He proposed it. But, as with all his ideas, it was Lyndon Johnson who actually got it enacted. The top rate was cut from 91% to 77%, then to 70%, on all income over $200,000 for a single person, $400,000 for a married couple.
That's where it stayed, through Nixon, Ford and Carter.
The Dow Jones average was pretty much the same when that period ended as when it began. Median personal income stayed roughly the same.
These are the brute facts.
I call them that because there doesn't appear to be any theory to explain them.
Quite to the contrary. There are lots of theories that claim that tax cuts stimulate the economy.
Here a simplistic version, but they all run along these lines.
Q: How do tax cuts affect the economy?
A: Tax cuts improve the economy by giving the people more spending power and higher consumer confidence which leads to them spending more of all of their income which leads to more jobs, more business investment in more efficient technologies, and ultimately higher GDP growth.
They are very convincing.
One constant in American political life is that the American people believe tax hikes are bad for the economy. The latest Rasmussen Reports telephone survey found that 60% of voters hold that view while just 14% believe that raising taxes is good for the economy. Rasmussen Reports
A noted conservative (a sane one, not William Kristol) recently wrote to me in a private email exchange on this subject:
"I am unaware of any (or many) respectable economists (maybe I've missed some) who have suggested that higher taxes have proved to be a formula for better economic growth."
Actually, neither am I.
Even now, in the midst of the Bush disaster, I constantly see and hear tax cuts, particularly at the top, described as "pro-growth." So I went and looked at the numbers, tax rates, tax cuts, tax hikes, and placed them alongside job growth, the Dow Jones, growth in the GDP, and median income.
The brute facts.
The brute facts say the opposite of the myth.
The belief in tax cuts is a subset of the belief in Free Markets, with a capital F & M, which is a theological belief.
How do we distinguish a theological ideas from a scientific (or rational) one?
According to Karl Popper, the great thinkers in the philosophy of science, a scientific idea has to be capable of being refuted. There has to be some theoretical test that could come out the wrong way which would then say the theory is wrong.
On that basis, Popper rejected Marxism and Freudianism, along with religious theology, because no matter how many times they didn't work, there was always some explanation that said that the theory was right and if you just looked at the facts in some other way, you could make up some story that said your theory was still right.
The quintessence of theological thinking goes like this. The Preacher says, "The world will end next Saturday night! The Bible says it must be so." Everyone in the congregation wakes up safe and sound on Sunday morning. They head off to church and believe whatever he says in that sermon too.
In science, we come up with a hypothesis. Then we set up an experiment. We see what happens.
Economics is complex. It takes place in the real world where many factors are at play and we can't control for them all. Still, we've had four major tax cuts since 1913. None of them have led significant, sustained growth. Two them were followed by instant recessions (Reagan and Bush) and three of them, when they were sustained, were followed by bubbles which were then followed by the three worst crashes and sets of bank failures in modern times.
It's time to throw out the theory. Accept the facts. Come up with new ideas to fit them.
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
1
