Government Watch / Politics

Primer – Income Tax Cuts

Income Tax

Income tax cuts are overdue. Every thoughtful, historically grounded observer of income tax cuts eventually says the same thing: At first reducing government’s revenue stream, income tax cuts invariably increase consumption, investment, employment, and overall tax revenues. Returns increase – as the government has more individual and business earners to draw upon.

How this works is worth review. In this election cycle, Democrats are testing the idea that mass spending (seven trillion in 20 months, with revenue of four), which has generated high inflation and interest rates, is better policy than reducing taxes, spending, and interest rates. 

By contrast, Republicans – including those running for House, Senate and Governorships, like Maine’s Republican gubernatorial candidate Paul LePage, argue income tax cuts are overdue, will elevate revenue, reduce the burden on taxpayers when they most need it.  

The argument is not political, but economic. Lepage and Republicans have it right. Even John F. Kennedy, a Democrat President, would agree.  If the question is policy, what works and what does not, reducing the tax burden on earners is what works.

In 1963, Kennedy was in the minority on economic policy. Many wanted to ramp up spending on Vietnam and domestic programs. Kennedy resisted. He favored lower taxes, strong defense, and balanced economic policies. He believed higher economic growth, lower unemployment, and increased federal revenue would flow from reducing the tax burdens both individuals and businesses.

Why? Because Kennedy’s intuition told him, and told Ronald Reagan, who switched from Democrat to Republican at about that time, that more commerce, business, earning, employment, spending, and consumption would produce more economic activity, more tax revenue.

Kennedy was right, and so was Ronald Reagan – the living embodiment of fiscal responsibility, keeping spending, taxing, and government budgets low – when it came to tax cuts. 

How right? Look at the data, not at politics, but at economic data. In January 1963, Kennedy proposed a major tax cut for individuals and companies, plus a simplified tax code, reduced IRS footprint.

Crazy, right? We live in a time when Democrats are leadfooted, pushing more spending, higher taxes, more IRS agents, no attention to second order effects. They force Americans to go broke paying for heating oil and gas, taxed for things they do not want, need, and cannot afford. But Kennedy differed.

Kennedy’s program, enacted after he died, produced spikes in commerce, consumption, employment, profits, reinvestment, and stability. Kennedy’s income tax cuts, like Reagan’s, initiated a virtuous cycle.

In a long-forgotten twist – months after Kennedy died – Johnson briefly assumed his platform, pushing tax cuts and budget cuts, reducing federal spending by $100 billion. He passed the “1964 Revenue Act.”

What impact? Huge. Incomes, consumption, employment, and capital investments grew, while direct federal spending fell. Unemployment dropped from 5.2 percent in 1964 to 3.8 percent in 1966. And – through it all – tax revenues increased!

Fast forward to Ronald Reagan who, as a former governor, believed individual earners and government both did better when people kept more of what they earned, triggering a cascade, more commerce, prosperity, and revenue, reinforcing limited government, freer markets, and fiscal discipline.

How did Reagan’s tax cuts pan out? Rather well. Reagan, a former economics major, governor, and student of William F. Buckley’s school of ordered liberty, limited government, anticommunism, and lower taxes, Milton Friedman’s school of free and unfettered markets, went a step further.

True to his promises, Reagan cut the top marginal rate from 73 percent to 28 percent, lowest since 1925. While maintaining the federal “safety net” for low earners, he was able to swiftly reverse Carter’s double-digit inflation, unemployment, interest rates, energy scarcity, weak defense, Soviet expansion.

Reagan stopped it all, with sound economic policy. He cut federal income taxes by 25 percent in three years. The result was a dramatic uptick in employment, consumption, investment, prosperity, and quality of life, plus added federal revenue.

Unemployment fell from 7.5 percent in 1981, after Reagan succeeded Carter, to 5.4 percent in 1989.  Good things take time, but it worked. Unemployment was 4.7 percent when Reagan left office, having delivered 18 million net new jobs, average income having grown 16.8 percent.

In other words, rather than having income fall, dollar’s value and savings shrink with inflation, Kennedy and Reagan knew what worked – and did the reverse of modern Democrats, blindly spending.

Rather than spend non-existent revenue to buy votes with cheap money, Kennedy and Reagan did the reverse. They took time to explain that good things – is it not always true? – take time. If you cut taxes, incentivize people to earn and keep what they earn, they will work hard, prosper, spend and save.

In this highly polarized time, there is a great tendency to think all things MUST be political. But that is not true. Physics, chemistry, math, biology – and economics – do not change. Reality is that income tax cuts work, always have, along with limited government, personal responsibility, humility not hubris.

