The GOP wants to double down on trickle down
Pity the Republicans! What's left for them to advocate when they're once again faced with a President who (like Clinton in the 90s) straddles the center of American politics? He even shares their deference to the military and defense establishment.
The irony here is that they are victims of their own success in moving the center of American politics so far to the right. Like Republicans in the Clinton era, all they can do is demonize Obama and stake out extreme positions. So they call him a socialist for winning passage of a health insurance bill very similar to what Nixon proposed in the early 70s.
They actually want to renew Bush's tax cuts for the wealthiest 2% of Americans, at a cost of $680 billion over ten years, despite ballooning government deficits. They're clinging desperately to the failed trickle-down economic policy that has been Republican dogma since 1980.
trickling down flickr image by crowderb
During the first three decades after WWII, Democrats held onto much of the legacy of the New Deal. With the support of a healthy labor movement, they were willing to use the power of government to help all Americans share the benefits of economic growth.
According to the Center for Budget and Policy Priorities, from 1946-1976 income growth for the bottom 90% was much faster than for the top 1%. From 1976-2007, we had the opposite: incomes of the top 1% grew ten times faster than those of the bottom 90%.
Until 1980, growth in wages kept up with increases in productivity. American workers were sharing in the wealth they created. Afterward, wages no longer kept up with productivity increases. Workers were being shortchanged.
The New Deal social contract held up even under Republican administrations before 1980. Under Eisenhower the top marginal tax rate was 91%. It was still a hefty 70% under Ford.
By 1980 the decline in American manufacturing and the migration of labor to the anti-union South had greatly weakened union political strength. This enabled Reagan to turn his back on the labor movement and initiate an era of gung-ho capitalism that is still with us.
The Reagan mantra was so-called supply-side economics. The New Deal prescription for economic growth had been to spur demand by directly putting more money in the hands of consumers through a sharply progressive tax rate and other redistributive measures. The goal was to make sure that the wealth created by a capitalist market benefitted everyone, not just a privileged class.
Supply-siders called instead for increasing supply by putting more money in the hands of the wealthy, who would invest it in increased production, thereby creating jobs. This in turn would put more money in the hands of consumers. So the increasing wealth of the already wealthy would "trickle down" to the lower classes.
Supply-siders argued that the best way to increase investment was to lower the marginal tax rate on wealthy people. After all, they're the ones who have money to invest, not ordinary folk who live from paycheck to paycheck.
Reagan reduced the top tax rate to 50%, and then to 28%. His economic advisors went so far as to claim that government revenue lost through tax cuts for the wealthy didn't need to be paid for by spending cuts. Instead, they would be offset by increases in tax revenue due to economic growth.
They were wrong. Massive deficits nearly tripled the national debt from $907 billion in 1980 to $2.6 trillion in 1988. When Bush dropped the top tax rate from 39.6% (under Clinton) to 35%, even as he initiated two wars, the resulting deficits raised the national debt from $5.8 trillion in 2001 to $10 trillion in 2008.
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