1. Trickle-Down Tax Plan, Adrift

Trickle-Down Tax Plan

The signature policy tool of the Reagan era was the tax cut. When he took office, the highest marginal tax rate was 70%—which was the lowest it had been since 1935. When he passed the baton to his vice president, George H. W. Bush, that rate was 28%.

The top marginal rate is not the ultimate determinant of taxes paid, and economists debate the precise impact of the many changes to tax brackets and deductions throughout this time. But the objective of the cuts was met: to reduce the taxes paid by the wealthiest individuals and the largest corporations. In theory, money not spent on taxes was to be “reinvested” into the economy to spur growth, benefitting all.

How well that theory held up in practice is also the subject of significant debate. One thing is certain: The Reagan tax cuts ensured the largest federal deficits since WWII. When Reagan took office, the government owed $930 billion. When he left, the debt was $2.7 trillion. No other peacetime president has tripled the debt. More damaging, Reagan tapped into an emerging lack of long-term thinking in America. Dick Cheney summarized it, observing that “Reagan proved deficits don’t matter.” And they haven’t, until they will. The U.S. national debt now threatens to exceed $30 trillion, and the ratio of debt to GDP, which was 32% when Reagan was sworn in, has exploded to over 120% today.

Trickle-Down Tax Plan

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