With the national deficit hitting the $16 trillion mark, the debate over tax rates and the Bush Tax Cuts has resurfaced. The Democratic National Convention ignored the mounting debt as they wallowed in irrelevant and extraneous non-issues. Obama of course needs to make voters forget about his failed promise of slashing the deficit in half by the end of his first term. The man who called President George W. Bush “irresponsible and unpatriotic “for adding $4 trillion to the deficit in 8 years has added $5.4 trillion in 3.5 years. President Obama’s lackluster record on spending control is certainly something he will hide from in the 2012 campaign. However, when he does bring up the issue of the debt, he will only offer one solution: Tax, tax, tax.
While Paul Ryan and his fellow Congressional Republicans have endorsed concrete spending cuts, the President refuses to even look at entitlements for expense saving. He only wishes to raise taxes. However, an expiration of the Bush Tax Cuts will lead to a reduction of already anemic economic growth, and even less tax revenues for the Fed. President Reagan’s chief economic adviser Art Laffer outlined this theory with his genius “Laffer Curve.” The Laffer Curve states that high tax rates would generate the same amount of revenue as a 0% tax rate. This is because the more government taxes, the less incentive there is to work, make economic ventures, and pay existing taxes. Lower tax rates will discourage people from hiding their income, and cause them to spend and create economic growth. Ronald Reagan proved that lower tax rates are healthier for economic growth and federal revenue with his tax policy.
When President Reagan took office in 1981, the top marginal tax rates were 70%. By 1986, after the second year of his second term, he had cut those rates to 28%. Liberals would like to believe that the huge reduction in rates would mean substantially lower revenue for the government. But in fact, the government’s revenue actually increased! Here are the figures:
In Fiscal Year 1980, with the top tax rate being 70%, the federal government’s total direct tax revenue was $885.8 Billion. Six years later, after the Reagan recovery began and the top tax rates were dropped to 28%, the total direct tax revenue was $1,439.3 billion. In other words, the top marginal rates were cut by 42%, but revenues actually increased by 62%! Not to mention the other aspects of the Reagan’s recovery, like the reduction of the unemployment rate to 5.3% and the economy growing by a third.
The common sense economic policies of the Reagan administration would be of great use to our country’s economy today. Because the Democrats are not serious about touching entitlements, the only method of dealing with the national debt will be the raising of taxes. However, this will only lead to less revenue! With raised tax rates, people will only dodge taxes and spend less, and this will lead to an even weaker economy. Taking more of people’s hard earned money will not incite job creation, it will not spawn economic growth, and it will not deal with our national deficit. The only way to grow the economy, create jobs, and cut the debt is to cut taxes. To quote the creator of the late 20th century economic boom: “Government is the problem, not the solution.”