Who benefited from the Reagan-era tax cuts?

Trump's tax reform plan 65438+ was voted by the US Senate on the afternoon of February 2. It is predicted that Trump's tax cuts will reduce the tax expenditure of the American people 1.4 trillion US dollars, and the tax cuts are not small!

1.？ The enterprise income tax is reduced from the current 35% to15%;

2.？ The highest personal income tax rate was reduced from 39.6% to 35%, and the grade difference was reduced from 7 to 3, which were 35%, 25% and 10% respectively.

3.？ Tax threshold, the income tax threshold for husband and wife's combined declaration will rise from $65,438+02,700 to $24,000 (converted into RMB, which means that the total income of husband and wife is less than $65,438+068,000 without tax);

4.？ The new tax reform plan will also abolish inheritance tax, Obama medical insurance tax, and replace the minimum tax;

Many people severely condemn Trump's tax cuts, saying that it is not a good way to stimulate the US economy through tax cuts, and accuse him and the party of "reversing the car" by providing profits to the rich and big business owners.

Can tax cuts stimulate economic growth? Is it only good for the rich? We might as well look at it from historical experience. What is the impact of tax cuts on the economy?

Trump's political idol is Ronald Reagan, a former president who was also a member of the party and became a monk halfway. Trump dared to implement a large-scale tax reduction policy because of Reagan's experience of "crossing the river by feeling the stones". When Reagan came to power in 1980, the United States was at a disadvantage in the cold war with the Soviet Union. He implemented an "economic recovery plan" with substantial tax cuts as the core but not limited to tax cuts. From 1982 to 1999, it became the super-expansion period of American economy, which was called "the most lasting prosperity stage in the 20th century". Except for the short-term contraction of 200 1 for 8 months, the strong economic growth actually did not end until 2007 and lasted for 25 years.

-The following is the text.

Author: Li Weiguang, a professor at Tianjin University of Finance and Economics.

This article is transferred from the micro-signal "Far Smell"

Arthur. In his book "A napkin changed the world", Laffer said that there were four main "killers" that led to the serious economic recession in the 1930s and 1970s, namely, tax increase and excessive government expenditure, improper government intervention in the economy, trade protectionism and monetary policy mistakes. He believes that the reason why the American economy can come back to life and regain prosperity in the 1980 s depends on supply economics based on the famous Laffer curve he described himself. According to this theory, President Reagan expounded his economic philosophy and applied it to the practice of governing the country, which is undoubtedly successful.

Professor Laffer is teaching his Laffer curve.

There is a fundamental difference between the supply school and Keynesianism. In Keynesian view, tax cuts only affect the economy by affecting demand. However, compared with the increase of government expenditure of $65,438+0, the former generates less additional demand than the latter. Because the multiplier effect of tax reduction is smaller than that of government expenditure. The supply school does not pay attention to the influence of demand side and tax on government expenditure, but thinks that tax can directly affect the supply of goods and services. Lower tax rates mean more incentives to work, save, take risks and invest.

When people respond to higher tax returns or higher profitability, their income will increase accordingly, and the tax base will also expand accordingly, thus making up for the income loss of the financial sector. At the same time, the savings rate will also rise, and provide more sources of funds for the expansion of government and private sector credit. Tax cuts will lead to an increase in private profits and sufficient sources of funds, which will never be a problem. They will use these funds for investment and innovation, and even engage in high-risk undertakings. The money belongs to them, and how to spend it is their own business, not the government.

After Reagan became president of the United States, he put forward an "economic recovery plan" with substantial tax cuts as the core, but not limited to tax cuts, reducing government expenditure and government intervention in the economy, reducing the money supply, expanding free trade, and promoting economic globalization. This policy combination completely replaced Keynesian economics, which has been dominant since Roosevelt's New Deal era.

1981July, Reagan expounded the plan of tax reduction bill on TV.

The focus of Reagan's tax reduction plan is to reduce the personal income tax rate from 70% to 50%, and further reduce it to 28% after 1986; Another major axis of Reagan's tax reduction is the capital gains tax, which is reduced from 28% to 20%, and the corporate income tax rate is reduced from 46% to 33%. The purpose of tax reduction is to stimulate savings, investment, work and efficiency. This tax cut plan was promulgated and implemented eight months after Reagan took office.

Reagan's new economic policy was not optimistic at first, but people's desire to try a new economic plan prevailed for some time. President Reagan's tax reduction plan was finally passed in August of 198 1. At that time, Mr. howard baker, the majority leader of the Senate, dismissed the financial plan as "river boat gambling" (see The New York Times,1August 20, 996), which caused a lot of discussion in the whole Congress. As for why it is called "river boat gambling", the only material I have at present is a short comment by American scholar Mike Destler in the book "American Trade Politics": "Put all your eggs in one basket, it is extremely risky".

