The thing about Reagan's tax cuts is that they were very different from Bush's, and thereby hangs a tale.

Reagan was an actor by trade. Actors, like athletes and a few other professionals, are paid large sums of money per performance. This means that the income tax rate is very important to them, because they are always going to have a lot of income. Reagan also had the misfortune to have his career peak during WWII and its aftermath, at which time the top income tax rate was 91% AND HE WAS PAYING IT. This forced him to make four pictures a year and then take the rest of the year off because it simply didn't pay him to work. This pissed him off no end, and it's easy to see why.

So when he got into office, he slashed the income tax rate (by then far below 91%, but he slashed it further anyhow). He left dividends as ordinary income -- they were taxed at the top income rate -- because he made his money in income. He left capital gains where they were, and actually raised them later in his term when he again cut the income tax rate and removed the special treatment of capital gains for the only time (the resulting rate was 28% for both). Again, Reagan made his money as income, not capital gains.

The Bush 43 tax cuts, on the other hand, were totally different. The top income tax rate was cut but only about 10%. Dividends, however, were placed in a special category that effectively amounted to a 20+% cut; captal gains were cut again (Clinton had already cut them somewhat); and inheritance taxes, which NOBODY except the extremely rich paid, were cut. The reason is obvious -- unlike Reagan, Bush 43 was raised in the culture of the super-rich. The earnings for his class came in the form of dividends, capital gains, and inheritance.

This difference is quite significant, because it points up the difference between the political forces which were at work here. Reagan was surely supported by the wealthy, and to be sure they benefitted from his tax cuts. But so, to some extent, did everyone else, especially from the principle of indexing tax rate to inflation, which had been clobbering the middle class before. The middle class ended up paying more in taxes under Reagan not because the income tax cuts didn't help them, but because the PAYROLL TAX INCREASE offset these cuts and then some. This was regrettable but it cannot be called mean-spirited, because there was a reason for the payroll tax increase -- to provide the funding for the anticipated baby boomer retirements. That payroll taxes are regressive is surely true and Reagan did nothing about that, but a payroll tax increase was needed for reasons unrelated to class war.

Bush's tax cuts were class war -- plain and simple. His income tax cuts were deeper for the higher brackets and brought a pittance to the lower ones. He never cut payroll taxes. He drastically cut dividend taxes, which almost nobody in the middle class pays in significant amounts (since their stock holdings are almost entirely in tax-sheltered accouns). The same is true of his capital gains tax cuts. His inheritance tax cuts were a gift to people who, by definition, didn't earn the money they saved.

So the next time you hear another Republican praising Reagan's tax cuts, mark him down as an idiot or a liar. Today's tax cutters are class warriors, out to promote the welfare of the super-rich at the expense of the middle class, and as all the numbers show, doing a great job of it.

Are you saying today's conservatives have mistaken a Bush cut for a Reagan cut? Your analysis of Reagan's motivation for cutting margin rates is dead on, and it is the classic argument that economists make for low marginal rates; that is to say, high marginal rates discourage productivity.

I'm a physician, and I used to work for a large clinic that had a high "tax rate"--the overhead was high and we docs kept only about 40 cents on the collected dollar (average is more like 50 cents, well run practices go 60 or 65 cents on the dollar, in my specialty).

I used to mow my own lawn--took about an hour--rather than stay late and work another hour in the office seeing patients. I did the math in my head. Once I had "enough" income I focused on lifestyle. One hour of seeing patients, net receipts, less the "tax" meant less money in my pocket than what I was paying the high school kid to mow my lawn. Besides, I got some exercise and was outdoors. Was I an idiot--better life style and more money in my pocket? And the high school kid didn't get the income for mowing my lawn.

Do we really want to encourage people not to work? Besides, for the average guy to get "rich" is not through capital gains but by hard work, keeping enough of his paycheck to invest it and let that money grow.

Social Security went up 4/10's of 1% during the Reagan era--or a guy making 40k a year pays 160 bucks a year, or 13.33 a month more. This is hardly screwing the middle class.

I read an article recently by OECD (an international group that studies social and economic problems). The conclusions of this article is that capital gains taxes are the LEAST efficient means of tax collection and the most disruptive to the economy. Income taxes are second least efficient/disruptive. Second best is a consumption (sales) tax. Best are property taxes.

Just one more question: do you view Obama as a class warrior, too? That he's just pitting different classes against each other than Bush would?

Where in the world are property taxes used to generate national tax revenue? I would guess nowhere and certainly not in any of the OECD countries.

Sales taxes are very regressive. They are not a stable source of revenue for government since consumers cut back purchases in a recession. They have the benefit of collecting some revenue from the vast underground economy.

Slasher:

Lets put a few numbers behind all of this for you about the impact of the Social Security Withholding Tax:

"For many middle- and low-income families, this tax increase more than undid any gains from Mr. Reagan's income tax cuts. In 1980, according to Congressional Budget Office estimates, middle-income families with children paid 8.2 percent of their income in income taxes, and 9.5 percent in payroll taxes (SS). By 1988 the income tax share was down to 6.6 percent -- but the payroll tax share was up to 11.8 percent, and the combined burden was up, not down."

I think what people tend to forget is the SS Withholding tax goes directly into the General Funds and is used for anything. The net effect of the increase was a 7 tenths of 1% tax increase on anyone making less than the cap over 8 years. Did the SS Withholding Tax need to be increased so much? No. By law all that is needed to make it viable was to have 1 year of payout in the TF. Did the increased SS Withholding Tax created the much bigger TF? No, the economic surge during Clinton's tenure did the trick with more people working and making more.

