— Vice President Pence (@VP) May 18, 2017
Dan Mitchell does what Dan Mitchell does with the Laffer Curve: He learns from it, applies lessons elsewhere, and makes us all smarter.
As far as I’m concerned, no sentient human being could look at what happened in the United States in the 1980s and not agree that high tax rates on upper-income taxpayers are foolish and self-destructive.
Not only did the economy grow faster after Reagan lowered rates, but the IRS even collected more revenue (a lot more revenue) because rich people earned and reported so much additional income.
That should be a win-win for all sides, though there are some leftists who hate the rich more than they like additional revenue.
Anyhow, I raise this example because there are politicians today who think it’s a good idea to go back to the punitive tax policy that existed in the 1970s.
What is money? That seems like a simple question. It’s mainly the green stuff in your pocket that you want more of, but it leads to all sorts of confusion in the economic world, with harmful results. It is the type of question that economics should define as easily as a core component of any other field of study, i.e. what is a meter? But the economic world is not a hard science, it’s a behavioral science that meshes less definable certainties with undefined behavioral qualities. In our current climate of commanded central bank intervention far beyond its legislated intent, these confusions become multiplied.
When the states ratified the 16th Amendment in 1913, the top marginal personal income tax rate was 7% and federal spending was less than 10% of GDP; today the top rate is close to 40% and spending is 21% of GDP.
The tax code has become more and more complex, tax preferences (loopholes) have politicized the system, and high rates are penalizing success. Meanwhile, the mammoth IRS continues to oppress people’s liberties.
President Trump’s tax reform would simplify the individual income tax by closing loopholes and reducing the number of brackets from seven to three — with marginal rates of 10%, 25% and 35%.
Those changes would take us closer to the flat-tax system first proposed by Robert E. Hall and Alvin Rabushka in 1981, which motivated President Ronald Reagan and Congress to cut the top marginal personal income tax rate from 70% to 28% while closing loopholes to make the reforms “revenue neutral.”
Our friend Jerry Bowyer today recalled a 2013 interview he had done with Allan Meltzer back in 2013. After the passing of Mr. Meltzer earlier this week this seemed like another good one to share. Enjoy.
Economist Allan Meltzer, who died Monday, was widely considered one of the postwar era’s greatest monetary economists and the only economist to advise both President Reagan and British Prime Minister Margaret Thatcher.
Last week we pointed out Congressman Pat Tiberi’s response to a reader of The Columbus Dispatch. Well, the reader (Corinne) is back, and she has written another letter in response to Congressman Tiberi, this time she proves she’s wrong by using Paul Krugman in her defense. It’s a trainwreck. Enjoy! And comment on the Dispatch website if you feel so compelled.
The Wall Street Journal pays tribute to Allan Meltzer after his passing yesterday.
☕ Jimmy Kemp and Sean Rushton appear in today’s Wall Street Journal:
The dollar-euro exchange rate has moved 20% eight times in a decade, causing crisis and stagnation.