The theory sounded good: Cut taxes for the wealthiest Americans and they would have more money to spend. The wealthy then would spend that extra money, fuel the economy, we’d all get richer and all the economic activity would increase tax revenues to cover the tax cuts. That’s been the basic economic philosophy guiding this country since Ronald Reagan became president — or most of my adult life.
The theory sounded good: Cut taxes for the wealthiest Americans and they would have more money to spend. The wealthy then would spend that extra money, fuel the economy, we’d all get richer and all the economic activity would increase tax revenues to cover the tax cuts.
That’s been the basic economic philosophy guiding this country since Ronald Reagan became president — or most of my adult life.
Unfortunately for the country, history has proven George H. Bush correct when he called it “voodoo economics” in a debate with Reagan during their battle for the Republican nomination.
The statistics show what’s popularly called trickle-down economics doesn’t work as advertised. Instead of making everyone richer, in the long run it redistributes the nation’s wealth in one direction — upward. And until we face that fact and base our economic policy on reality rather than this fairy tale we will continue to pile up debt and those waiting for the American consumer to spend our way out of the Great Recession will be waiting for Godot.
I wish it did work. I voted for it at its inception.
I also wish I could eat all the Boston cream pie and ice cream I wanted and not gain weight or raise my cholesterol. I wish we had a cure for AIDS. For cancer. For world hunger.
Wishing for such things doesn’t make them so and it’s time we voters face reality and decide what kind of society we want, are willing to pay for and can afford.
Maybe that means we get rid of Social Security, Medicare, Medicaid, college aid, unemployment benefits, put the country on a pre-New Deal footing and turn back the clock almost a century.
Maybe that means most of us have to work a few more years before we receive full Social Security benefits. Maybe that means we get rid of the George W. Bush’s tax cuts and let them expire as they were supposed to have done. Maybe that means we get rid of the mortgage tax deduction.
Whatever it means, it can’t mean we continue to put our faith in a failed economic philosophy.
Economic statistics on debt and wealth distribution in the United States are somewhat scattered and poorly organized, but a guy by the name of Gus Lubin, a senior editor at Business Insider, has pulled together a multi-sourced, understandable snapshot of the situation he calls 15 Mind-Blowing Facts About Wealth and Inequality in America.
Lubin cites a New York Times chart that tracks the wealth gap between the wealthiest 1 percent of Americans and the rest of us. In 1962, the wealthiest 1 percent of households averaged 125 percent of the wealth of the median American household. Twenty years later, when Ronald Reagan took office, that gap was 131 percent. By 1989, under the Reagan tax cuts, that gap had jumped to 156 percent. By 2001 the gap had grown to 173 percent. From 2001 to 2004, under the George W. Bush tax cuts, the gap leapt to 190 percent.
In other words, the Regan/Bush tax cuts redistributed some 60 percent of the nation’s wealth from average Americans to the country’s wealthiest households.
At the same time, the Congressional Budget Office shows the national debt skyrocketed with the Reagan and Bush tax cuts.
The office tracks the national debt as a percentage of the country’s gross domestic product — the value of all the goods and services the country produces in a given year.
Under Reagan’s eight years in office the national debt increased 20.6 percent and another 13 percent under George H. Bush. Under George W. Bush, the national debt jumped another 27.8 percent. Under Barack Obama the debt had grown another 9 percent through 2010.
The debt shrank 9.7 percent under Bill Clinton.
Through many of these years, average Americans seemed to increase their wealth and income. First many families became two-income households, bringing more money into the family. Then we ran up our credit cards. Then our home values kept increasing during the housing bubble and we borrowed against the value of those homes to send kids to college, buy a boat, redo the kitchen.
Now we’re tapped out.
There’s not enough wealth left in the average American household to buy our way back into prosperity and we need a new economic philosophy that recognizes that fact.
Dan Mac Alpine is senior editor of the Ipswich (Mass.) Chronicle.