Today’s Brew 1-20-15

☕ Jim Brown Jr. takes a look at the 1986 tax reform efforts in this column for Arkansas Business.

The Spirit of ’86

As a president who embraced supply-side economics, Reagan wanted lower marginal tax rates. He had pushed through previous tax reform efforts that had lowered rates, but as 1986 began, the top rate was still 50 percent. However, because of a variety of loopholes, many wealthy individuals and corporations paid little or no taxes. This tax avoidance infuriated some, who wanted to eliminate these tax breaks in the name of “tax fairness.”

President Reagan’s advisers put these two ideas together and came up with a plan that would eliminate many loopholes and use the resulting new revenue to lower tax rates. It would also remove many lower-income Americans from the tax rolls.

As the plan worked its way through Congress, both Democrats and Republicans changed it to preserve some loopholes. However, the final bill that emerged was a remarkable piece of legislation that, on the whole, embodied tax policy that promoted the common good instead of special interests.

In the years since the 1986 tax reform, many of its major provisions have been weakened or undone. Lobbyists have been busy in the past 28 years inserting more loopholes, deductions and credits to benefit their clients. Tax rates have also risen. Our code is far less pro-growth than it was in 1986. Few, if any, would claim that it treats all taxpayers fairly.

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Today’s Brew 12-2-14

Rex Sinquefield at Forbes.com talks about why the critics of Kansas’ implementation of supply-side economics have egg on their face after the 2014 election.

Governor Brownback’s Promises Become Reality For Kansas

Justin McFarland, Kansas Director of Labor Market Information, rightfully proclaimed that the employment gain “continues to lead Kansas’ comeback from the Great Recession” and that the “increased income will continue to drive growth.”

This is good news for working families and their employers. Not so much for Brownback’s well-funded opponents, including the National Education Association and the American Federation of Teachers, which spent $60 million to defeat fiscal conservatives in the mid-term elections.

Powerful adversaries of Brownback’s pro-growth tax policies painted a dire “sky is falling” picture of the countless misfortunes that were sure to destroy the state’s economic future. While they may want to say and believe as they wish, the proof is in the numbers.

And while data is critical to the political process of creating good state fiscal policy, the most important figure is the 2.9 million people who live in Kansas whose lives are impacted by these policies. Kansans elect the people who are tasked with solving problems, and as the facts emerge, it appears that they have chosen wisely. The quantitative, 50-state data that is thoroughly documented in An Inquiry into the Nature and Causes of the Wealth of States (which I co-authored with Stephen Moore, Art Laffer, and Travis H. Brown) shows that every measure of economic prosperity is linked to taxation. Those states that limit or eliminate distortionary taxes, the worst of which are those placed on personal and business income, are able to expand their local economies.

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And this, from Allister Heath in London’s Telegraph on the upcoming Autumn Statement by George Osborne:

It’s time for George Osborne to explain why lower taxes are so good for growth

Changing tax rates also has an effect on incentives to work, invest, consume and transact which need to be taken into effect when setting policy and budgeting

So, given that there won’t be that much actual action, and only miniscule tweaks to the aggregate sums raised and spent, what we need to see instead is evidence of fresh philosophical and economic thinking from the Chancellor. We need him to embrace much more comprehensively supply-side economics and to paint a positive vision of an economy and society that are no longer weighed down by an oppressively large and unaffordable government sector.

In particular, the Chancellor needs to make it clear that he believes that lowering taxes on work would produce more of it, that cuts to the tax on the returns on capital would bolster corporate expenditure, productivity, jobs and growth, and that a smaller state is inherently a good thing, in terms of both improving the economy’s performance and by increasing the autonomy of individuals and families.

Today’s Brew (part 2) 8-19-14

Congressman Paul Ryan released a new book today, sparking 2016 speculation along with it. The Way Forward: Renewing the American Idea is a very good, easy read so far. Surely there will be other supply-side nuggets later, but this passage on page 55 really jumped off the page.

In interviewing with Jack Kemp for a job at Empower America, Ryan recalls this exchange:

He asked me, “What do you think is better-a tax credit or a tax-rate reduction? Should we reduce tax rates or should we give people tax credits?”

I knew what he was up to. Kemp was famous for convincing President Reagan of the merits of supply-side economics. As a member of Congress, he had authored the Reagan tax cuts, and his pro-growth ideas helped create the economic expansion of the 1980s and 1990s. Jack Kemp didn’t just join the Reagan Revolution; he was the chief architect of some of its greatest victories.

In asking certain questions, he was trying to see if I was “on the model,” which was a term we used for supply-siders of those days. I was. “A reduction in tax rates,” I replied, “because growth occurs at the margin.”

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