Incomes Grew After Past Tax Cuts, but Guess Whose

Eduardo Porter
DEC. 26, 2017

Home for the holidays after passing the eighth-largest tax cut in United States history, Republicans could be forgiven for reveling in the warm embrace of nostalgia.

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Reagan’s cuts didn’t quite work as advertised.

Gross domestic product grew quickly during his two terms, averaging about 3.5 percent a year, pretty decent compared with the current measly pace. For one in two Americans, though — those in the bottom half of the income pile — income actually shrank on Reagan’s watch. In 1980, the year he was elected, they earned $16,371 a year on average, in today’s dollars, according to the World Wealth and Income Database. By 1988, Reagan’s last year in office, they had to make do with $16,268.

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The sliver of America that did get ahead was, you guessed it, the one at the tippy top: the richest Americans, those in the highest 1 percent of the income distribution. Their earnings grew by about 6 percent a year.

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President George W. Bush passed two rounds of tax cuts, in 2001 and 2003, arguing that the United States had a budget surplus “because taxes are too high and government is charging more than it needs.”

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And yet, during Mr. Bush’s two terms, the average income of the bottom half of Americans slid from $17,827 to $17,473, accounting for inflation. After factoring in taxes and transfers, that sum did increase — 3.5 percent, or about 0.4 percent a year.

The bottom half of Americans fared better under President Bill Clinton, who actually raised taxes. On average, their incomes rose by a fifth over his two terms, after taxes and transfers, a gain of over 2 percent per year, after accounting for inflation. Their lot also improved during President Barack Obama’s administration, census data shows.

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The average tax rate for Americans in the bottom half of the income pile was higher in 2014 than it was in 1980. The rate at the top declined.

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