As Congress and the Administration enter the throes of tax reform negotiations in an attempt to pass a bill before year-end, it is an opportune time to ask what basic principles should be included in the legislation in order to achieve both higher levels of economic growth and a rising standard of living for all Americans.
Tax Cuts Spur Economic Growth
This effort led to what became at the time the longest peacetime expansion in our nation’s history with growth rates routinely over 6 percent.
First and foremost, it is vital that tax reductions be implemented across the board for all income groups, as our economic history is replete with examples of this model, resulting in secular bursts of economic resurgence and growth. In the 1960’s, the Kennedy tax cuts reduced rates 30 percent across the board and also implemented several pro-business measures, including accelerated business expensing measures. This triggered what became known as the go-go 60’s, where growth and high tech innovation awoke from its previous moribund state.
In the 1980’s, the Reagan tax cuts were implemented in two separate pieces of legislation — the 1981 act, which reduced rates across the board by 25 percent, and the 1986 act, which finished the job by collapsing 14 brackets into two of 15 percent and 28 percent. The bill also slashed corporate rates by 30 percent. The essence of the plan was to radically simplify the code and broaden the tax base by reducing marginal rates and eliminating a variety of tax loopholes, credits, and deductions. This effort succeeded mightily and led to what became at the time the longest peacetime expansion in our nation’s history with growth rates routinely over 6 percent. Subsequent to this noble enterprise, and all too predictably, the tax code has for decades slouched towards a monstrosity, littered with a multitude of brackets, loopholes, and credits that continues to raise compliance costs and reduce our economic efficiency and competitiveness.
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