U.S. History 1877-Present 13.2b: Reagan and Taxes

Hey, someone let us know if you see some money start to trickle down from the sky. We've been waiting a few decades, it should be here any minute.

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U.S. HistoryU.S. History 1877-Present

Transcript

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legislation in Reagan's first term. Well what did it do? Well just cut federal [People walking along a beach and talking]

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income taxes by twenty-five percent for everybody in America, Ronnie was making it

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rain. What was a little crazy is that while he was all about tax cuts Reagan [Money raining down on a woman]

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also was all about having a balanced national budget. Well unfortunately he

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left office with a giant national debt. See Reagan subscribed to the ideas of an [An elephant with 'giant national debt' written on it]

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economist named Arthur Laffer with a name like that Reagan should have known his

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ideas were potential fodder for some really good jokes. Well Mr. Laffer [Man making jokes about Laffer's name]

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convinced Reagan that lower taxes would actually create more tax revenue for the

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government. How? Well if folks had more money from being taxed less they'd probably

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go and spend their newfound riches. While this spending spree multiplied by millions people [Laffer and Reagan smiling]

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would grow the economy, ultimately generating higher tax revenues for the

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government. Okay that might not sound totally insane but even other

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conservatives were skeptical of this idea take George HW Bush for example. [Businessmen drinking coffee]

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When he was going up against Reagan in the nineteen eighty Republican primary

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Bush Senior called Reagan's ideas voodoo economics. Not that that stopped him from [Voodoo doll appears infront of Reagan and Bush]

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being Reagan's VP for eight years. Maybe Reagan had a secret Bush voodoo doll or something. [Bush campaigning with Reagan and his wife]

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But it turns out that Bush was totally right to laugh at Laffer's ideas.

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Government tax revenues remained stagnant from 1981 through 1984 and tax

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cuts did not equal more tax money for the government. Laffer probably cried [The Capitol Hill]

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which we'd imagine went against his laughing nature. Government budget

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deficits got more and more out of control so much so that Reagan finally [Footage of a roller coaster]

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had to admit defeat and agree to a series of small tax hikes, and keep in

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mind Reagan raising taxes was like Captain Crunch get caught eating Frosted [Captain Crunch sat with a bowl of Frosted Flakes]

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Flakes. These increases offset many of the gains individual taxpayers reaped

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Reagan initial 1981 tax cut. Individual tax savings were further eroded by [Increases in tax outweighing gains on a scale]

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Reagan's 1982 Social Security reform package which increased payroll taxes

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to fund the National retirement system. Taxpayers took another head when state

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taxes were raised to make up for the federal money Reagan wasn't sending the [Baseball bat hits an apple and it explodes]

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states anymore. Well hey it's got to come from somewhere, bake sales of cookies

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can only go so far. Well in the end America's total tax burden from all sources state

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and local taxes, federal income and capital gains taxes and payroll taxes [Man in American flag shirt is weighed down by all the taxes]

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remained basically unchanged throughout the 1980s. That extra twenty-five percent

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everybody got back in nineteen eighty-one was steadily nibbled away the

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government tax collectors were kind of like those little fish that eat calluses [Fish nibbling at someones foot]

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off people's feet. So Reagan despite his reputation as a tax slasher didn't

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significantly slash taxes for all he did however manage to redistribute this tax [Reagan dressed in a cape with a sword trying to fight tax]

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burden significantly. How did that happen? Well he cut income taxes which are paid [Reagan falls over]

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at a higher rate by the wealthy this meant that the total taxation rate for

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the wealthiest one-fifth fell by about five percent, while the richest one

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percent's rate fell by about fifteen percent. Well, it also probably meant that

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everybody got a yacht for their birthday right? Good for them we guess but the [Yacht arrives at a birthday party with a ribbon on it]

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inequality comes in when Reagan raised payroll taxes which are paid at a higher

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rate by the poorer. This meant the total effective federal taxation rate for the [Builders working at a yard]

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poorest one-fifth of american families actually increased by more than sixteen

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percent. The idea was that she using the tax burden on the rich would allow them [People walking around a yacht]

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to invest and to create new businesses and expand the ones they already control.

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Then more jobs would be created and the wealth would just trickle down to the [People working in a factory]

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lower classes. But it just never quite worked out like that as far as we can tell.

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To be poor in the Reagan era was about as fun as a hernia operation which is to [Bird drops poop on a mans face]

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say, that's fun not fun at all unless you like hernia operations in which case [Surgeon holding up a needle]

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well you do you...