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25years later, Reagan’s tax cuts are a global tide. Optimism Pays Off

By: Pam On: Nov/17/06 - 9 Comments

Daniel Henninger wrote this piece in the WSJ today. The premise of the piece is almost alone, the United States since those tax cuts has managed to remain both a growth country and a developed nation. I would encourage you to read it, but I am highlighting it here:

  • Economic growth was always the sine qua non of supply-side tax theory, the belief that lower marginal rates would incentivize people to work, save and invest.
  • So at its creation the supply-side idea instantly bogged down into an argument, alive to this day, over whether the tax cuts would “pay for themselves.” You know, the deficit, the budget, the “nonpartisan” economic models at the Congressional Budget Office, blah, blah, blah.
  • The Berlin Wall fell in 1989. Five years later this brought forth the second great wave of supply-side tax policy.
  • Communism had been running what might be called a 40-year demonstration study in life at one end of the Laffer Curve”what happens to economies when you tax away pretty much everything. Freed of this utopia, the peoples of Eastern Europe now had to devise new tax regimes appropriate to nations eager”for want of a better phase”to work, save and invest.
  • The first former Iron Curtain country to cut its taxes was Estonia in 1994, led by Prime Minister Mart Laar, who claimed then the only economics book he’d ever read was Milton Friedman’s “Free to Choose.” Estonia established a flat rate on personal incomes of 26%; two years earlier it had abolished all import tariffs. Estonia grew.
  • After Estonia, flat-tax regimes coursed across Eastern Europe, as listed below (bear in mind that the top rate in the U.S. is 35%): Lithuania, 33%; Latvia, 25%; Slovakia, 19% (the former sad sack of the region, Slovakia’s growing economy has become its envy); Romania, 16%; Ukraine, 13%; Russia, 13%; and Georgia, 12%.
  • Yes, payroll taxes are often high, but unlike here, the political impulse is to reduce the tax burden; Estonia hopes to get its flat rate down to 20% by decade’s end. Even the World Bank has noticed. In a September report on business reforms, it noted that the second most popular global reform the past few years, after easing regulations on new businesses, was “reducing tax rates and the administrative hassle of paying taxes.” Bosnia-Herzegovina, emerging from the Balkan wars, has cut property taxes.
  • During Ronald Reagan’s presidency, the top marginal rate on personal incomes dropped to 28% from 70%. In 1993 Bill Clinton raised the top tax rate to 39.6%. In 2001 George Bush pushed the top rate back down to 35% and cut the rate on capital gains and dividends to 15%. Last week former Clinton Treasury Secretary Robert Rubin exhorted the Democrats to raise taxes “to solve the nation’s fiscal problems.”
  • The Rubin Solution may not be easy. Even a Democratic Congress might realize that raising taxes today is swimming against the global tides. In reversing the Clinton tax increases, passed in another age 13 years ago, and spreading tax cuts to the financial sector, George Bush has driven the roots of the Reagan tax philosophy deeper. If he resists a grand compromise on entitlements that raises taxes, it may prove to be his most enduring legacy.

    • Oh, and did you know I consider Ronald Regan to the greatest POTUS ever?

    Posts Related to this one:

    Posted on: November 17, 2006 |

    Posted in: Economy, National News

    9 Responses to “25years later, Reagan’s tax cuts are a global tide. Optimism Pays Off”

    1. snowy egret
      November 17, 2006 - 10:18 PM on November 17th, 2006

      Hey were,nt these the tax cuts that was suppost to hurt the poor and help the rich? isnt that what all the yammering liberals were saying all the time?:razz:

    2. Peejz
      November 19, 2006 - 07:25 AM on November 19th, 2006

      2- do you even know what that means, or did you cut it and paste it? Please give an explanation for this with the benefits and drawbacks.

    3. Peejz
      November 19, 2006 - 08:17 AM on November 19th, 2006

      Wrong..you failed a business class:roll:

    4. TedintheShed
      November 19, 2006 - 01:10 PM on November 19th, 2006

      Great article Peejz.

      I found this interesting in the responses:

      “you know how much faith i put in upper class middle aged white women when they try to teach me abouot the economy, deficit spending, racism, poverty & government competence.”

      I am wondering exactly what makes shiloh such an expert on any of these topics? Better yet, what exactly shiloh stated above would disqualify you from knowing about any of those stated topics? In my mind, what disqualifies shiloh is his/her tendancy to use such ad hominen attacks. That is a sure sign of ignorance.

      For me, I grew up in poverty, so I can assume to know a bit about it. I know about government incompetence also as I have experienced it first hand. I also experienced the tide of growth President Reagen’s policies implemented, the fact that those policies led to virtually no cost to our children and the fact that some of President Bush’s similar policy has had sucessful results similar to the two other sucessful times such policies were implemented by both President Bush and President Kennedy.

      Yes- this type of economics wa sucessfully first implemented by President Kennedy.

    5. Peejz
      November 19, 2006 - 03:40 PM on November 19th, 2006

      Yes- this type of economics wa sucessfully first implemented by President Kennedy.

      You get the extra credit points for picking up on this! That is a secret that the left doesn’t want you to know!:wink:

    6. TedintheShed
      November 19, 2006 - 04:03 PM on November 19th, 2006

      Kennedy and Reagan had much in common with each other. Both were fairly moderate. Reagan was first a Democrat like Kennedy, and saw how the Dems evolved from Kennedy’s line of thinking and thus switched to being a Republican. They had similar economic and military views. They were both optimists.

      Also, both were great men, and history has shown they were great Presidents.

    7. Peejz
      November 19, 2006 - 04:13 PM on November 19th, 2006

      Both men believed in private enterprise..I don’t really link Kennedy to big government. Kennedy was smart enough to realize you could not prosper by taxing people and busness into the ground…with his cuts came great revenues..

    8. TedintheShed
      November 19, 2006 - 04:21 PM on November 19th, 2006

      Indeed Peejz, and they even had more in common than that.

      What amazes me is those that praise Kennedy in one breath and curse Reagan in the next.

    9. TedintheShed
      November 19, 2006 - 04:28 PM on November 19th, 2006

      Oh, and I loved this part of the article:

      During Ronald Reagan’s presidency, the top marginal rate on personal incomes dropped to 28% from 70%. In 1993 Bill Clinton raised the top tax rate to 39.6%. In 2001 George Bush pushed the top rate back down to 35% and cut the rate on capital gains and dividends to 15%. Last week former Clinton Treasury Secretary Robert Rubin exhorted the Democrats to raise taxes “to solve the nation’s fiscal problems.”

      The Rubin Solution may not be easy. Even a Democratic Congress might realize that raising taxes today is swimming against the global tides. In reversing the Clinton tax increases, passed in another age 13 years ago, and spreading tax cuts to the financial sector, George Bush has driven the roots of the Reagan tax philosophy deeper. If he resists a grand compromise on entitlements that raises taxes, it may prove to be his most enduring legacy.

      You see, what economist neophytes like shiloh doesn’t understand is that even if the highly unlikeley scenerio of 0% economic growth was factored in, the tax cuts afforded to the next generation alone offsets the deficit imposed upon them today.

      Bottom line: tax cuts are a win/win scenerio. If followed by a decrease in governement size, it is win/win/win. this is something that many folks do not comprehend, especially those who believe in the entitlement society.

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