income increased. But in 1981 and 1986, conservative President Reagan succeeded in enacting the most comprehensive reform of the federal income tax code in U.S. history! Reagan’s 1981 and 1986 tax cuts unleashed an epidemic of annual budget deficits that have consistently starved the United States Treasury for thirty consecutive years! In 2001, conservative President Bush enacted the third installment of conservative tax reforms. Bush’s massive 2001 tax cuts exploded U.S. annual budget deficits! Since 1981, individuals with annual incomes of $200,000+ have had their income taxes reduced by more than 50%. The combined Reagan and Bush, Jr. tax cuts have become "America's Bleeding Wounds” that continue draining the lifeblood from the United States economy! The following table outlines the major tax laws that have greatly impacted the U.S. economy for thirty years:

Untitled Document
Public Law - Name, Number, And Year Description Of Individual Tax Cuts
Economic Recovery Tax Act of 1981- Public Law # 97-34, Reagan I - In place for 30 years Cut individual tax rate by 25% and lowered the top tax rate from 70% to 50%.
Tax Reform Act of 1986 - Public Law # 99-514, Reagan II - In place for 25 years
Significantly cut the progressive tax system by eliminating eleven of the top fifteen tax brackets that had been in place for 70 years, and lowered the top tax rate from 50% to 28%.
The Omnibus Budget Reconciliation Act of 
1990 - Public Law# 101-508, Bush Sr.
Created a new 31% individual income tax bracket.
The Omnibus Budget Reconciliation Act of 
1993 - Public Law# 103-66, Clinton - In place for 7 years

Raised Taxes by creating a 39.6% and 36% income tax rate for the top 1.2% of income earners, and created a 35%income tax rate for corporations.

The Economic Growth and Tax Reconciliation Act of 2001 - Public Law 107-16, Bush, Jr.- In place for 10 year
Cut Clinton's top tax rate from 39.6 to 35%, lowered the second top tax rate from 36% to 33%, and then to 28%, and again to to 25%. 
The Tax Relief, Unemployment Insurance Reauthorizing and Job Creation Act of 2010, 
Obama - In place for 1 year.
Extended Public Law 107-16, the Bush Tax Cuts through 2012, Cut Social Security Payroll Taxes for employees by 2% through 2011. Created a 100% depreciation bonus for 2011, and 50% for 2012.

2. The History of Corporate Tax Rate Cuts From 1981 through 2011 

GOP conservatives repeatedly claim the 35% U.S. Corporate tax rate is the second highest in the world! However, there are two different corporate tax rates: the 35% statutory rate, and the tax rate corporations actually pay after they subtract all their loopholes and deductions. Contrary to GOP conservative claims, U.S. corporate taxes are actually the "second lowest" in the developed world! The following graphic compares U.S. Corporate taxes as a percent of GDP, and compared to twenty six other industrial economies:
Click to view a large image
The GOP claim is a deliberate fabrication! U.S. corporations pay income tax on their “Net Income” after subtracting all deductions and loopholes, while individuals pay income tax on their “Gross Income!” U.S. Corporations are able too significantly lower their tax rate by utilizing a tax code that is stacked with highly complex: subsidies, shelters, and special breaks, which were designed too significantly reduce the 35% statutory rate. U.S. corporations tax rates fluctuate between zero and 18% of a “Corporations Net Income”, and many large U.S. Corporations pay zero U.S. Federal income taxes! The following table outlines the decline in corporate income tax rates since 1981:
The following graphic compares corporate taxes in 1955 with corporate taxes in 2010. The graphic clearly identifies the extent of taxation that has been shifted from corporations to individuals over the past 56 years!
Click for source Information by: Barry Ritholtz - April 14, 2011

3. The History of Capital Gains Tax Rate Cuts From 1978 through 2011  

The richest Americas pay a tax rate of about 18% - the lowest since before the 1930's depression. According to the Tax Policy Center*, over 83% of capital gains taxes are paid by 2% of taxpayers with annual incomes over $200,000. More than 60% of this group have annual incomes well over $1 million. Capital gains are financial incomes from long-term investments in stocks, bonds, and real estate, which exceeded their original purchase price. * A joint venture between the Urban Institute and Booking's Institute 

