As recently as two decades ago the federal government routinely took the lion’s share of personal income from highly productive taxpayers. Thanks to the Reagan administration, that situation has changed, a leading public policy analyst says.
Four presidents — Lyndon Johnson, Richard Nixon, Gerald Ford, and Jimmy Carter — were unable or unwilling to tame a tax burden that took more than two-thirds of some citizens’ earned income, said Stephen Moore, president of the Club for Growth in Washington, D.C., and a contributing editor of National Review. Moore was the keynote speaker at a Headliner luncheon sponsored by the John Locke Foundation on Tuesday.
The drastic reductions introduced by President Ronald Reagan, including a top rate of 28 percent in the 1986 Tax Reform Act, sparked economic growth that reverberated well into the 1990s, Moore said.
Reducing taxes makes capital investment in the United States a more attractive option, Moore said, and history holds many lessons for those who wish to lead a climb from the doldrums of recession or inflation. The tax-cut package recently passed by Congress is already having an impact, and the “country has reached a turning point,” he said. “I am really feeling bullish about things.”
Noting the Dow Jones Industrial Average low point of only 800 in 1982, Moore said Reagan’s pro-growth economic policies made the dollar stronger, tamed interest and mortgage rates, reduced inflation, and encouraged investment. The Dow’s 1,000 mark in 1967 was a brief high point before the troubled economic times of four consecutive presidential administrations. And now President Bush is committed to the same principles of tax policy, which Moore said would help correct a recession brought about by a tax burden that has risen faster than income since the mid-1990s.
Moore predicted the immediate nature of the 15 percent across-the-board tax reductions, as opposed to the delayed and more limited relief of the first tax cut in 2001, will noticeably spur the economy and expand capital once it fully takes effect in early July. He said the same principle of learning from history, that “ideas have consequences,” should apply elsewhere in the tax code.
Estate taxes, for example, will decrease until 2011, when the pre-2001 rate of 55 percent will be reinstated — the second highest in the world after Japan. Moore, who also is a Cato Institute senior fellow and who has served on two presidential commissions, said such a policy of temporary sunsetting, which does not apply to government agencies or programs, wreaks havoc on planning and future investment. “It makes any type of estate planning almost impossible,” said Moore, who agreed with Steve Forbes’ campaign line of “no taxation without respiration.”
When discussing how a reduction of the tax burden helped to control the seemingly unconquerable economic woes of the1960s and 1970s, Moore identified two areas where inflation is out of control: health care and education. He said the costs of those industries are rising dramatically, overwhelmingly at the expense of taxpayers. Given that only 32 percent of new college students graduate in four years, for example, Moore said a more stable “ market-pricing mechanism is necessary.”
Failure to confront the steady growth of government spending, he said, is a serious flaw of the policies of Bush and Republicans in Congress. No longer can reductions in the military chiefly be used to streamline government, as it did in the aftermath of Cold War victory, Moore said. Since the terrorist attacks of Sept. 11, 2001, he said, “we’re not spending for butter, we’re spending for guns too.” Instead of cutting social programs to pay for defense spending, Congress has passed, among other expenditures, the most expensive farm aid, education, and energy bills in recent memory.
“We’ve replaced tax-and-spend Democrats with tax-cut-and-spend Republicans,” Moore said.
What can be done to ensure long-term economic boom and stability? Aside from serious, permanent tax reform, Moore focused on Social Security reform. He noted that more 18- to 24-year-olds believe in UFO’s than that their Social Security payments will provide for their retirement. “This is a prime opportunity to bring more people into the free-market system,” he said. “Almost anyone can do much better investing on their own.”
Jones is an editorial intern at Carolina Journal.