Howard baker, President Reagan, served as the White House Chief of Staff.

However, one year after the implementation of the tax reduction plan, the economic situation has not improved, but has worsened and fallen into a more serious recession. According to literature, economic growth has reached a new low since the Great Depression in11930, and the number of corporate bankruptcies has reached a new high since that period. 1In the summer of 1982, the Dow Jones Industrial Average fell to 770 points, the stock market fell to the lowest point in history, and the real estate market as a whole fell to the lowest point, and the sales volume decreased within one year 10%. The unemployment rate in many states is above 10%, and the middle class is mostly unemployed. It is very lucky that recent college graduates can find jobs in Hamburg.

At the most difficult time, many advisers around the actor president lost confidence and proposed to change policies and start raising taxes, thinking that not adjusting policies in time would lead to a rapid increase in the fiscal deficit and even a complete collapse of the government. Even Mr. David Stockman, the most active advocate of tax reduction in the cabinet in the past, complained to the Atlantic Monthly that no one in the White House knew how to resist the flood of debt, and the phrase "Implementing this policy depends on confidence" caused an uproar and exposed the public relations crisis faced by the new government.

At that time, the supply school was just emerging and had no academic status. It is often teased by some politicians. A typical example is what happened when Reagan took office: Kansas, a staunch opponent of tax cuts, and Republican Senator Bob Doyle told a joke at a meeting: I have good news and bad news for you. The good news is that a tour bus full of school supplies fell into the valley and got on no one lives. The bad news is that Arthur Laffer is not in the car. Ha ha!

At the same time, some economics professors from Massachusetts Institute of Technology and University of Pennsylvania put forward a new "industrial planning" model, arguing that the government should directly invest in manufacturing industries such as electronics and semiconductors, aviation, computer software development and steel to restore and revitalize the economy. Democrats in the House of Representatives found this new industrial policy attractive, and immediately started to act, and made a bill that is expected to spend millions of dollars to fund the above industries, with the aim of improving the international competitiveness of American enterprises as soon as possible.

In the process of implementing the tax reduction bill, the most commendable is President Reagan. He resolutely rejected all Keynesian remarks about economic policy and repeatedly warned people that tax cuts must be adhered to! However, the resistance to tax reduction is still great and twists and turns are inevitable. 1982, just eight months after Reagan came to power 18, Jim Baker, the chief of staff of the White House (the director of the president's office), and Staman, the economic affairs adviser, successfully persuaded him to agree to increase taxes, and at the same time cancelled some preferential policies for corporate business tax in the 198 1 tax reduction bill. They promised the president that every tax increase of 1 dollar would reduce the fiscal expenditure by $3, so that President Reagan still resented it many years later. Whenever someone proposes to increase the tax burden to reduce the deficit, he always replies, "I'm still waiting for the three cuts promised to me by Congress!" " "

Many times, tax cuts are more like a war, and the president himself is more like a lone warrior. Every step forward is tangled and difficult. 1983 65438+1On October 3, the Wall Street Journal announced in a prominent position on the front page: "Tax reduction at last!" At the same time, however, opponents of tax cuts are busy declaring the bankruptcy of supply economics. The economist Alan Blinder wrote in The New York Times: "The failure of the supply school has restored our confidence in Keynesian economics." Washington post even declared: "Everyone saw with their own eyes that Reagan economics was a huge failure."

1983 may 17, president Reagan "staged a comeback". At the press conference held that day, he confidently said: "It is time to draw a clear line and stand with the people. As we get out of recession, I won't support the budget resolution to increase taxes. I will veto any tax bill that wants to do so. " He went on to say, "The American people did not choose us to come to power to continue to increase their taxes and spend more money on wasteful projects."

On the issue of tax reduction, the president has obvious differences with his advisers and aides. On May 2 1, Washington post published a headline entitled "Reagan's advisers support tax increase", introducing the White House's plan to increase taxes by $45 billion from June 65438 to 1 October1. But the next day, the same newspaper reported that the president said he was not interested in the plan. He said, "This may be the attitude of some people in the government, but it is definitely not my attitude."

