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Jewish World Review Feb. 12, 2001 /19 Shevat, 5761

Mona Charen

Mona Charen
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About those Reagan tax cuts

http://www.jewishworldreview.com --
SEN. TOM DASCHLE, D-S.D., explains that if you make over $300,000 per year, the Bush tax cut will permit you to buy a new Lexus. Whereas if you make $50,000, it will permit you only to buy a muffler for your used car.

Well, maybe in South Dakota those earning $300,000 a year can afford to tool about in luxury cars -- but probably only if they are childless, and maybe only if they vacation in North Dakota. In any case, those who earn more pay more in taxes, not just proportionately (which is just) but progressively (which is not). When taxes are cut, those who paid more get more back. Fair?

Daschle doesn't think so. There is something deeply unsettling about Sen. Daschle's illustration. It is so intrusive! How we choose to spend our money really ought not to be any of the government's business. Democrats think privacy amounts to aborting babies but your money, now that's everyone's business.

Democrats, as we know, believe that all money belongs to the government -- which is why they refer to "spending" money on a tax cut. Rep. David Bonior of Michigan last week made the point that a thousand Democrats have made a million times since 1981 -- that we dare not reduce taxes because when Reagan did "it took us 20 years to dig out of the debt."

As a wise man once said, "You are entitled to your own opinion, but you're not entitled to your own facts."

The first thing to recall about Reagan's economic policies is that they rescued a nation in real crisis. In the last years of the Carter administration, inflation was running 12 percent or 13 percent per year and interest rates were keeping pace. The economy was in stagflation and national morale, for this and other reasons, was low.

Reagan believed in the supply-side theory -- namely, that the right mix of tax cuts will stimulate the productive and entrepreneurial sectors of the economy and minimize tax sheltering and economic timidity. Reagan did not argue, though this was later attributed to him, that the tax cuts could pay for themselves through economic growth. The debate then was about how much economic productivity would offset the losses to the U.S. treasury the tax cuts would cause.

As it turned out, the tax cuts worked just as promised. They did provide new incentives for economic growth. During the boom that followed, the economy grew by one-third, adding as Robert Bartley put it, the equivalent of the economy of West Germany to our own.

Did tax cuts initially cost the treasury money? Yes, but not nearly what had been predicted and not for long. Larry Lindsey, former member of the Federal Reserve Board and top economic advisor to President Bush, has studied IRS data and concludes that only 24 percent of the deficit of the 1980s and 90s was attributable to the tax cuts. The remaining 76 percent was caused by increases in spending.

Who insisted upon all of that spending? Both the Congress and the president. Reagan wanted to spend money on defense and reduce domestic spending. The Democratic Congress wanted the reverse. They compromised by spending more on everything.

It isn't correct to say that Reagan's tax cuts benefited the rich primarily. Those making over $200,000 were paying only 7 percent of the overall income taxes in 1981. By 1986, they were paying 14 percent. Those in the bottom half of the income scale saw their share of income taxes go from 7 percent to 6 percent during the same period. Today, the numbers are much starker. In 1998, the top 1 percent of taxpayers paid 30 percent of all income taxes, the top 2-to-10 percent pay 30 percent, and the top 11-to-25 percent pay 20 percent. The bottom 50 percent pay 5 percent of income taxes.

The Democrats taunt that Bush wanted to cut taxes when the economy was good and still wants to cut them when the economy is slowing. But they are just the same. They opposed cutting taxes when the economy was strong and they still oppose tax cuts now. They're entitled to their opinion -- but not to their facts.


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