Pethokoukis

Have Reagan-style tax cuts lost their political power?

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America has an anti-growth tax code that penalizes investment, innovation, and family formation, and encourages cronyism and rent seeking. Smart tax reform would boost economic growth and worker incomes. Passing such reform should be a high priority with Washington policymakers.

Yet three decades of radical-though-imperfect reform has still left the code in better shape than in 1981 when high marginal income tax rates discouraged productive investment and coupled with inflation to raise the cost of capital and nudge taxpayers into higher and higher tax brackets.

Today, by contrast, the top rate is 40% not 70%, tax brackets are annually adjusted for inflation, and 43% of Americans pay no federal income tax (although two-thirds of those folks pay payroll taxes.) Even The New York Times has conceded the impact of a generation of supply-side tax reform (though not the generational economic boom it caused):

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.

Given all that, it shouldn’t be surprising that the tax issue doesn’t have the old oomph that it used to with voters. So here’s the problem — an economic one for America, a political one for Republicans who fondly recall the 1980s: cutting marginal rates, lowering business taxes, and tax simplification just doesn’t look like much of an election winner anymore. Take a look at these poll results:

1.) In the early 1980s, close to 70% of Americans thought their taxes were too high. Today, that number is 50%.

Gallup

Gallup

2.) Middle-class Americans, by 53% to 42%, think they’re paying their fair share in taxes.

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3.) Americans rank taxes low on their list of concerns — even below climate change (via Bloomberg):

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4.) In the age of online tax preparation, Americans don’t think their tax returns are hard to fill out:

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5.) Americans think raising the minimum wage and business deregulation are better ways to boost economic growth than cutting tax rates on the business and the wealthy:

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One more thing: perhaps these polls also reflect America’s recent history with tax cuts. George W. Bush cut taxes, yet the economy didn’t seem to respond as it did in the 1980s and his term ended in economic collapse (though I am not suggesting as a result of the tax cuts). And then you have the Obama tax cuts. A third of the $800 billion, 2009 stimulus came in the form of various tax incentives. Not only has the recovery been sluggish, but people barely noticed the Making Work Pay tax credit as it was parceled out in dribs and drabs.

Follow James Pethokoukis on Twitter at @JimPethokoukisand AEIdeas at @AEIdeas.

2 thoughts on “Have Reagan-style tax cuts lost their political power?

  1. When the bottom 50% of households have a federal income tax rate of 2.4% small wonder that the polls show a majority think taxes are fair! Bottom 50% contributes 2.34% of all federal income taxes.

    When Reagan cut taxes, the bottom 50% paid an average tax rate of 5.6% and contributed 6.4% of all federal income taxes.

    Currently the top 10% are paying more than 70% of all federal income taxes (making 45% of income and paying a tax rate of 18.5%). Any significant tax cut would by definition have a greater impact on top earners and thus feed the class warfare hunger!!!

  2. Raising the minimum wage is a better way to boost economic growth?

    When economic illiterates answer polls how can you believe the poll results?

    Although I have to give credit on responses to business deregulation

    Tax simplicity? This is from people who think they are getting a good deal when they get a refund from the IRS after too much has been withheld? Do the respondents run a business? A business that hires employees? Do respondents realize how many people are employed by businesses to keep on top of tax issues?

    Part of the problem is a populace that are personal-finance and economically deficient.

    Provide more economic opportunity for all? Golly, I am for that and apple pie too. What does it mean and how is it provided? Is it provided by the government or is it provided by the government getting out of the way?

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