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President Reagan's Tax Cuts Saved Economy

President Ronald Reagan took the oath of office on January 20, 1981, inheriting a bad economy.

It had been stricken hard by years of inflation and stagnation, exacerbated by the liberal economic policies of President Jimmy Carter, a Democrat. According to Grolier's Encyclopedia (2000),

[A]fter four years of the Carter presidency, both inflation and unemployment were considerably worse than at the time of his inauguration. The annual inflation rate rose ... [to] 12% at the time of the 1980 election campaign. Although Carter had pledged to eliminate federal deficits, the deficit for the fiscal year ... 1980 was nearly $59 billion. With approximately 8 million people out of work, the unemployment rate had leveled off to a nationwide average of about 7.7% ... but it was considerably higher in some industrial states. reports that top tax rate for regular income in 1981 was 69.125%. Reagan slashed this figure down to 50% by 1982 and to 28% by 1988. Reagan also slashed the corporate tax rate, cutting it from 46% to 34% by 1988. He also cut the number of brackets down from 14 to two, simplifying the tax process.

Ronald Reagan with the "tax ax"

These revolutionary cuts were accomplished through two pieces of legislation: the Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986.

The budget initially ran at high deficits and the debt exploded, but the policies of Reagan eventually led to great surpluses. According to the Heritage Foundation, “Total federal revenues doubled from just over $517 billion in 1980 to more than $1 trillion in 1990. In constant inflation-adjusted dollars, this was a 28 percent increase in revenue.” At the same time, private industry as well as the buildup of national defense flourished.

President Bill Clinton's budget surpluses are also a result of the economic expansion that followed Reagan's cuts.

Even though their merits have been proven, the lessons of Ronald Reagan have been lost among modern liberals and so-called conservatives. While GOP politicians often advocate for slashed taxes while on the campaign trail, they become advocates for tax and spend when they make it to the House or the Senate.

An example is Senator Bob Corker (R-Tennessee), who campaigned on his slashing taxes but is now holding off on supporting the Republican reform proposal. Corker says that the tax cuts will result in increased deficits, making it infeasible for him, but this logic directly contradicts the lessons of Reagan.

Elected officials considering Corker's position should crunch the numbers and talk to the millions of Americans who are suffocated by overzealous taxes.

The Internal Revenue Service (IRS) writes that the federal personal income tax “has 7 brackets: 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.”

The corporate tax rate ranges from 15% to 35%, but for most, it is set at a suffocating 35%. These onerous rates are a result of cooperation from politicians on both sides of the aisle, including Republicans.

As of October 2017, the United States has the highest corporate tax rate in the developed world. Kyle Pomerleau writes,

The United States has the fourth highest statutory corporate income tax rate among the 202 jurisdictions surveyed. The U.S. rate of 38.91 percent (comprised of the federal statutory rate of 35 percent plus an average of the corporate income taxes levied by individual states) ranks only behind the United Arab Emirates (55 percent), Comoros (50 percent), and Puerto Rico (39 percent). Comparatively, the average tax rate of the 202 jurisdictions surveyed is 22.96 percent, or 29.41 percent weighted by GDP.

The heavy taxation both on corporations and individuals cuts down the amount of capital that businesses have to spend on new equipment and supplies and limits the amount of goods that the individual can purchase from these businesses.

Alternatively, when there are low corporate and individual taxes, businesses can hire more people and buy more machinery and other equipment from other businesses. The people that are hired don’t have to pay such an astronomical portion of their paycheck to the government, so they are more likely to purchase more goods from businesses. It is a revolving cycle of prosperity.

In effect, slashed taxes allow for more spending from all aspects of society and eventually economic growth.

The Tax Code:

Even worse than the high tax rates levied on the American people is the federal tax code, which clocks at almost 75,000 pages. Additionally, “The federal tax code is 187 times longer than it was a century ago, according to Wolters Kluwer, CCH, which has analyzed it since 1913.”

The Tax Reform Act, hammered out by the Reagan administration with the help of bipartisanship within the Congress, slashed the length of the code significantly. However, thanks to “conservatives” and liberals since, 15,000 changes have been made to tax law and the code has exploded. Therefore, the hard work of Ronald Reagan evaporated and the code has grown to be even more overzealous.

The tax code is enforced by an agency within the Department of the Treasury, the IRS, which abuses the constitutional rule of law. Because of the IRS’ overbearing authority, they can force the accused to prove their case rather than the other way around, they can levy overzealous fines and penalties and freeze or seize citizens’ assets, and they can ruin lives freely and without oversight. More than the tax code itself, the IRS hinders competitive spirit by bruising individuals and businesses that would stimulate the economy.

The Solution:

As I wrote in September 2017,

The American people should call for a flat tax on individuals, a corporate tax rate of 15%, a complete repeal of the deduction for state taxes, unlimited deductions for charitable contributions, and the gradual elimination of the Internal Revenue Service.

The only way for the Congress to continue the good work of Ronald Reagan is to cut taxes as much as possible, especially the corporate tax rate, and close the loopholes that make the tax code so long and onerous.

If common-sense tax reform is not passed, the American people will continue to suffer from the stagnant economy of the Obama years.