A couple of questions for the economically-minded DUers?

[kentuck]

The last time we had an economy this bad, job-wise, was in 1983 under Ronald Reagan. Of course, he blamed it on Jimmy Carter.

But the top income tax rate when Reagan took office was 70%, which was 90% before it was dropped to 70% by JFK. Reagan pushed to cut that rate in half.

What impact did that tax rate cut have on job creation and the decline of the middle-class and the increase in the investor-class? What impact did it have on our society in general?

[Warpy]

1. That tax cut, combined with the six hikes in FICA he used

to offset its effects on the treasury, served to cause a massive transfer of wealth from the working and middle classes to the super rich. It also starved the government of money vital to creating and maintaining infrastructure.

The progressive tax structure with its near confiscatory top rate did three main things: it provided a disincentive to the naked greed we've seen from the 80s onward, discouraged the development of a moneyed aristocracy, and provided money to be recirculated at the bottom in the form of public works jobs.

With the economy functioning at its peak, the money pump managed to allow the savvy rich to get richer, just not quickly enough to suit them.

Low taxes, small, ineffective government and a total lack of social spending benefit only the ultra rich who no longer use the same infrastructure the rest of us rely on. Reagan, the slickest pitchman Hollywood has ever produced, managed to sell it to people who weren't very bright as some sort of perverse fairness.

And this is why the economy sucked during his 2 terms and it's why the economy sucks now. That sort of thing doesn't work for the country as a whole nor for a majority of its citizens and never will.

[kentuck]

2. Do you think?

This has caused more money to go into the stock market and less into job creation?

[eleny]

4. Didn't NAFTA have more to do with the lack of job creation in the U.S.?

Businesses took their money and opened factories elsewhere in more numbers than ever before.

I'm remembering how clothing factories were moving to Asia even right after I got out of college in the early 1970s. Clothing manufacturing in the U.S. was slowing down in my last college years. But with NAFTA 20+ years later there was an exodus of manufacturing in general.

[kentuck]

7. I think it was a big part...

but it had to be coupled with the lower tax rates in this country. It was all about investment and stock holders and the bottom line. It was never about workers or jobs.

[eleny]

8. Right, not about U.S. workers & jobs

As Warpy pointed out earlier, their greediness was reflected in how they couldn't make more money fast enough. NAFTA provided the means for creating more wealth for them. They left the American worker in the dust without a second thought as NAFTA was what the corporate constituency expected.

[Warpy]

17. Of course it did.

Now it's run full course. They're trying to bleed more money out of the economy by creating bubble markets, something that works initially but tapers off as the bubbles get smaller and smaller, something I see happening now.

The rich are about as bloated as they can get without pushing us into actual slavery instead of debt slavery.

The more money becomes an end in itself, a numbers game, the less it's used to do anything risky and constructive and the more it's used to rig the game and feed off itself.

[kentuck]

18. Yep.

Money and wealth becomes an end in itself, serving no purpose to society.

[ThomWV]

3. Marginal rate decreases always help the "investors-class"

Marginal tax cuts mean they only apply on the top end, they are never cuts for the poor or even middle class, who didn't pay the higher marginal rate in the first place. So you have the rich investor-class, as you called them, now having even more and as you might expect of those who own most of all that is in the first place, when they get more they buy up more. And the stratification of society grows greater.

Of course tax revenues lost on the top end that aren't made up for by the middle or lower end results in either services of less quality or less services in total. The roads crumble, regulation is not enforced for lack of personnel (food inspections ring a bell), things like that.

Make sense?

[kentuck]

5. It does make sense, ThomWV...

The Reagan tax-rate cuts did great harm to our nation. It created more of an investment-class, at the detriment of the middle and working class. There was no longer the same incentive to create jobs as before. There has been a stratification of our society. What's the obvious solution?

[eleny]

9. I guess it's time to mention China

Any "obvious solution" would hurt China and they own so much of our debt. If we took steps towards tax equity and protectionism to bring manufacturing back to the U.S., how do you think China would react?

[kentuck]

11. They are only concerned about the strength of the dollar..

and it would not much matter otherwise, in my opinion.

