OPINION:
President Ronald Reagan made history 45 years ago when he signed the largest tax cuts ever at his beloved California Rancho del Cielo. His actions were part of a major economic boom that lasted well past his presidency into the next decade.
Prior to his election in 1980, Americans faced stagflation, a mixture of stagnant economic growth, very high unemployment and rapidly increasing inflation. Typically, inflation and unemployment move in different directions, but both rose dramatically during President Jimmy Carter’s administration.
During the 1980 campaign, candidate Reagan made this issue the centerpiece when asking Americans if they were better off than they had been four years earlier. They were not.
Reagan told people: “Recession is when your neighbor loses his job. Depression is when you lose yours. And recovery is when Jimmy Carter loses his.”
The voters responded, with Reagan carrying 40 of the 50 states. It was a blowout that gave him a resounding mandate. He used it to take swift action, including passage of his tax cuts with the support of many Democrats, who held the majority in the U.S. House of Representatives.
The Economic Recovery Tax Act of 1981 was signed on August 13 of that year. It lowered federal income tax brackets across the board by about 25%. Prior to the reductions, the top marginal income tax rate was 70%. When combined with the Reagan tax cuts five years later, the top rate went down to 28%.
President John F. Kennedy had pushed for similar tax cuts two decades earlier. His plan was passed in 1964 and moved the highest income bracket from 91% to 70%. The lowest income bracket fell from 20% to 14%.
The original income tax cut champions were President Warren Harding and President Calvin Coolidge, who took over after Warren’s death. They slashed the top marginal rates down to 25% a century ago. The Roaring ’20s saw robust economic expansion, reduced unemployment and federal budget surpluses. That would be something to see today.
Dr. Arthur Laffer frequently speaks with students through a partnership with Young America’s Foundation. A key economic adviser to Reagan, he is considered the father of supply-side economics, which holds that economic growth comes from making more goods and services. Lower taxes and less red tape help businesses produce more.
The extensive research of Dr. Laffer and his colleagues showed that high taxes caused capital flight, stagnation and tax avoidance as earners shifted their focus away from real economic activity.
In contrast, good things happened during the era of tax cuts pushed by Presidents Harding, Coolidge, Kennedy and Reagan.
Dr. Laffer has consistently argued that high tax rates crush productivity and shrink the tax base, while tax cuts spur output, employment and overall prosperity by rewarding production and investment. His explanation of the sweet spot for taxation is commonly referred to as the “Laffer Curve.”
Here in Wisconsin, we call it the Kohl’s Curve. In fact, I was at the Kohl’s store near our home in Delafield tonight with my wife, who was returning a few items she purchased via Amazon and buying some other items.
Years ago, I learned from Tonette to wait to buy things at Kohl’s until they’ve gone on sale. Then we have used a coupon to drop the price further. Often, we lower the cost even more with something called Kohl’s Cash.
How does a major retailer like Kohl’s make any money if it keeps lowering the price of merchandise? Volume.
Kohl’s and other retailers could keep prices high and make more money per product — but sell a small number of items. Or it can lower the price, making less per product but more overall by dramatically increasing sales volume. Most successful retainers fit into the second category. Hence, the Kohl’s Curve.
Lowering tax rates puts more money into the hands of people who invest those dollars into more jobs, higher pay and greater productivity. Dr. Laffer notes that history shows that low-income earners actually fare better when tax rates are lower on the top income brackets. They fare worse when these go up.
As Dr. Laffer states, these are not opinions; they are the facts. Think about them the next time a democratic socialist launches into a “Tax the rich” tirade.
We need to teach high school students basic economics (along with objective American and world history) so they can make informed decisions — and not solely emotional ones.
• Scott Walker is a columnist for The Washington Times. He was the 45th governor of Wisconsin and launched a bid for the 2016 Republican presidential nomination. He lives in Milwaukee and is the proud owner of a 2003 Harley-Davidson Road King. He can be reached at swalker@washingtontimes.com.
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