Stephen Moore of the Wall Street Journal editorial board recently spoke in Raleigh on the topic “Prosperity in Peril.” Moore believes the economic benefits tied to the Bush tax cuts could be in jeopardy under the next presidential administration. He discussed the topic with Mitch Kokai for Carolina Journal Radio. (Click here to find a station near you or to learn about the weekly CJ Radio podcast.)
Kokai: President Bush has taken heat from conservatives for his spending plans, his immigration policy, and his decision to back a major addition to Medicare, among other things. One area in which conservatives have continued to praise Bush has been his tax policy. But as George W. Bush prepares to leave office, what is the future of that highly praised tax policy? … Does it look good or bad for this tax policy he’s had in place?
Moore: Well, the tax policies are very much in peril. And remember what we are talking about here. In 2003 President Bush reduced the capital gains and dividend tax and then reduced income tax rates. I happen to think those had a very positive effect on the economy. It helped turn us out of that recession we had in the early 2000’s when the stock market collapsed. And so we have had very strong growth until very recently in the wake of those tax cuts. I think if we were to repeal them, it would throw the economy into a serious recession. So it is imperative that we make them permanent. The problem we face is that Congress does not have to repeal them. All they have to do is just let them expire, and without any act of Congress they automatically go away. That all would happen at the end of 2010.
Kokai: And you have some concern that you outlined in some presentations here in Raleigh, North Carolina, about what’s going to happen with the next administration, whoever the president is.
Moore: Yeah, because, you know, … Barack Obama [has] said: “Repeal the Bush tax cuts. We can’t afford them.” By the way, in the four years after we passed the Bush tax cuts, federal tax receipts went up by $700 billion, so we actually got more receipts in after the Bush tax cuts than we got before the Bush tax cuts. Even John McCain is … he said he’s going to keep them permanent, but he voted against them. So I think that there is some suspicion that he might go along with a deal with the Democrats to get rid of those tax cuts.
I happen to think right now that the U.S. economy needs more tax cuts, not less. If you look at what’s happening around the world, all the countries that we are competing with are trying to get more competitive, attract more capital in businesses by cutting their tax rates. In fact, they are using the American Reagan model to become a more efficient economy. The only country that is really talking about raising tax rates is the United States.
Kokai: One of the more impressive pieces of the presentation you put together is the data that show what has happened to expand the economy since 1980 — basically, since Ronald Reagan was elected and came to office in early ’81. What are some of the main things that people should know about this timeframe?
Moore: Well, I think three things really happened with the economy in the early ’80s that turned things around and created a terrific 25-year boom in prosperity that really began in the early ’80s and has lasted through today. One of those would be the reduction in tax rates in the 1970s, when the 70 percent tax rate, now we have a 35 percent tax rate. That has attracted a lot of business formation. No. 2 was the reduction in inflation. Don’t forget that in the 1970s we had 10 percent, 11 percent, 12 percent inflation rates, which really had a negative effect on investment. And the third was we really expanded global trade. We reduced trade barriers around the world. And that helped America increase its exports and imports.
And I worry about the direction of each one of those. I’m worried about maybe inflation coming back, as you look at the reduction in the value of the dollar. I am worried about the future of the tax cuts as we just talked about. And I am worried about the future of free trade because in Ohio and Pennsylvania Barack Obama … said no more free trade. We’re going to get rid of the free trade deals we already have. That would put the American economy in great jeopardy.
Kokai: Another piece of your presentation that was quite interesting was the fact that some of these candidates — when pressed — will say that they are not going for these higher taxes, tax rates, because they want more money for the government programs, but just because they think it’s fair.
Moore: Right. And this is the point about the capital gains tax. You know, when we cut the capital gains tax we have increased by double the amount of revenues that have come in. So let me say that again: we cut the tax rate, but the amount of money that has come in from that tax has doubled. So it’s been a success in all regards. And it’s also led to more, a better stock market and so on. And so if you repeal those tax cuts, I think it will hurt the stock market, but it also … may actually lead to a reduction in the amount of tax receipts that come into the government. So it is a self-defeating policy. And yet … Barack Obama [has] said, “Well, that doesn’t matter because what’s really important is that we have a fair tax system.” I think he regards a fair tax system as one that produces less revenues than the one we’ve got now.
Kokai: You also mention that when the top marginal rate in income tax was cut, the share paid from the richest Americans in each particular year went up.
Moore: Yes. There is, you know, no doubt about this, that over the last 25 years the share of income tax paid by the richest … the richest 1 percent has doubled from 19 percent to 38 percent. So the rich, in my opinion, are paying their fair share. In fact, they are paying more than their fair share. They are carrying a huge percentage of the load. The top 10 percent of Americans today pay about 80 percent of the income tax. So it’s a system that is already pretty heavily skewed on the backs of the richest. And by the way, they are not just rich, those people. A good percentage of those people are small business owners. Now those are the people who create the jobs in the economy. How are you going to get more jobs if you are taxing the people who create the jobs?
Kokai: You mention that this economy probably needs more tax cuts. If you were on the staff of the next president and said, “Okay, here is your economic plan to help us….”
Moore: Oh, I want a flat tax. I really do. I mean, this is happening all over the world. It was such a great idea because it, first of all, brings tax rates down, which is good for economics. So you have less distortion. No. 2, it gets rid of all the loopholes — all the special-interest corporate loopholes for one company or one industry over another, you know, that these lobbyists get for their corporations, which is not fair to the average American. So it creates a fair system. And then it also has the virtue of being simple. So, you know, now with this flat tax, I mean, literally, you would have a postcard tax return. People filled out their taxes on April 15. The average worker took 28 hours to figure out their taxes. Now it would take you 28 minutes to do it. I mean, that’s a big saving in aggravation and time and money.
Kokai: And if someone says, “Well, that’ll never happen,” you can point to other countries.
Moore: That’s for sure. Thank you. You’re paying good attention today. You’re right. There are now, I think, 24 countries that have flat taxes. Just 10 or 15 years ago there was only one country that had it. So this has become something that is spreading around the world. And the good news is those countries that have a flat tax, whether you are talking about Poland or Czechoslovakia or Ukraine or Estonia, all those countries have really booming economies.
Kokai: What should people hearing this say to their congressional representatives or to the candidates for president, if they have a chance to get their input about what they want to see economically?
Moore: Well, I’ll go back to what I just said. I do believe that we need to have a flat tax. If we had a flat tax that did not tax capital gains and dividends and investment income and it was a low rate, there is no reason we can’t see another 25-year boom in this country like we just had, where America is the global leader in all the most important industries, where we create, you know, another 40 million jobs as we have done over the last 25 years. I mean, it is really simple. If we do a flat tax, we keep our markets open, we keep inflation under control, we can see the 21st century being the American century just as the 20th century was.