DAfter a trillion-dollar so-called stimulus package, after bailing out the banks and the automakers and Lord knows who else, the Obama Administration is now talking fiscal responsibility. The administration recently hosted a “fiscal responsibility summit.” That’s a heckuva note coming from the same bunch that wants to continue this drunken spending spree. This time they’re reforming healthcare. What they really mean by “fiscal responsibility” is raising taxes.
Now, they don’t see it that way. They’re merely going to let the Bush tax cuts expire in 2010. To them, that’s not raising taxes. It’s more like saying the tax vacation is now over. But the tax cuts weren’t meant to be a vacation. They were meant to be a way of life. Funny thing is we’ve seen more revenue come in because of the tax cuts than we would’ve seen had they never been enacted. They also helped avert a major financial meltdown early in George W. Bush’s tenure. Cutting taxes to spur growth and, consequently, generate more tax revenue is something liberals are apparently incapable of understanding.
The premise is simple, actually. Let’s take Ronald Reagan’s example. At the end of World War II, when Reagan was in the motion picture business, the top tax rate was 94 percent for incomes over $200,000. I know that sounds incredible but it’s true: an astonishing 94 percent. That meant that anything you made over $200,000 you only got to keep six percent of it. If Reagan made his first $200,000 that year and someone asked him to do another picture, what do you think his answer would be? Would you work for six percent of your pay if you didn’t really need the money? But, if Reagan said no, who did that hurt? It didn’t hurt Reagan. He still had plenty of money. He could hang out by the pool or travel or do anything he liked. The people it hurt were the grips, the gaffers, the caterers, the set and costume designers, the folks who didn’t make $200,000 per year. These folks didn’t work all because the government was trying to hose people like Reagan.
That’s what led to Reagan’s now-famous trickle-down economics theory. He figured that if you lowered the tax rates to something reasonable you would spur more work and, thus, more revenue to the treasury.
He was right, of course. John F. Kennedy pushed for lower tax rates and the top rate dropped to 77 percent, passed as a tribute to the fallen president. When Reagan took office in 1981 he pushed for even lower tax rates. Lower tax rates were phased in over several years until the top rate was at 28 percent in 1988. The liberals then complained that we wouldn’t have enough money. The treasury coffers doubled from 1980 to 1990. The liberals were wrong then and they’re wrong now.
The top rate drifted back up to 40 percent under Bill Clinton. George W. Bush got that rate?and all rates?pushed back down. The top rate now stands at 35 percent. But those tax cuts are set to expire next year and the Obama Administration is not planning on lifting a finger to stop it. In fact, they’re counting on that new revenue to spend on more big government. The ironic thing is there won’t be more money, there’ll be less. Lowering tax rates spurs economic growth and income to the treasury. It’s happened every time we’ve done it. Liberals either don’t understand this or they’d rather pit us against one another in class warfare. They’re wrong either way. But what’s new?
Phil Valentine is an author and nationally syndicated radio talk show host with Westwood One. For more of his commentary and articles, visit philvalentine.com.