[ThomWV]

16. You see, I don't agree with your assessment of the effect

Yes, China does indeed hold a great deal of our debt but what is their loss if our marginal tax rate increases? Most of their sales to this nation are not to those who's earnings are even subject to the highest rates - that plastic coming into the country by the shiploads and being distributed through the Chinese Marketing Ministry (aka Wal Mart) is not being gobbled up by the rich. Actually it would be to the benefit of the Chinese to see us get on a more sound financial footing - would you rather have the person who owed you money be broke or doing well? Same thing. An increase in our marginal tax rate would not do much to harm their sales, which are focused on the other end of the income scale, but it would reinforce the likelihood of us being able to repay, or at least service, our debt.

[eleny]

20. But we're also discussing American jobs

I'm thinking of all our manufacturing that went to China. So I'm wondering about what China would do if those jobs came back here and their manufacturing was greatly reduced. As it is their people are getting belligerent over factories slowing down or closing due to our not consuming as much. What happens when we take the jobs back? We pay back our debt and they just say, "Thanks."?

[DFW]

6. Pushing taxes to absurdly low (or absurdly high) rates always creates problems

Reagan and Bush Lite gutted the resource base of the Federal Government, and then went on to say what
a good thing it was since small government was good (never mind that it ballooned under Bush Lite, just
not in sectors that benefited large sectors of the population).

Taxing people with good ideas that might make money at rates like 90% just encourages either tax cheating
or outright moves to another country. It's gonna happen. You can't change human nature. 35% is ridiculous
for top earners, but so is 90%. I don't know where the pain threshold is, but I suspect that if the top
rate is at 50% or less, with few loopholes and a decently high level before the 50% marginal rate kicks in,
that we'd be fine. There aren't a lot of models I can think of to emulate, as there aren't any other
countries with our economic and social conditions. We have to figure this one out for ourselves, and taking
Sweden or Switzerland as examples isn't going to work.

[SmileyRose]

10. Middle class loss of wages is a DIRECT result of Reagan's tax changes

Before Reagan, the taxes were structured so

1. The investor class paid a penalty for greed. 70-90%. If the investor class actually invested in America - as in spent a goodly portion of the wealth on employees and charities - then their tax rate was more like 36%. Once Reagan took away the requirement to invest the money in America, the investor class simply pocketed the dough. Thanks to hate radio they convinced us it's "their money" and we sorry working slobs deserve no share of the wealth created by our labors.

2. As a result, Dividends became more attractive to investors than investment into their companies. Over a fairly short period of time the investor class moved their business model away from long term company health and investment toward short term payoffs in cash dividends. The whole financial system became Las Vegas. You and I merely chips to be tossed about.


Reagan also changed the way investments are owned. Previously, the vast majority of equities were owned by private individuals and it took a wide majority of individuals to sell off all at once to push the market down. Under Reagan the laws changed to make it possible for 2 or 3 fund managers to control the vast majority of equities in the US. Now just a handful of fund managers basically control our entire financial system - because they trade Billions all at once.

[kentuck]

12. You said it much better than most of the big-name economists.

that I have read. Thank you.

[havocmom]

13. Possibily one of the best threads EVER on economy

Thanks kentuck and all who posted great replies. Bookmarked

[doc03]

14. I think when Reagan fired the Air

Traffic Controllers and the fat cat union bosses did absolutely nothing was the turning point.
Reagan may have been a dunce but he had some brilliant minds behind him. Over the 80's The unions lost their numbers and were unable to stop NAFTA, WTO then that accelerated us on the path to the bottom.

[HamdenRice]

15. I remember reading an article in Esquire about how "poor" investment bankers were

This was around the mid to late 70s, when Adam Smith had a regular economics column in Esquire. The focus of the article was how Texas oil barons were redefining what it meant to be rich.

Investment bankers at the time, iirc, were lucky to be worth a million dollars at mid career, but Texas oil men were talking about their worth in terms of "units" of $10 million.

That was very, very big money then, and there weren't very many billionaires -- maybe two or three in the whole country, like the Hunt Brothers and Howard Hughes.

[Individualist]

19. Definition of trickle down economy: everyone but the rich gets pissed on.