Sunday, November 28, 2010

Bush Tax Cuts - Part V

by Mindsweeper

                                                         ‘Welfare for the Wealthy’

                      As % of GDP     DowJones Industrials   Unemployment      Defense Spending  
          Revenues         Outlays      (year-end close)         Rate (%)             (FY2009 constant$)
1980     19.0                   21.7                      964                      7.1                           $385 bln
1981     19.6                   22.2                      875                      7.6                           $428 bln
1982     19.2                   23.1                    1047                      9.7                           $470 bln 
1983     17.5                   23.5                    1259                      9.6                           $502 bln
1984     17.3                   22.2                    1212                      7.5                           $522 bln
1985     17.7                   22.8                     1547                     7.2                           $557 bln
1986     17.5                   22.5                     1896                     7.0                           $536 bln 
1987     18.4                   21.6                     1939                     6.2                           $519 bln
1988     18.2                   21.3                    2169                      5.5                           $508 bln
1989     18.4                   21.2                    2753                      5.3                           $502 bln 
1990     18.0                   21.9                    2634                     5.6                           $492 bln
1991     17.8                   22.3                    3169                      6.8                           $447 bln
1992     17.5                   22.1                    3301                      7.5                           $443 bln 
       
2000     20.6                   18.2                  10788                      4.0                           $387 bln
2001     19.5                   18.2                  10022                      4.7                           $426 bln
2002     17.6                   19.1                    8342                      5.8                           $448 bln
2003     16.2                   19.7                  10454                      6.0                           $547 bln
2004     16.1                   19.6                  10783                      5.5                           $570 bln
2005     17.3                   19.9                  10717                      5.1                           $565 bln
2006     18.2                   20.1                  12463                      4.6                           $605 bln
2007     18.5                   19.6                  13265                      4.6                           $660 bln
2008     17.5                   20.7                    8776                      5.8                           $709 bln
2009     14.8                   24.7                  10428                      9.3                           $687 bln

Sources:

 The Reagan and GWBush tax cuts took effect in years 1-3 after their respective elections, leading to a sharp drop in revenue during years 2-5.  Most of the benefit went to the richest Americans, who put their windfall into the stock market and NOT, as Republicans and conservatives allege, into creating jobs and opportunities for the rest of Americans.  After the cuts of 1981 and 2001-3, stocks entered a bull market phase and tax revenues began to gradually increase, although never returning to pre-tax cut levels.   While unemployment spiked up in 1982-3 and then back down from 1984-1991, by the end of of both Republican tax cut eras, it was actually higher than it was at the start.

To summarize what actually occurred:
1. the wealthiest Americans received huge tax cuts early in the terms of Reagan and GWBush
2. the Dow rallied from Dow 875 at the end of Reagan’s 1st year(1981) to over 2740 in Aug 1987 before crashing and then resuming the rally to new highs in 1992
3. the Dow rallied from 10,022 at the end of GWBush’s 1st year(2001) to over 13,850 in Dec2007 before crashing and then rallying back to 10,400 at the end of 2009
4. those most able to invest in and benefit from a bull market in stocks received a “tax windfall” and then paid a lower tax rate “post-windfall” than “pre-windfall”
5. the nation’s unemployment rate at the time of the stock market peaks in late- 1987(6.2%) and 2007(4.6%) was little-changed from what it was when Reagan (7.1% in 1980) and GWBush(4.0% 2000) took office


Now let’s look a Measure of Income Dispersion
Source:

                Mean Household Income by Quintiles (in 2009 CPI-U-RS adjusted dollars)
                                Lowest 20%            Second 20%          Third 20%              Fourth 20%            Top 20%
                1980        10,682                     26,586                     43,870                     64,631                     115,236
                1981        10,414                     25,942                     42,975                     64,061                     114,432
                1982        10,223                     25,868                     42,820                     63,683                     116,800
                1983        10,342                     25,980                     42,954                     64,457                     118,343  
                1984        10,689                     26,624                     44,120                     66,429                     122,148
                1985        10,672                     27,046                     44,893                     67,528                     126,139                                  
                1986        10,781                     27,734                     46,410                     69,914                     132,332
                1987        11,076                     28,148                     47,060                     71,133                     135,278
                1988        11,264                     28,428                     47,548                     71,875                     137,218
                1989        11,681                     29,063                     48,311                     73,076                     142,851  
                1990        11,400                     28,684                     47,379                     71,433                     138,627
                1991        11,098                     27,875                     46,302                     70,582                     135,349
                1992        10,868                     27,233                     45,711                     71,038                     136,470                  
% Increase            
1980-1992               1.74%                      2.43%                      4.20%                      9.91%                      18.42%
% Increase
1992-2000               16,41%                    15.99%                    15.08%                    15.11%                    29.85%

                2000        12,651                     31,588                     52,603                     81,774                     177,203                  
                2001        12,280                     30,855                     51,647                     80,978                     176,848
                2002        11,911                     30,284                     51,032                     80,271                     171,382
                2003        11,658                     29,947                     50,834                     80,463                     171,527
                2004        11,633                     29,765                     50,431                     79,518                     171,965
                2005        11,707                     30,057                     50,871                     80,014                     175,335
                2006        12,077                     30,614                     51,301                     81,201                     178,904
                2007        11,949                     30,457                     51,691                     81,839                     173,763  
                2008        11,612                     29,405                     49,942                     79,457                     170,408  
                2009        11,552                     29,257                     49,534                     78,694                     170,844  
% Decrease
2000-2009               -8.69%                    -7.38%                    -5.83%                    -3.77%                    -3.59%
% Increase
1980-2009               8.14%                      10.05%                    12.91%                    21.76%                    48.26%


Overall, for the 30 year period since 1980, income for the top 20% increased at nearly 6X
the rate at which it grew for the lowest 20% and at nearly 5X the rate of the second 20%.

During the Reagan years, income for the top 20% increased  at more than 10X the rate at which It grew for the lowest 20% and at nearly 8X the rate of the second 20%.  Under GWBush, all incomes dropped, but for the bottom 40% it dropped at a rate more than 2X greater than it did for the top 20%.   

During the Clinton years (1993-2000), tax rates were raised slightly for the wealthiest Americans.  The economy and stock markets boomed and incomes for the bottom 80% rose equally on a percentage basis.  The top 20% still did nearly 2X better than everyone else, but American prosperity was shared, however briefly, for the only time period of the last 30 years.


None of this is to say that higher tax rates were the driving force behind the economic boom of the Clinton years.  However, the data presented here clearly shows that the Reagan and GWBush tax cuts CLEARLY are regressive in their effect upon income growth.   During the income growth period from 1980-1992, the top 20% saw their incomes grow at 8-10X the rate of the bottom 40%.  During the income decline period from 2000-09, the bottom 40% saw their incomes decline at more than 2X the rate of the top 20%.  Those who “needed it most” got the least in upturns and lost the most in downturns.  

A truly progressive tax system is one in which those who can least afford it share on a proportionate percentage basis of income  during both times of economic growth and contraction.  A system of tax cuts for the wealthy which enables the rich to earn disproportionally greater income increases in good times and to experience disproportionally smaller income declines in bad times is nothing but WELFARE FOR THE WEALTHY and is truly SHAMEFUL!!

At least Warren Buffett and Bill Gates agree!