However, in this year, the U.S. economy suddenly came back to life and changed fundamentally. Even President Reagan himself couldn't believe the speed and strength of the American economic recovery and growth. By the end of 1983, the growth rate of the United States had risen to 3.5% and reached 1984. After deducting inflation, the growth rate reached 6.8%, which was the highest annual growth rate in the past 50 years, while the inflation rate dropped by more than 65% (PANI table of the US Bureau of Economic Analysis1./kloc-0)

Large-scale tax cuts and the inevitable increase in the budget deficit are also the main reasons held by those who oppose tax cuts. What people see in this round of tax cuts is the huge budget deficit that comes with economic growth. At first, it is 1000 billion US dollars, and then it rises to an incredible 200 billion US dollars. The serious deficit even affected the presidential election. 1984, the Democratic Party elected Mundell as the presidential candidate. He criticized Reagan's budget deficit and the policy of "cutting taxes for the rich" and promised voters that he would increase taxes to solve the serious deficit problem. Reagan asked the American people in his campaign speech: Is your life better than four years ago, or is it bad? People agreed. Reagan said, well, we will continue to insist on low tax rates. This year, he beat Mundell with 95% of the votes, and was called "one-sided 1984".

In the US presidential election of 1984, red indicates that the state was won by the Republican Party (Reagan) and blue indicates that the state was won by the Democratic Party (Mundell).

1986, president Reagan introduced the tax reform bill (1986 tax reform bill) which was more widely praised in the future, further expanding the tax base. Only the individual income tax 15% and 28% tax rates are retained, and the rest are cancelled.

Next, the American economy continued to maintain a growth rate of 3.5%, and there were no signs of recession until the late 1990s. From 1982 to 1999, it became a super-expansion period of the American economy, which was called "the most lasting prosperity stage in the 20th century". Except for the short-term contraction of 200 1 for 8 months, the strong economic growth actually did not end until 2007 and lasted for 25 years. The wealth created by the United States in these 25 years far exceeds the sum of the previous 200 years, and the total economic scale is almost twice that of the late 1970s, which is the greatest wealth creation period in human history.

Some people think that tax cuts will only benefit the rich, but they are not. Shortly after Reagan left office, Warren Brookes, a famous financial journalist, made an estimate: Without Reagan's tax reduction policy, how much more taxes Americans would have to pay this year 1990. He concluded that taxpayers whose annual salary is less than 10000 dollars have to pay an average of $500 more in tax each year, which is 134% more than what they actually paid in that year. Taxpayers whose income is between 1 10,000 and 30,000 yuan have to pay 2,000 yuan more each year, 79% more than what they actually pay. Families with an annual income of $60,000 need to pay more than $6,000 in taxes (Arthur? Ralph: A napkin changed the world (1page 43). The beneficiaries of Reagan's tax cuts are not just the rich. In fact, at that time, millions of Americans became very rich, but there was no evidence that the poor were getting poorer.

According to the statistics updated by the US Federal Taxation Bureau in 2006, the population with the highest income of 1%, 5% and 10% paid taxes, and in 2005, 1980 and 265438 were 8.5%, 2 1% and 32./kloc-respectively. The lowest tax rate paid by 50% of the population is 1980, that is, 17.7%. In 2005, it was only 13.4%. This range covers almost the entire tax reduction era. People should clearly see that low tax rate makes the tax system more mature and advanced. This profound theory derived from Laffer curve may not be clear even to tax experts.

Colin Powell once told a story about President Reagan's last day in the White House. 1989 On a cold morning in June, he reported to Reagan as a national security adviser: "Mr. President, this is my last security report to you: the world is safe, there is no crisis, and the national economy is healthy." His report is short, powerful and clear, and it is an assessment of the overall situation in the United States in the late Reagan era. Afterwards, it was proved that this assessment was accurate. At that time and in the following years, the global and economic situation facing the United States was very different from that when Reagan came to power eight years ago.

Philosophically, the supply school is classical liberalism, believes in the free market economy, defends the individual's right of free choice and opposes state intervention, so the supply school stands on the opposite side of Keynesianism and holds a completely negative attitude towards it in value. However, they have reservations about government intervention, and actually advocate adjusting the degree and scope of state intervention to the lowest or more appropriate level. They are opposed to the excessive intervention of the state in the market, so their position of classical liberalism is not very thorough.

Whether people like supply economics or not, the idea of Laffer curve has influenced American economic policy for more than 35 years, and it is still in the ascendant, affecting dozens of countries in the world. During this period, all countries in the world have experienced the largest scale and scope of the improvement of human living standards, and emerging economies such as China have also benefited from it. At present, people are still controversial about this curve, but there is no doubt that scholars, entrepreneurs and all taxpayers all over the world are familiar with it.