1987 I walked into a college classroom as an educator for
the first time. Ronald Reagan was in the
last two years of his second term and the American economy was churning at full
steam. Since the fall of 1982 the
American economy had grown by near-record amounts for a nation at peace. The nation was on the way towards creating 20
million jobs with falling inflation and unemployment rates.
During those years teaching college students the
principles of capitalism was easy. They
were living through evidence that when allowed to pursue one’s self-interest –
and keep the fruits of their labor – an economy could lift the standard of
living up and down the income scale.
It is important to note that in 1981 when most of my students were in
middle or high school the top marginal income tax rate was 70%. Reagan had reduced that figure through two
tax cuts that dropped the top income tax bracket to only 28%. My students knew that when they graduated
they would be free to pursue their careers and start businesses without being
shaken down by the IRS.
Today my students do not have the same reason to be
optimistic. They have seen their parents
suffer the vestiges of the ‘Great Recession’.
They have grown up during a time when crony capitalism has invaded the
halls of Congress while rising tax rates and historic increases in federal
regulations have sapped the energy our nation’s economy needs to create real
economic growth. By every measure, the
2009-2016 economic recovery is the weakest since World War II. Even our falling unemployment rate masks the
reality that nearly 90 million Americans have withdrawn from the labor force,
while others work only part-time or in jobs that do not match their skills,
training or education.
In the wake of this new reality facing America’s young
people it would seem to make the most sense that they would be looking for
another Reagan. For my students who
identify as Democrats I have walked them through John F. Kennedy’s massive tax
cut in 1963 and Bill Clinton’s final six years when taxes on investments,
savings and home sales fell and sane fiscal management of the budget prevailed.
Yet, my students – like millions of other young voters –
seem to believe that Bernie Sanders can save their futures. Sanders, with his plan to provide Medicare
for all; free university tuition; increased social security and family leave
benefits, is an economically seductive candidate for people who are afraid that
they have no economic future and therefore need economic security from that
future.
However, as an economics professor, my job in an election
year is to compare and contrast the major candidates economic plans and point
out deficiencies in each.
This is where the Bernie Sanders wake-up call has
occurred.
When my students see his tax plan that increases income
tax rates on low, middle and upper-income workers – with rates rising to more
than 54% for top earners – they learn that In America’s 102 year history of
rising and falling income tax rates, in decades when marginal rates fell (see
the 1920s, 1960s and 1980s, for example), the economy boomed and the government
actually received greater tax revenue.
In time periods when the government adopted a “soak the rich” mindset
(1930s, 1970s and in recent times) the economy performed poorly and revenues
never rose by as much as was predicted.
Moreover, they have learned that the Sander’s spending
plans – which the Wall Street Journal has estimated would total $18 trillion –
would further increase the national debt, and would saddle their generation
with massive tax and interest rate obligations and make their college degree
worth less - all in the name of
expanding the social welfare network.
In short, young people today are pinning their hopes on a
fairy tale. That fairy tale informs them
that they can get free things from the government and no longer live with so
much worry.
When they see that nothing is free and that they will
have to pay for Bernie Sanders imitation of Santa Claus, that is when the real
worrying begins.
