THE POOR, THE RICH, TAX CUTS AND PROSPERITY
By: Kevin Heckle
Jesus said we would always have the poor among us, which despite the best efforts of our government is still true. There is a lot of talk these days about the inequality of wages between the haves and the have-nots. We’re also told that the middle-class is shrinking and an increasing number of Americans are living below the poverty line. While the number of people living below the poverty line has increased, proportionately the percentage of the total American public living in poverty hasn’t changed all that much. More Americans are living below the poverty line because, well there are just more people. In 2011, 15.1% of Americans lived below the poverty line which is about the same rate as it was in 1965, one year after LBJ declared the ‘War on Poverty’. The year I was born (1964) the rate was 19% and fell dramatically throughout the 1960’s. By 1973 it was at its lowest and then began to increase dramatically during the last few years of the Carter administration. The first two years of the Reagan administration, the level was about where it is now at 15% and then fell through his presidency to just below 13%. Bush Sr. saw an increase during his presidency and by the second year of Clinton’s first term it peaked again at over 15%. The Clinton presidency began and ended with a recession. However, he enjoyed one of the longest sustained booms in our history, mostly due to the technology revolution of the 90’s. By the end of his term though, the poverty rate had fallen to just below 12%. The percentage of people living in poverty crept up after 9/11 to slightly above 13% and hovered there until 2008. From the beginning of 2008 until September of 2011 (the latest data from the US Census), the percentage rose 2%, rising very sharply due to the ‘Great Recession’. I wondered then, what were the circumstances during my lifetime that led to decreases or increases in the poverty level. Did LBJ’s ‘War on Poverty cause the dramatic decrease of the 1960’s? THe legislation was mostly designed to increase the health, education and opportunity for poorer Americans and not necessarily increase them monetarily. I believe it was something else.
Before he was assassinated, JFK proposed a 20% tax cut for the top marginal rate (for the 1% top earners). After he died the Congress approved his proposal in February of 1964. In the first year of the tax cut for the one-percenters, the GDP went up by 10% (a strong case for freeing-up capital) and it averaged a 4.5% growth rate for the next 4 years. In 1966 alone, disposable income rose by 15% for the average wage earner. Reported tax revenues increased by a whopping 60% by 1968. Everyone was better off, arguably because the taxes on the richest were decreased. As an added bonus the Federal government had more money to spend. Even though taxes had been cut for the richest Americans, they paid more in taxes because they were earning more money! The percentage of poor people in America only began to increase again after the oil crisis of the mid-1970’s. Poverty popped back up above 15% until the end of 1981. Reagan also proposed tax-cuts for the one-percenters, lowering the top marginal rate from 71% to 50%, and then again in 1986 to 28% by Congressional approval. The poverty level declined from 15% to 13% during Reagan’s two terms. However, it wasn’t all good. The national debt more than doubled during his tenure. Bush Sr. made his famous ‘read my lips’ speech before capitulating to new taxes in 1990 as a recession depleted the Federal coffers. Poverty increased though, until the technology boom took off in the 90’s. Clinton and the Democrats implemented one of the largest tax increases in history in 1993. However, the increase in revenues didn’t match the scale of the tax increase. It wasn’t until 96-97, when the new Republican Congress passed welfare reform and reduced the capital gains tax rate from 28% to 20%, did the IRS receive significant increases in revenue. Whether or not it was a consequence of welfare reform and capital gains tax decreases, the percentage of those living in poverty fell below 12% just a few years later. When GWB came into office on the heels of a recession in 2001 the percentage of those in poverty had crept back above 12% but remained less than 13% for most of his presidency until the summer of 2007. Fuel prices skyrocketed and the housing crisis ensued. Big increases in fuel costs in the 70's and in '08 had a big impact on poverty rates. While GWB cut taxes he also spent more money increasing entitlements as well as military outlays due to the War on Terror. The apparent result was neither significant increases nor decreases in the percentage of Americans living in poverty for most of his tenure.
Three times in my life then, Presidents (JFK, Reagan and Clinton) have lowered taxes on the top earners, resulting in more tax revenue, more taxes paid by the top earners and decreases in the percentage of those living below the poverty line. In each case, the middle class benefitted as well, with more disposable income and prosperity in general. The compassionate-conservatism of GW Bush led him to cut taxes across the board but also increase entitlements (like the Senior Prescription Drug program). Coupled with war, setting interest rates and more liberal housing initiatives, our national debt public and private skyrocketed. The burden of debt causes us all to edge more closely towards the poverty line. Taxing the rich isn’t the answer though, as proven by JFK, Reagan and Clinton.
Helping the poor by taking treasure from one targeted group to give to another really doesn’t help the poor rise out of poverty. It also decreases the liberties of everyone. Raising all Americans by less debt, less government spending and more private investment has proven to move the poor towards prosperity and dignity far more successfully than the subsidization of poverty with tax dollars ‘trickled-down’ through government programs. I hope that our leadership focuses more on “growing” wealth rather than spreading it around in the coming years. Otherwise, we could all be riding the wave of poverty.

Kevin H.