Part 2 covering the Bush Sr, Clinton, Bush Jr and Obama years can be found here.
We rely for data for this blog on the Federal Individual Income Tax Rates History for income years 1913 to 2011 put out by taxfoundation.org. Also Historical Capital Gains and Taxes put out by the Tax Policy Center of the Urban Institute and the Brookings Institution and the Social Security and Medicare Tax Rates put out by socialsecurity.gov. We will report only on income tax rates for a married couple filing jointly. Tax rates for other classifications of people generally followed the same trajectories. It is a sordid history of how Republican Presidents Reagan and Bush Jr. lowered taxes on the rich, raised taxes on the poor and middle class and drove up the US national debt. Let's start with tax year 1980 the first year Reagan occupied the White House. The tax rates that year were carried over from the Carter Presidency. It took a couple of years for Reagan to get his tax cutting Mojo working. In 1980 the income tax table was the following. All amounts are adjusted for inflation.
Table 1 - 1980 - Married Filing Jointly
Marginal Tax Brackets
Tax Rate Over But Not Over
0.0% $0 $9,258
14.0% $9,258 $14,977
16.0% $14,977 $20,695
18.0% $20,695 $32,404
21.0% $32,404 $43,569
24.0% $43,569 $55,006
28.0% $55,006 $66,987
32.0% $66,987 $81,419
37.0% $81,419 $95,851
43.0% $95,851 $124,716
49.0% $124,716 $163,383
54.0% $163,383 $233,093
59.0% $233,093 $297,902
64.0% $297,902 $442,224
68.0% $442,224 $586,546
70.0% $586,546
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The first thing to notice is that there are 16 tax brackets. Over the ensuing years the number of tax brackets would be reduced under the guise of simplification, but really what this reduction amounts to is a "flattening" of the tax code on the way to that conservative Valhalla - the flat tax. The second thing to notice is that the highest tax rate is 70%. That would be reduced in coming years to less than half that amount giving a huge bonus to the rich. The third thing to notice is that the highest marginal tax rate applies to incomes over $586,546. That means that for higher incomes - and incomes well over $1 million were not that uncommon in 1980 - there were no additional tax brackets at higher marginal tax rates. This tendency not to progressively tax the highest incomes is a feature that will be accentuated in the terms of Republican Presidents over the next 30 years. Clinton "unflattened" the tax code adding three new brackets at the high end while keeping taxes on the poor and middle class constant. However, in Clinton's second term under a Republican controlled Congress, the capital gains tax affecting mainly the rich was lowered exemplifying the fact that Congress has much more control over taxes than does the President. Reagan and Bush Jr primarily lowered taxes on the rich while Reagan also raised taxes on the poor as a concomitant.
In 1980 the maximum tax rate on long term capital gains stood at 28%. Also in 1980 the payroll tax (FICA and SECA) stood at 6.13% for employers and employees and at 8.1% for self-employed. FICA is the tax that employers and employees pay for social security and medicare; SECA is the tax the self-employed pay. Reagan and Greenspan would hike these rates spiking the rate for self-employed thus adhering to their philosophy of taxing the poor while lowering taxes on the rich since payroll taxes are a flat tax with no deductions, no exemptions. The poor while paying little if anything in income tax are still stuck with almost exhorbitant payroll taxes especially the self-employed. And when they retire, the poor self-employed get a relative pittance in benefits despite having paid in at the highest rates.
In 1981 the income tax table was not substantially changed keeping the same 16 tax brackets. However, the maximum tax rate on long term capital gains was lowered from 28% to 20%, a big reduction for the rich who have much more income from capital gains than do the middle class and the poor. While lowering taxes on the rich Reagan simultaneously raised them on the poor not through the income tax but by means of FICA and SECA taxes. Those rates increased from 6.13% to 6.65% for employers and employees and from 8.1% to 9.3% for the self-employed.
In 1982 there were major changes to the tax code as shown in Table 2.
Table 2 - 1982 - Married Filing Jointly
Marginal Tax Brackets
Tax Rate Over But Not Over
0.0% $0 $7,906
12.0% $7,906 $12,788
14.0% $12,788 $17,671
16.0% $17,671 $27,670
19.0% $27,670 $37,203
22.0% $37,203 $46,969
25.0% $46,969 $57,199
29.0% $57,199 $69,523
33.0% $69,523 $81,846
39.0% $81,846 $106,493
44.0% $106,493 $139,511
49.0% $139,511 $199,035
50.0% $199,035
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The first thing to notice here is a reduction in the progressivity of the tax code since 16 brackets have been reduced to 13 eliminating the top three tax brackets altogether! The top tax bracket starts at $199,035, a brazen tax giveaway to the rich! The lowest taxable bracket starts at roughly $7906. rather than $9258 as it did in 1980, a slight increase on the poor. There are also slight increases on the middle class throughout the tax code.