If we want to get back on track, we MUST elect those who understand what Kennedy and Reagan, William F. Buckley, Milton Friedman, monetarists, supply-siders, limited government constitutionalists, and everyday Americans understand. Sometimes less is more, much more. So, let us make it so.

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4 months ago

Vicky Kramer must of founded AARP the communist Marxism socialism from Washington Post of lies

4 months ago

Poison pill of death and taxes only thing democrats have known since AARP was founded by Kermit the Frog Gosnell of Pennsylvania

4 months ago

Bottom line: When the Demos are at the helm, spending and taxes go WAY UP. Totally they forget the common citizen.

4 months ago
Reply to  Max

Wait for when the new taxes that were in the laughable Inflation Reduction Act, otherwise known as the Climate Change and Tax Hike Bill, kick in next year. Lots more pain and cost for the average citizen to cope with courtesy of the Democrat Party. If people are upset about the already existing taxes and the state of the economy now, they will get a quick punch to the gut next year when all the climate change regs and new taxes from that bill go into effect.

Democrats, the Socialists that just keep on giving…grief!!!

4 months ago
Reply to  PaulE


anna hubert
4 months ago

Separate government from business just as from church and see what happens

Philip Hammersley
4 months ago

DIMMs like to pretend that rich people are too stupid to put their money in tax shelters or move it offshore. They agitate us middle class persons into thinking that the “rich guys’ will suffer when instead they screw US! Grump gave us REAL tax relief and not just “crumbs” like Pelousi said!

4 months ago

They are not pretending to not know, especially went they are making huge fortunes themselves and hiding the taxable liability of it. They just assume we, regular taxpayers won’t notice their money

4 months ago

While I 100% support tax cuts in normal times, we are not in normal times. You are correct in saying “income tax cuts invariably increase consumption, investment, employment” — that’s a problem in our current economic environment. Along with other reasons, we have inflation because of over consumption and high employment, trying to increase both of those right now will only lead to more inflation. The Fed will react to that by increasing interest rates even more. Because of our oversized debt those increased rates will have more of a negative impact on the Federal budget than any increased revenues from a tax cut will have a positive effect.

In other words, just as spending without increased revenues pushes inflation, so does cutting taxes without cutting spending because it takes time for those increase revenues to show up. This time around we simply must cut the spend side of the budget first. That will reduce consumption, firing federal workers should reduce employment thus fighting inflation. Once those work through the system then follow up with a tax cut.

Douglas Wallace
4 months ago

A brief well written, understandable piece. Sadly not a single dem. will read or understand.

4 months ago

Supply side economics has worked whenever it has been implemented. Art Laffer does an excellent job of explaining why, to the average person who lacks any real economics education, in his free on-line course at Hillsdale College. People here should get their children and, if they’re old enough, their grandchildren to sign up for it. It would dispel a lot of the nonsense the Democrats shovel in terms of what drives a successful economy. Art Laffer after all is the person who explained the value of supply side tax cuts to Ronald Reagan.

On a second point, I have to point out that yet again you omit any mention of President Trump and his supply side tax cuts in your article. Without those tax cuts, which helped strengthen the lackluster economy created by two terms of Obama and Democrat rule, we would have not managed to survive as well as we did through China’s Covid attack on the world. If we had gone from Obama directly to either Hillary or Biden, we wouldn’t be facing a recession today. We would already be in a depression in many parts of our economy. Instead due the the Trump tax cuts and his leadership, we enjoyed the best economic growth and wide spread prosperity in 40 years. I understand the AMAC organization isn’t a fan of President Trump, but you can’t deny he created the most successful economy since Reagan for the average person and without him, we would be facing the exact same fate most of Europe is already living today. So please just a bit of fairness. Thanks.

4 months ago
Reply to  PaulE

I totally agree with you.

Vicky Kramer
4 months ago
Reply to  PaulE

Wow, did not know that AMAC is not a fan of President Trump. That is very disappointing.

4 months ago
Reply to  PaulE

You are so right about Laffer and his Hillsdale course! I watched all the classes twice! You are also right about President Trump. But until the education system in this country reflects the truth about Laffer and supply side economics, too many voters still buy into the Democrat “rich need to pay their fair share lie” and every time the economy takes off, the Left starts talking about greed and voters lap it up! If we could implement these economic polices and keep them going for 10-15 years, I believe America can get past the idea of socailism being a viable system for the country!

4 months ago
Reply to  PaulE

Paul you presented excellent points and I agree we have a lot to thank President Trump for.
However, it was my understanding that AMAC was and is a Trump supporter .

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