Tax Rate Cuts and Economic Prosperity

Stephen Moore, writing in The Wall Street Journal, makes anew a number of points about the effect of taxes on a free market economy.

1920s: the Coolidge administration reduced income tax rates across the board, including cutting Woodrow Wilson’s WWI top rate of 73% to a peacetime rate of 25%.

  • Tax revenue to the Federal government doubled: the share of taxes paid those making more than $100,000/year ($1 million in today’s terms) rose from 28% to 51%.
  • Minor point: the economy boomed into 1928, raising the income and standard of living for all Americans.

1930s: the Franklin Roosevelt administration raised the top income tax rate to 63%, then to 79%, during the Great Depression.

  • This extended the Depression.
  • Post-war, those continued high rates (with the top rate now at 90%, a level reached during the war) slowed down the recovery and conversion from a war economy to a peace economy.

1960s: the original supply-sider, John F Kennedy, cut tax rates across the board by 30%, saying the lower rates would “boost the economy, produce revenues, and achieve a future budget surplus,” and be “an investment in the future.”

  • Tax revenue to the Federal government rose by 8.6%/year.
  • Unemployment fell to an historical low of 3.4%.
  • Those making $50,000/year (Obama’s $250,000-ers) saw their share of those tax revenues rise to 15% of the total from 12% prior to the rate cuts.
  • Those making $50,000/year also saw their tax payments, in absolute terms, rise 40%.
  • Those especially evil Americans making more than $1 million/year saw their tax payments in absolute terms rise from $311 million to more than $600 million.

1980s: the Reagan administration cut tax rates across the board, lowering the top rate first to 50%, then to 28%.

  • The economy roared.
  • Unemployment fell from the Carter administration’s historic highs to 5.3%.
  • Inflation fell from the Carter administration’s peak of 13.5% to 4.8%.
  • Tax revenue to the Federal government doubled from $517 billion to above $1 trillion.
  • The share of total income taxes paid by the evil top 1% of Americans rose from 18% to 25%.
  • The share of total income taxes paid by the evil top 5% of Americans rose from 35% to 44%.

2000s: the Bush the Younger administration (re)lowered tax rates across the board, this time, for instance, from 39.5% to 35% at the top.  The administration also lowered taxes on capital gains and dividends significantly.

  • Tax revenue to the Federal government rose by $780 billion.
  • Tax payments by millionaires generally doubled: the booming economy both created more millionaires and sharply increased their incomes.
  • The share of total income taxes paid by the evil top 1% of Americans rose from 35% to 41%.

The problem is, though, that President Obama and his fellow Progressives are fully aware of these data.  One has to wonder at Obama’s motives for demanding to raise tax rates.

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  1. Pingback: Progressives and Taxes | A Plebe's Site

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