George H. W. Bush ridiculed Ronald Reagan’s tax cut plan as “Voodoo Economics” in 1980… and he was right. The theory of Trickle-Down Economics — in which tax cuts for the rich leads to prosperity for everyone after the rich buy more yachts and hire more maids — has had more than forty years to work out. It hasn’t.
The top income tax rate in the United States has plummeted since the middle of the 20th Century thanks to tax cut after tax cut for America’s richest people:
There’s been a lot of time for the wealth to trickle down. What’s happened? The following graph comes courtesy of data from the U.S. Census Bureau and plots the mean income for each ordered fifth of U.S. households:
Income for the highest-earning fifth of U.S. households has gone up, and income for the highest-earning 5% has shot up even more. Income for the rest of U.S. households has stagnated, going up on marginally, with the increase in income due not to workers being paid more for what they do but instead due to the increasing trend of married women joining their husbands in the work force:
All that money from the repeated tax cuts for the rich over the last 40 years has not led to increased prosperity for the rest of us. It’s led to further income gains for the rich recipients of those tax cuts and income stagnation for the rest of American households, even though those households are working more.
So after winning a large number of votes from liberal Americans who listened to the Obama campaign promise to let Bush’s tax cuts for millionaires expire, we all know what the Obama White House actually did: it extended those tax cuts for those Americans who have been living high while the rest of us struggle. And here’s how the Obama White House justified its actions:
Vice President Joseph Biden, December 17: “This plan will grow our economy in the next year.”
President Barack Obama, December 17: “That’s how we’re going to spark demand, spur hiring, and strengthen our economy in the New Year.”
President Barack Obama, January 25: “Thanks to the tax cuts we passed, Americans’ paychecks are a little bigger today. Every business can write off the full cost of the new investments they make this year. These steps, taken by Democrats and Republicans, will grow the economy and add to the more than one million private sector jobs created last year.”
You heard Barack Obama and Joseph Biden: they’ve become supply-side trickle-downers, asserting that more tax cuts will spur the economy, creating more prosperity for everyone. After 40 years in which tax cut after tax cut has failed to produce this effect, Obama and Biden have given Ronald Reagan’s Voodoo Economics a big bear hug and a sloppy wet kiss. That’s not just exasperating. Frankly, it’s maddening.