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Idea of the Day: Inequality Is Holding Back Our Economy

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For more than 30 years, conservative politicians have tried to sell Americans on the notion that giving tax cuts to the wealthy will spur economic growth and job creation, generating broad-based economic prosperity. Their marketing of this “trickle-down economics” has been successful: After decades of campaigning, many Americans now accept the oft-repeated assertion that lower taxes and less regulation leads to job growth. Congress followed suit, lowering tax rates sharply for the highest-income earners, while leaving tax rates relatively unchanged for other groups. When President Ronald Reagan took office in 1981, the marginal tax rate for the highest income bracket was 70 percent, but that fell to just 28 percent by the time he left office. Even after modest increases since then, the top marginal tax rate for top earners today hovers at just more than half of what it was in 1980 (see figure 1). At the same time, Congress and the courts have taken repeated steps to roll back labor and financial regulation, further contributing to the skyrocketing wealth of the top 1 percent.

Yet empirical economic data show that these misguided policies did not deliver on their promises, as our nation’s economy after the tax increases of 1993 significantly outperformed the periods after tax cuts in the 1980s and 2000s. Investment growth, productivity growth, employment growth, middle-class income growth, national fiscal health, and overall economic growth were weaker or declined under trickle-down policies.

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To speak with our experts on this topic, please contact:

Print: Allison Preiss (economy, education, poverty)
202.478.6331 or apreiss@americanprogress.org

Print: Tom Caiazza (foreign policy, health care, energy and environment, LGBT issues, gun-violence prevention)
202.481.7141 or tcaiazza@americanprogress.org

Print: Chelsea Kiene (women's issues, Legal Progress, Half in Ten Education Fund)
202.478.5328 or ckiene@americanprogress.org

Spanish-language and ethnic media: Tanya Arditi
202.741.6258 or tarditi@americanprogress.org

TV: Rachel Rosen
202.483.2675 or rrosen@americanprogress.org

Radio: Chelsea Kiene
202.478.5328 or ckiene@americanprogress.org

 

This is part of a regular column: Idea of the Day

For more from the same column, click here