GOP conservatives like to claim that keeping taxes low on wealthy Americans creates jobs! However, since 1978, the capital gains tax rate has been slashed from 39% to 15%. So where are the jobs? There in China, Asia, India, Brazil, and former Soviet Union Countries! Sorry, but conservatives never said the jobs would be created in the USA! The following table traces the progression of a 62% cut in capital gains taxes since 1978: 

Public Law - Name, Number, Year Capital Gains Tax Cuts
Tax Reduction and Simplification 
Act of 1977 - HR 3477, Carter
Capital Gains tax rate cut from 39.9% to 28%
Economic Recovery Tax Act of 1981
Public Law 97-34, Reagan I

Cut the Capital Gains tax rate from 28% to 20%. Returned Capital Gains tax rate to 28% in 1989.

The Omnibus Budget 
Reconciliation Act of 1990. Public 
Law 101-508, Bush Sr

Capped the Capital Gains tax rate at 28%
Tax Payer Relief Act of 1997
Public Law 105-34, Clinton
Cut the Capital Gains tax rate from 28% to 20%

The Economic Growth 
and Reconciliation  Act 2001. 
Public 107-16, Bush Jr.
Cut Capital Gains tax rate from 20% to 8% 


The tax Increase Prevention and 
Reconciliation Act of 2005. 
Public Law 109-22, Bush Jr.

Increased Capital Gains tax rates from 8% to 15%. The 15% tax rate was later extended through 2008, then 2010, then 2012.

The Carried Interest Loophole is a prime example of the excessive unfairness embedded in today’s capital gains tax rate! Capital gains beneficiaries: hedge fund managers, corporate CEO’s, and the super-wealthy, receive large portions of their earnings from stocks, bonds, dividends, and profit investments. The Carried Interest Loophole allows these individuals to avoid paying the 35% marginal tax rate others pay on ordinary incomes like salaries, bonuses, etc. Instead, CEO's, the Super Wealthy, and Hedge fund manager incomes are taxed at the capital gains rate of 15%, which represents a 57% “Tax Benefit” for a select group of wealthy people!

4. The History of Estate Tax Rate Cuts From 1981 through 2011 

Estate taxes in the United States are part of the Unified Gift and Estate Tax System enacted in 1916. The estate tax is charged on the transfer of property to deceased persons beneficiaries. In addition to the federal government, many states impose an estate tax called an inheritance tax. Since the 1990s, GOP conservatives have referred to the estate tax as a "death tax". Since 1981, the federal estate tax has been cut by more than 50%. Beginning in 2011, up to $5,000,000 can be passed from a deceased person to his or her beneficiaries, without paying any federal estate tax. The following table traces the progression of estate tax cuts:

Estate Tax RatesEstate Value Exemption
1981 to 1987 Estate tax rate of 70%On estates valued above $175,000
1987 to 2001 Estate tax rate of 55%On estates valued above $675,000
2001 to 2009 Estate tax rate of 45%On estates valued above $3 Million
2010 Estate tax rate of Zero
Estate tax rate was eliminated for one year
2011 Estate tax rate of 35%On estates valued above $5 million.

Historical Perspective On Estate Taxes: The concept of estate taxes dates back to our founding fathers says William H. Gates Sr. and Chuck Collins in their book “Wealth and Our Commonwealth”. They explain that our founders: Jefferson, Paine, Adams, and Ben Franklin visited Europe, and were shocked by the huge disparities between wealth and poverty they observed. They surmised those huge European inequalities were the result of an aristocratic system of: wealth inheritance, inherited political power, and monopoly. In 1916, Republican President Theodore Roosevelt championed the estate tax! Roosevelt viewed the estate tax as a means of preventing wealth, and political power from becoming concentrated in the hands of a few, and evolving to an aristocracy. 

