Now, in case you didn’t see it, please rush out, get today’s Wall Street Journal, and read James Freeman’s fabulous column: “How about Reagan-Style Reconciliation?” All right. I was there as a young man, deputy in the Office of Management and Budget, and it’s all music to my ears.
Basically, President Reagan’s tax cut magic. The first major vote was roughly 45 years ago, July, 1981. Reagan’s big tax cut bill passed the House by 238 to 195 votes. It was a Democratic House, remember that. A bit later by the by, the Senate would pass it 89 to 11. It was a Republican Senate.
The Gipper signed the legislation at his ranch that August. Now, this was absolutely the key element to the Reagan revolution, which was a supply-side revolution, which basically argued that you lower taxes to promote growth, jobs, wages, wealth, and a strong national security. Reagan’s tax cuts brought joy and prosperity to a whole nation desperately in need of both.
Now, as Art Laffer puts it, if you tax something less, you get more of it. You tax the whole economy less as Reagan did, and the economic pie grew larger and larger. In other words, incentives matter. If you keep more of what you earn, you’re going to work harder, invest more, take more risks, and the economy grew. Those 1981 tax cuts helped the economy roar. With real growth of about 5.5 percent per year for more than seven years during Ronald Reagan’s two terms.
The stock market roared, as did jobs, and frankly, the whole national morale roared. It was so demoralized during the Carter years, but under Reagan, the animal spirits and the happiness indexes just jumped off the page. And the enormous growth in the American economy created the resources that ultimately Mr. Reagan used to destroy Soviet communism. Peace through strength was an integral part of supply side economics. Mr. Freeman does a wonderful job of reminding all of us of the phenomenal benefits of Mr. Reagan’s supply side tax cuts.
And yes, Mr. Laffer’s curve, the famous Laffer Curve, where he suggested that lower tax rates would produce higher tax revenues with more economic growth and less tax avoidance. Well, it worked out very well. The revenue base actually jumped by almost 25 percent during the whole Reagan boom.
Now, remember, Tip O’Neill was the liberal Democratic speaker. He opposed the Reagan tax cuts, but he got rolled. In the House, 48 Democrats voted for Reagan, who himself, by the way, started out in politics as a Democrat.
What a list of tax cuts. The 25 percent income tax was the headline led by the late Jack Kemp. There were lower taxes on marriage, estates, inheritance, capital gains, interest, dividends, savings, retirements, and businesses. Oh my God. And it worked.
The tax cut magic worked. So I’ll just say, why not remember those days 45 years ago? I remember it very well. How about the Republicans today, thinking about the midterms, but more importantly, thinking about our whole national economy, our whole morale, our whole happiness, our national security. These are things that are helped and virtually solved by lower tax rates across the board.
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