In 1982, Reagan did reverse course and increased taxes. Deficits were increasing and revenues were down. <link> "The Great Taxer" For those who believe that cutting taxes increases real revenues per capita:

1973-1979: 2.7%
1979-1990: 1.8%
1990-2000: 3.2%
2000-2007 (probable peak): approximately zero

<link> "Reagan and Revenue" The increase during Reagan's tenure came as a result of inflation and population growth.

The link you provided again points out that the combined FICA and income tax went up 7/10 of 1% --granted, an increase but not a staggering one, 280 bucks a year, bit over 23 bucks a month on a 40K income. As for the tax increase, it was not on income but on dividends and various other sources of revenue. Remember also that the SS increase was made in secure solvency for the program. The much maligned and formerly revered Greenspan was part of this fix.

Part of Obama's plan is to increase the ceiling on which affluent tax payers pay withholding tax (albeit with a "hole in the donut). Though SS currently runs a surplus, you are right that this surplus is directed to the general fund. This is right because it falls only on the "rich," but wrong when it falls on the middle class.

FYI--the unified budget was the creation of LBJ and the Democrat controlled House and Senate, 1968

s-t-d: Your response here is quite unclear, because I'm having trouble following which rates you're talking about. You make a number of points, which I'll try to address. As I see it:

-- the FICA rate (not including Medicare) was 10.18% in 1980 and went up to 10.7% in 1981, 10.8% in 1982 and 1983, 11.4% in 1984-1987, 12.12% in 1988, and 12.4% in 1991. The income threshhold at which the FICA rate went to zero increased steadily over the entire period, but never went beyond the income of, say, a well-paid computer technician.

-- the top income tax rates going into 1980 were 50% for earned income and 70% for unearned. Reagan changed this to 50% for all forms of income for 1982-1986, then to 38.5% in 1987 and 33% in 1988.

However, any effort to combine the two rates and thereby make the claim that the increase was only (whatever)% is bogus. If your income was below the FICA threshhold, you got socked for the increase in FICA and recouped something from income taxes, but if you were in the highest brackets you paid a tiny fraction of the increase on a percentage basis (because most of your income was sheltered from FICA tax) while getting the full benefit of income tax cuts. My argument in my original post was to contrast Reagan's tax cuts vs. Bush's, but I would never argue that Reagan's tax cuts benefitted the middle class at anything resembling the rates it benefitted the wealthy. The difference is that Reagan was focused on the tax that affected his life the most -- the income tax.

Your assertion in an earlier post that the serious money is made from hard work is simply nonsense. The great fortunes in America ALL came from capital stock appreciation, with very, very few exceptions (e.g., Ronald Reagan). Bill Gates and Warren Buffett aren't billionaires because of their salaries -- surely you know this. Michael Dell worked hard, I have no doubt, but his wealth is in Dell stock, not his paycheck. Rentiers living off the wealth accumulated by their ancestors usually make virtually zero income -- dividends and capital stock sales make up their income. Reagan cut their taxes too, but Bush specifically targetted those whose income was NOT from hard work.

Money is made from hard work by the working and middle classes, and if you want to complain that their tax rates are too high, my response is that I'll sympathize with you when you make a proposal that replaces the taxes they pay with taxes to be paid by the super-wealthy. Tax money has to come from somewhere. We need armed forces; we need cops; we need schools; we need roads and bridges; we need FEMA and the FDA and the SEC. Yes, there's waste and fraud, but that doesn't mean we don't need these things. I believe it was Oliver Wendell Holmes who said that "taxes are the price I pay for civilization."

You want to cut taxes on people in one bracket, you have to raise them somewhere else. My own view is that the wealthy have a much better ability to pay than the middle class and should pay much higher rates. WHAT the rates are, of course, depends upon the needs of the country at any given time. During WWII, the rates were confiscatory but still not as high as what Hitler would have exacted from us if we did not pay those rates in order to defeat him. Today, they need not be that high but it's OBVIOUS that they're not high enough, because we have been fighting two wars with borrowed money, even when the country was NOT in a recession or anything like it.

So if what you're saying is that money made by hard working people should be taxed at lower rates so that hard work is encouraged, my answer is: fine, but then we must tax income made in OTHER ways (dividends, capital gains, inheritance) at much higher rates than at present. In fact, of course, dividends and capital gains under Bush are now MUCH lower than they are for those for money earned by hard work.

You're correct that Obama has proposed to increase the FICA threshhold, and in a manner which is designed to affect only the affluent -- I believe the target is those making over $250,000. The Moynihan-Greenspan FICA increase of the 1980s was designed to ensure that the Baby Boomer retirements would be adequately financed and, in fact, it came fairly close, though falling somewhat short due to life expectancy increases. Obama's proposal falls unequally on the taxpayers who are best able to afford it, and who are in the top 3% earning class. It is true that some of them earn that much by working hard. It is also true that many of them earn it by clipping coupons. I think Obama's proposal is by far the most reasonable way to get over what is, after all, a TEMPORARY problem.

As for the unified budget, yes, Johnson created it, and you may have noticed that the Republicans have been in power since then for 28 of the 40 succeeding years and not one has ever proposed going back to the old way, because the SocSec surplus has been a convenient way to pretend that deficits aren't as bad as they really are. What the unified budget means, in essence, is that SocSec funds are being invested in US government bonds, which seems prudent for the most massive pension plan in the world.