In the 1980s, President Ronald Reagan presided over two massive tax cuts, which resulted in lowering the top bracket of the federal personal income tax from 70 percent to just 28 percent. At the end of last year, the tax bill that President Donald Trump signed into law slashed the federal income tax rate paid by large corporations from 35 percent to just 21 percent. And for good measure, the top bracket of the personal income tax was trimmed from 39.6 percent to 37 percent.
In some ways, then, the fiscal policies of President Trump echo those of President Reagan. During their first year in office each successfully persuaded Congress to pass a massive tax cut designed to stimulate the economy.
But the economic conditions during these respective presidents’ first year was radically different. Reagan took office during the early stages of what would become our worst economic downturn since the Great Depression of the 1930s. In 1981 the unemployment rate topped 10 percent, and the Consumer Price Index rose by 12.5 percent.
President Trump inherited an economy that had been expanding for over seven years, with an inflation rate of just two percent and an unemployment rate that was less than half its peak in 2009.
A major tax cut made a lot of sense back in 1981. It would stimulate the economy and help get us out of a deep recession. But when the Trump tax cut was passed in December 2017, our unemployment rate was just 4.1 percent, so it was unclear how much faster our economy could grow.
Still, there was a very serious common problem that set in soon after the tax cuts of 1981 and 2017. Our large federal budget deficits were threatening to go through the roof.
There are just two ways to quickly head off higher deficits – raise taxes and lower government spending. Under Reagan, Congress did both.
But over the last thirty-five years, it has become an article of faith among Congressional Republicans to never raise taxes. Indeed, most of them actually sign a pledge to vote against any tax increase.
When Ronald Reagan was running for the Republican presidential nomination against President Gerald Ford in 1976, he introduced the term “welfare queen” into the pollical lexicon. “She used 80 names, 30 addresses, 15 telephone numbers to collect food stamps, Social Security, veterans’ benefits for four nonexistent deceased veteran husbands, as well as welfare.” The story was made up, but from that point on, women with young children receiving public assistance were routinely labeled welfare queens.
Of course, Reagan and his fellow Republicans did not believe that all poor people receiving government benefits were lazy and deceitful. The majority were among what they called the “deserving poor.” All the rest, of course, were the “undeserving poor.” The trick was to treat the two groups differently, gradually removing the undeserving poor from the public dole.
Even though we were in a deep recession, President Reagan believed that the undeserving poor must accept their fair share of the sacrifices that needed to be made. No longer dependent on the public dole, they would have no choice but to support themselves and become productive members of our society.
So they forced millions of people off food stamps and public assistance, while slashing the funding for reduced price or free school lunches. Adding frosting to the cake, they cut the Comprehensive Employment and Training Act (CETA) program, which had funded hundreds of thousands of jobs for the long-term unemployed and disadvantaged.
Soon after the massive tax cut this past December several Congressional Democrats warned that the Republicans, alarmed at the rising federal budget deficit, would propose cutting social programs that benefited the poor.
Just a few days ago, the Trump Administration suggested lowering the deficit by $15 billion, $7 billion of which would come from the CHIP program. The Children’s Health Insurance Program provides medical insurance to nine million working families who earn too much to qualify for Medicaid, but too little to afford private health insurance.
This was just the latest way the Republicans have found for the poor to help reduce the deficit. Earlier this month, Housing and Urban Development Secretary Ben Carson proposed that the tenants living in low income projects adsorb a rent increase, which he thought would provide them with a greater incentive to find jobs – or to work longer hours.
The Trump Administration has also strongly encouraged the states controlled by Republican governors and legislatures to require adult recipients of food stamps and Medicaid to find work. This will likely force millions of the poor from the rolls.
They would simply have to adjust by eating less and cutting back on their doctor visits and medications. But on the plus side, they could feel very good about themselves for doing their bit to help reduce the federal budget deficit.
If all of these proposals were fully put into effect, it would seem likely that we could cut tens of billions from the deficit. So even if some disgruntled Democrats complained that the Republicans were attempting to balance the budget on the backs of the poor, there was no denying that the poor would finally be doing their fair share.
If the Republicans were to completely get their way, then our taxes and our spending on social programs – especially those benefiting the poor – would both be much lower. Under the Democrats, we’d have the opposite: Higher taxes and more spending on social programs.
The Republicans will tell anyone who will listen that their fiscal policy is all about providing every American with the proper incentives. For the relatively well-to-do, lowering their taxes will give them with the motivation to work even harder. For the poor, lowering their social benefits will also give them that same incentive. So what could be more fair than that?
It’s ironic that the Republicans often accuse the Democrats of waging class warfare. Vermont Senator Bernie Sanders, who ran in the 2016 Democratic presidential primary, does blame the large corporations and the billionaires for the economic plight of the poor and the working class.
And yet, when we take in close look at the Republican fiscal policy incentives, it’s hard to believe that they are not themselves engaging in class warfare. While Sanders would probably be happy to plead guilty as charged, it is conceivable that some Republicans may actually believe that their economic policies are not only good for the rich, but for the poor as well.
About the Author
Steve Slavin has a PhD in economics from NYU, and taught for over thirty years at Brooklyn College, New York Institute of Technology, and New Jersey’s Union County College. He has written sixteen math and economics books including a widely used introductory economics textbook now in its eleventh edition (McGraw-Hill) and The Great American Economy (Prometheus Books) which was published in August.