Statistics that might make you question the wisdom of ‘taxing the rich’

If you agree with those who believe the United States should solve its fiscal woes by “taxing the rich,” you might want to read the following excerpt from a recent issue of Hillsdale College’s Imprimis, featuring remarks from former U.S. Sen. Phil Gramm, a Ph.D. economist.

The evidence is, I think, overwhelming: the Reagan program, when fully implemented in 1983, ushered in a 25-year economic golden age. America experienced very rapid economic growth and only two minor recessions in those 25 years, whereas there were four recessions in the previous 12 years, two of them big ones.

What exactly did Reagan do? For starters, he cut the top tax rate from 70 percent to 28 percent. And yes, high income earners benefitted from these cuts. But as I used to say in Congress, no one poorer than I am ever hired me in my life. And despite lower rates, the rich ended up paying a greater share: In 1979, the top one percent of income earners in America paid 18.3 percent of the total tax bill. By 2006, the last year for which we have reliable numbers, they were paying 39.1 percent of the total tax bill. The top ten percent of earners in 1979 were paying 48.1 percent of all taxes. By 2006, they were paying 72.8 percent. The top 40 percent of all earners in 1979 were paying 85.1 percent of all taxes. By 2006, they were paying 98.7 percent. The bottom 40 percent of earners in 1979 paid 4.1 percent of all taxes. By 2006, they were receiving 3.3 percent in direct payments from the U.S. Treasury.

In the 12 years prior to the Reagan program, economic growth averaged 2.5 percent. For the following 25 years, it averaged 3.3 percent. What about per capita income? In the 12 years prior to the Reagan program, per capita GDP, in real terms, grew by 1.5 percent. For the 25 years after the Reagan program was implemented, real per capita income grew by 2.2 percent. By 2006, the average American was making $7,400 more than he would have made if growth rates had remained at the same level as they were during the 12 years prior to the Reagan program.