The maximum long term capital gains tax rate remained steady at 20% while FICA and SECA taxes were raised slightly. So we have seen taxes on the rich diminish remarkably in the second year of Reagan's Presidency by means of the capital gains rate and in the third year by means of the income tax table while at the same time taxes on the poor and middle class were raised through the FICA and SECA tax rates. FICA and SECA taxes are regressive since the same rate applies to all incomes up to a certain cap and beyond the cap there is no payroll tax so the rich get off scot free above a certain income level which in 2011 was $106,800. In 1982 there was a flattening of the income tax code brackets and a raising of the already flattened payroll taxes. The lesson to be learned from the early Reagan years is that taxes were lowered primarily on the rich due to the elimination of the upper three income tax brackets and the lowering of the capital gains tax while they were raised on the poor and middle class primarily through the FICA and SECA taxes.
The following table represents the effects of the "Tax Reform Law of 1984."
Table 3 - 1984 - Married Filing Jointly
Marginal Tax Brackets
Tax Rate Over But Not Over
0.0% $0 $7,343
11.0% $7,343 $11,878
12.0% $11,878 $16,413
14.0% $16,413 $25,699
16.0% $25,699 $34,553
18.0% $34,553 $43,623
22.0% $43,623 $53,125
25.0% $53,125 $64,571
28.0% $64,571 $76,017
33.0% $76,017 $98,908
38.0% $98,908 $129,574
42.0% $129,574 $184,859
45.0% $184,859 $236,257
49.0% $236,257 $350,715
50.0% $350,715
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Consider the top tax bracket. It remains the same as in 1982 at 50%. However, it doesn't start till an income of $350,715 instead of $199,035 in 1982 thus lowering taxes on the rich again. The 0% tax bracket ends at a lower dollar amount thus raising taxes slightly on the poor again. Consider the middle tax rate of 25.0%. It starts at $46,969 and ends at $57,199 in 1982 while it starts at $53,125 in 1984 and ends at $64,571. This represents a slight lowering on the middle class as well.
The capital gains rate remained the same at 20% while FICA and SECA taxes were given a huge jolt. They were raised from 6.7% and 9.35% respectively in 1982 to 7% and 14% respectively in 1984. This represents a huge increase in regressivity and taxes on the poor and middle class for the self-employed.
In 1986 there were no major changes to the income tax code - only adjustments for inflation. Capital gains tax remained constant at 20%. There were increases in FICA and SECA taxes though. Again taxes on the poor and middle class were raised under Reagan's Presidency. They now stood at 7.15% and 14.3% respectively.
Now in 1987 accordning to the Tax Reform Act of 1986, there were major changes to the income tax code. Here are the tables for 1987:
Table 4 - 1987 - Married Filing Jointly
Marginal Tax Brackets
Tax Rates Over But Not Over
11.0% $0 $5,926
15.0% $5,926 $55,305
28.0% $55,305 $88,883
35.0% $88,883 $177,766
38.5% $177,766
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The number of tax brackets has been drastically reduced from 15 to 5 thus flattening the tax code once again and reducing taxes on the rich! The top tax rate applies to incomes over $177,766 whereas that rate in 1984 applied to incomes over approximately $100,000. Taxes on the poor are raised as well since the 0% tax rate is eliminated entirely! However capital gains taxes are raised back to 28% due to the fact that Democrats took control of Congress in 1986. FICA and SECA taxes remain the same as they were in 1986.
In 1988 the income tax code is radically flattened again.
Table 5 - 1988 - Married Filing Jointly
Marginal Tax Brackets
Tax Rates Over But Not Over
15.0% $0 $56,427
28.0% $56,427
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This flattening raised income taxes on the poor considerably by dropping the lowest tax bracket altogether. At the same time it lowered taxes on the rich by dropping the upper two tax brackets! Capital gains tax stayed at 28% while FICA and SECA taxes increased considerably from 7.15% and 14.3% respectively to 7.51% and 15.02% respectively. Thus a double whammy in tax increases for the poor was perpetrated while reducing them drastically for the rich.
All in all the Reagan years under the tutelage of Alan Greenspan were a disaster for the poor and middle class and a bonanza for the rich. The income tax was drastically flattened reducing progressivity while FICA and SECA taxes which are regressive because one rate fits all were raised. For most of Reagan's Presidency capital gains tax was kept low at 20%, another tax giveaway to the rich. However, when Democrats regained control of Congress in 1986, the capital gains tax rate was raised back to 28% where it had been when Reagan entered the Presidency and Republicans controlled Congress. There is a pattern here. Republicans use the tax code to benefit the rich and shift the burden of paying for government to the poor and middle class while Democrats lower taxes on the poor and middle class and raise them on the rich. In 1983, on the recommendation of his Social Security Commission— chaired by none other than the man he later made Fed chairman, Alan Greenspan—Reagan called for, and received, Social Security tax increases of $165 billion over seven years. So it was Alan Greenspan, that Ayn Rand inspired "rock star" of economics, who was primarily responsible for raising taxes on the poor during the Reagan era. Although the pretext for this huge increase in social security and medicare taxes was the fact that at some point the social security trust fund would run out of money, the increase in government revenues was just spent in the government's general fund thus effectively using a huge increase in regressive taxation to fund the government not to provide security for retirees. At the present time despite a supposed $2.5 trillion in the social security trust fund, Republicans are again maintaining that social security is broke and needs "fixing," the fix they recommend being to privatize it.
Finally, we note that Reagan tripled the national debt from approximately $1 trillion to $3 trillion. George W Bush doubled it from $5 trillion to $10 trillion. The two biggest tax cutters (on the rich) were also the two biggest adders to the national debt!