5. The History of Employee and Employer Payroll Taxes – 1981 through 2011 

Payroll taxes are paid by employees and their employers to fund Social Security and Medicare retirement benefits. Social Security has been self-funded for seventy-five years and currently has a $2.8 trillion surplus. The program has been so efficient that congress has not increased Social Security payroll taxes since 1990. 

Medicare is over 50% funded by payroll taxes and monthly premiums paid by retirees. However, while health care costs have been steadily rising for 25-years, why has congress failed too increase Medicare payroll taxes since 1988? 

Untitled Document
Year Employee
Soc. Sec %
Soc. Sec. %

Medicare %
Medicare %

1981 4.700 .650 4.700 .650 10.70 1.30 1.30 2.60 13.30
1982 4.575 .825 4.575 .825 10.80 1.30 1.30 2.60 13.40
1983 4.775 .625 4.775 .625 10.80 1.30 1.30 2.60 13.40
1984-87 5.200 .500 5.200 .500 11.40 1.35 1.35 2.70 14.10
1988-89 5.530 .530 5.530 .530 12.12 1.45 1.45 2.90 15.02
1990-93 5.600 .600 5.600 ..600 12.40 1.45 1.45 2.90 15.30
1994-96 5.260 .940 5.260 ..940 12.40 1.45 1.45 2.90 15.30
1997-99 5.350 .850 5.350 .850 12.40 1.45 1.45 2.90 15.30
2000-11 5.300 .900 5.300 .900 12.40 1.45 1.45 2.90 15.30

Notes: (a.) DI means disability Insurance (b.) In 1984, the Medicare tax on the self-employed doubled to 2.90%

6. The History of Tariff Tax Cuts – 1981 through 2011 

Americas past five presidents have all been strong advocates of “Free Trade”. Free Trade is the unlimited, untaxed importing of foreign made products into the United States! Reagan, Bush, Sr., Clinton, Bush, Jr., and Obama have all claimed that “Free Trade” would bring increased economic growth and jobs to the United States. However, after 30-years, “Free Trade” has proven to be "Extremely Expensive Trade". Free Trade has significantly drained United States revenues in three ways: 1.) Lost income tax receipts due to lower wages and unemployed workers, 2.) Unemployment benefits paid to jobless victims of unlimited, tariff free, foreign imports! 3.) Lost tariff and duty revenues. 

7. Excise taxes are special taxes on specific products like gasoline, cigarettes, beer, telephone, etc. Reporting on excise taxes would require a massive expansion of this paper. Based on this, I decided the benefits would not exceed the effort. 

CONCLUSION - For twenty of the past thirty-years, GOP conservative presidents have governed the United States! In 1980, conservative president Ronald Reagan pledged to "Starve The Big Government Beast"! Reagan followed through by enacting two massive  tax cuts in 1981 and 1986 that became the largest tax cuts in U.S. history. In 1987, unelected conservative Grover Norquist initiated his "Taxpayer Protection Pledge" to never raise taxes, which was signed by 230 conservative House members and 40 conservative Senators. Norquist's pledge successfully locked in the Reagan tax cuts for thirty years! In 2001, conservative president George W. Bush enacted the third major installment of crippling tax cuts, which completed the two starve the United Sates of America pledges! GOP conservatives starving tax cuts have accumulated into America's Bleeding Wounds - a significantly decayed infrastructure, and a huge $15 trillion national debt!

Congratulations conservatives, your 1981, 1986, and 2001 tax cuts, and your two Anti-American tax pledges, have successfully starved the United States Treasury! Great Job conservatives - you've undermined the United States of America!

A 130-page booklet of sourced research materials used in assembling this report, consisting of articles, reports, charts, and tables, can be obtained by email request, at dancar@en.com, and a small handling fee of $10.00. 

©This document is property of Dan Reed. Use of this document, titled: Thirty-years of Starving Tax-Cuts Undermined the U.S. Economy! Dated 1-31-2012, requires prior approval of the author. Approval may be attained through a request to dancar@en.com.

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