CBS News was shocked to hear about how these three families would fare under the newly passed tax reform package.
☕ Brian Domitrovic weighs in on tax cuts…on tax day. His latest at Forbes.com:
The recession of 1990-91, foretold by the flash crash in the markets that spooky Friday the 13th in October 1989, remains one of the great oddities of our recent economic history. The 1982-2000 boom was so immense—it resulted in 40 million new jobs, untold number of startups, and a renewed exploration of the American Dream—why did it have even that one interruption, there in the years of President George H.W. Bush?
The reasons are all too relevant to contemporary affairs, namely the matter at hand this spring before the Donald J. Trump administration: should there be a tax reform involving a major cut in tax rates, as roundly promised on the campaign trail?
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In the 1988 presidential campaign, Bush uttered the most (in)famous words of his career: “read my lips, no new taxes.” That was his negative program, no new taxes, as he sought to succeed Ronald Reagan in office. Bush’s positive program was to seek a cut in capital-gains rates.
Capital gains rates had gone up by eight points in 1986, as part of a deal to get the marginal rate of the income tax all the way down to 28 percent—the lowest top rate in the modern history of the income tax. Bush argued, on the trail in 1988, that capital gains rates do not take into account inflation (as the income tax does), and had to be lowered as the top fiscal priority of his administration.
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☕ Larry Kudlow appears in the New York Sun with this piece:
In recent years, this static modelling has led to the notion that tax cuts need a “pay-for.” If you don’t cut the budget enough, you don’t get your tax cut.
Almost weirdly, the scorekeepers are happy with tax hikes, allegedly to balance the budget. But tax hikes depress economic growth, which reduces GDP. And with a smaller income base, actual revenues decline, simply because most everybody is worse off.
In truth, the best way to balance the budget is to reduce tax rates and provide new incentives for faster growth, which then expands the income base and throws off more revenues.
Brian Domitrovic and I, in “JFK and the Reagan Revolution,” quote President Kennedy’s 1962 speech to the New York Economics Club. With high drama, the Democrat turned against the New Deal, saying, “it is a paradoxical truth that tax rates are too high today [91% top rate] and tax revenues too low, and the soundest way to raise revenues in the long run is to cut rates now. . . . The reason is that only full employment can balance the budget, and tax reduction can pave the way to that employment.”
Twenty years later, Republican Ronald Reagan duplicated the JFK tax cuts to liberate a stagflationary economy. Today, the JFK-Reagan approach would rescue a stagnant economy. But the scorekeepers stand in the way. They’re part of the swamp. They’re telling President Trump that one cannot lower tax rates without pay-fors.
On CNBC, Larry Kudlow is bullish on business tax cuts.
“Tax reform takes a long time,” he said. “I don’t know why they’re saying August. I think really a year or more is what it normally takes. I do think that the failure to deal with the healthcare bill puts more pressure on the Republicans and on the Trump administration to get a win on the board.”
Kudlow, was an economic adviser to the Trump campaign, said the key to a tax reform victory is to focus on business taxes first, even if that means running deficits over the next few years.
“Get the business stuff done,” said Kudlow, a radio talk-show host and CNBC senior contributor. “It will help the economy. We haven’t had business investment in 20 years. It’s a bipartisan critique I’m making. Go for the gold.”
☕️ John Tamny today:
Considering debt, it should be said up front that realistically all government spending is debt. Governments can only spend to the extent that they extract resources from the real economy first, at which point debt amounts to an accounting abstraction. A focus on debt misses the real barrier to economic growth, which is government spending itself. As the late Robert Bartley put it in his classic book on the Reagan economic revival, The Seven Fat Years, “The deficit is not a meaningless figure, only a grossly overrated one.” Government spending is the true tax signaling resource consumption by politicians lacking market discipline. The unseen with the spending is all the experimentation (and yes, voluminous failure) that is never pursued by market-driven entrepreneurs (cancer cures, transportation innovations, technology advances that would render the internet dated) thanks to government existing as a size consumer of always limited resources.
But Laffer refuses to ascribe his theory to one party, recounting a conversation with his neighbor Al Gore a few weeks ago in which the former Democratic presidential nominee told him the best bill he voted for in economics was the 1986 tax cuts.
Laffer underscored other notable Democrats, including Joe Biden, Harry Reid and Barbara Boxer, who also added their names to the 97-3 roll call, claiming they did it because it was “the right thing to do.”
Laffer joined The Heritage Foundation’s tax expert Steve Moore Monday to resell the pertinence of his Reagan-era tax cuts during a Heritage panel discussing the need for tax reform.
“We are at a stage in our history where we need a low-rate, broad-based, flat tax,” Laffer said, repeating the mantra throughout his talk.
He began with a cost-benefit analysis, pointing to John F. Kennedy’s tax cuts in the 1960s, where the highest marginal income taxes were dropped from 91 to 70 percent and the lowest from 20 to 14 percent.
Under these cuts, those in the highest tax bracket could now keep 30 cents of every dollar they made versus the 9 cents they were able to keep prior to the tax cuts. Similarly, those in the lowest tax bracket could now keep 86 cents of every dollar versus the previous 80 cents.
This cut, Laffer continued, reaped the greatest cost-benefit ratio for those in the highest tax bracket, giving them a steeper incentive to work because they were able to keep more of what they worked for.
“The reason you cut tax rates on highest group is not because you love rich people … it’s because you get more bang for the buck,” he said.
David Weigel writes for Bloomberg about the election result in Kansas where Governor Sam Brownback was re-elected. And, Art Laffer is talking publicly about politics:
Art Laffer declares victory in Kansas.
Art Laffer was used to wearing the black hat. For much of 2014, as polls showed Kansas Governor Sam Brownback in danger of losing re-election, progressives expected supply-side tax cuts to be rejected. That meant a rejection of Art Laffer, the Steven Spielberg of supply side, the man whose napkin illustration of how lower taxes meant higher revenue changed American policy forever in 1981. A generation later, Laffer stumped with Brownback, endorsing his deep tax-cut plans because “states without income taxes have grown much, much faster.”
Most people expected Brownback to lose. Plenty of columnists, including Tom “What’s the Matter with Kansas?” Frank, pre-wrote the obituary of supply-side. And then Brownback won, taking 98 of Kansas’s 105 counties. Laffer’s verdict on the election?
“I liked it,” he said.
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“The states that cut their taxes really outperform the states that raise them,” Laffer said. “People will see that. It’s really hard to balance a budget on the backs of unemployed, and people really do leave states when that’s tried. Look, the problem with cutting taxes is that you are going to suffer short-term losses in revenues. When you raise taxes you think you’ve got a windfall. Then in a few years, you’re Detroit. Kansas, by contrast, is going to do very well. Kansas City is going to be located in Kansas, not Missouri, if you give it a couple years.”