Optimism Pays Off
Twenty-five years later, Reagan’s tax cuts are a global tide.
As, indeed, has Reaganomics over its 25-year life. On this night Mr. Laffer, famous in part for cutting down economists’ pretenses to ideas anyone can understand, had an answer for the boo-birds of Reaganomics: Almost alone, the United States since those tax cuts has managed to remain both a growth country and a developed nation.
I blame the tax cuts. :D
The first former Iron Curtain country to cut its taxes was Estonia in 1994, led by Prime Minister Mart Laar, who claimed then the only economics book he’d ever read was Milton Friedman’s “Free to Choose.” Estonia established a flat rate on personal incomes of 26%; two years earlier it had abolished all import tariffs. Estonia grew.
After Estonia, flat-tax regimes coursed across Eastern Europe, as listed below (bear in mind that the top rate in the U.S. is 35%): Lithuania, 33%; Latvia, 25%; Slovakia, 19% (the former sad sack of the region, Slovakia’s growing economy has become its envy); Romania, 16%; Ukraine, 13%; Russia, 13%; and Georgia, 12%.
So ironic...yet this pattern repeats itself all throughout history. Japan looked at American manufacturing (which had enabled victory around the world in WWII) and imported it. Today former Cold War adversaries embrace flat taxes because they understand the Laffer Curve and how the United States was able to lower tax rates and increase revenues; revenues which enabled a defense build-up that bankrupted the Soviet Union when it tried to keep up.
Yet today the Democrats (almost alone in the world aside from their fellow socialists) want to increase taxes. With revenues pouring into the treasury at record rates what is their reasoning? We've had enough record revenues? Three million jobs a year is too many? GDP growth over 3 percent a year is too much?
I hope President Bush is smarter than his father when it comes to striking a deal with the lying Democrats over taxes. Hiking taxes lost his father re-election and would pretty much sink the chances for Republicans in 2008.
When Presidents seek wisdom on tax policies they need look no further than Ronald Reagan.