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06 December 2012

After 30 Years, The New York Times Admits Reaganomics Worked

Image Credit: The New York Times
Image Credit: The New York Times

Here’s the heart of the big New York Times story on taxes:

Most Americans in 2010 paid far less in total taxes — federal, state and local — than they would have paid 30 years ago. According to an analysis by The New York Times, the combination of all income taxes, sales taxes and property taxes took a smaller share of their income than it took from households with the same inflation-adjusted income in 1980.

Households earning more than $200,000 benefited from the largest percentage declines in total taxation as a share of income. Middle-income households benefited, too. More than 85 percent of households with earnings above $25,000 paid less in total taxes than comparable households in 1980.

Lower-income households, however, saved little or nothing. Many pay no federal income taxes, but they do pay a range of other levies, like federal payroll taxes, state sales taxes and local property taxes. Only about half of taxpaying households with incomes below $25,000 paid less in 2010.

1. Now some peoplelike Business Insider’s Henry Blodget and former White House economist Jared Bernstein, thinks the data make the case for tax hikes. Maybe I’m crazy, but I think the reduction in the tax burden — starting with the Reagan tax cuts — has been a huge competitive advantage for the U.S.  We should keep that edge. Check out these numbers:

In 1981:

France’s per capita GDP was 81% of U.S. per capita GDP.

Germany’s per capita GDP was 83% of U.S. per capita GDP.

Italy’s per capita GDP was 81% of U.S. per capita GDP.

Britain’s per capita GDP was 69% of U.S. per capita GDP.

In 2010:

France’s per capita GDP was 73% of U.S. per capita GDP (down 8 points).

Germany’s per capita GDP was 81% of U.S. per capita GDP (down 2 points).

Italy’s per capita GDP was 68% of U.S. per capita GDP (down 12 points).

Britain’s per capita GDP was 76% of U.S. per capita GDP (up 7 points).

Old Europe rapidly caught up to American wealth from 1960-1981. But in the two decades after that, the Great Closing stopped or reversed as America got its policy house in order. Tax cuts.  Deregulation.  France, Germany, and Italy went backward v. the much larger U.S. Britain, thanks to the Thatcher Revolution, eventually shook off the 1970s. Anyway, rather giving away our tax advantage, we should reform the tax code so that it is even more pro-growth and pro-family.

2.  As the NYT put it, “Congress cut federal taxation at every income level over the last 30 years.” But, liberals keeping telling me that only the rich get tax cuts! 

Anyway, here’s an interesting statistic: Federal tax revenue as a share of GDP from 1954 through 1980 averaged 17.8%, while from 1981 through 2007, it averaged 18.1%. 

Lower taxes, but more revenue. Hmmm….

3. The NYT does point out how payroll taxes have risen, which especially affects middle-class households:

More evidence for the need to address tax relief to middle-income families whether through an enlarged child credit that could be applied to payroll taxes or reducing them on a per child basis.

4. Another bit: “Economists agree that taxes on business are passed on to investors, reducing profits, and to workers, reducing wages. Upper-income households bear the brunt of these taxes, and corporate tax collections have fallen sharply.” 

That is right. Taxes matter.

Funny, the NYT never mentioned this widely known economic fact when Mitt Romney was attacked for saying “Corporations are people.”

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