"In politics, nothing happens by accident. If it happens, you can bet it was planned that way. "
Franklin Delano Roosevelt
You can get up now, the war is over. Look upon your ruined cities, look upon your devastated economy! Look upon your diminished wages and contemplate upon your children's decimated futures. It is perfectly normal for the populace to be confused once the war is lost. To look back over their shoulders and to ask themselves, "how did this come to be? How did we get here?
You followed false prophets; who promised only sunshine and smiles, nirvana and utopia, if you would only follow along blindly. They proceeded to tear down the city walls which had once protected you. When you questioned their looting the treasury they explained, that it was part of their plan to make you rich as well.
For starters, to bring us prosperity they explained, we needed to free up our economy from all of those pesky and unneeded banking regulations! Without all those regulations the people would be freer to invest in the economy. The other leg of their platform was tax cuts, tax cuts would allow people to invest more into the economy. They reasoned if you cut taxes the people would have so much extra money that the economy would really hum.
So in 1981 they cut the top tax rate from 70 percent to 50 percent. They marginally lowered the dozens of other tax brackets leading to the top bracket at $215,400 in income. Now say for example you earned $215,500 then your taxes decreased from $150,850 to $107,750 and your after tax income rose from $43,100 to $107,750. If you earned a million dollars your taxes decreased by $200,000.
In 1964 the average private worker's wage was $2.53 per hour and that wage doubled in twelve years to $5.06. Before that $5.06 would double again it would be 1990 or fourteen years years. It would take 1990's $10.20 to ...well, it hasn't doubled again yet. So if you're going to wait on that train, you had best pack your lunch. In the 1990's (90 to 99) the average workers wages have risen only $3.29 per hour to $13.49 per hour. From 2000 till today average workers wages have risen $5.17 to $19.19.
What happened? It all sounded to good! We were all going to get tax cuts and money was going to be so plentiful we would have to sweep it off the porch at night. Personal consumption for the two years following the Reagan tax cut was -2.7 percent.
From 1970 to 1979 average worker wages rose 5.3 percent per year against an average inflation rate of 7.75 percent.
From 1980 to 1989 average worker wages rose 2.6 percent per year against an average inflation rate of 7.72 percent.
Well then, apparently tax cuts don't work? They do work, if you're in the top 20 percent of wage earners. Those people in the top 20 percent that we gave those big tax cuts to, their share of the wealth grew from 43 percent in 1980 to 52 percent of the economy by 2001. The public was confused, where was that wealth that their benefactors had been promising?
Well thank God, trickle down economics works or our budget deficit would have... exploded. I just can't understand it, you cut taxes and you cut taxes and for some unknown reason all of a sudden the deficit just explodes. At the end of WW2 our budget deficit was 120 percent of GDP and it had steadily gone down until it was about 22 percent of GDP by 1980. Our budget deficit then rose to over 40 percent of GDP in just ten years! Despite massive cuts in social spending.