Word
Gems
What is a
man but the sum of his thoughts?
President
Ronald Reagan:
Tax-Cuts:
Supply-Side Worked
from the website: godblessronaldreagan.com
"We need true tax reform that will at least make a start toward restoring for our
children the American Dream that wealth is denied to no one, that each individual has the
right to fly as high as his strength and ability will take him. . . . But we cannot have
such reform while our tax policy is engineered by people who view the tax as a means of
achieving changes in our social structure."
-Ronald Reagan
THE HISTORY
Throughout Reagan's political career as a conservative, he had supported a
reduction in government's control over the populace. A key attribute of this, as
he propounded in his first State of the Union address, was an across the board tax cut.
This was part of a comprehensive plan to reduce inflation and stimulate the economy. Also,
rather unlike FDR, who was uncertain of what course to take in rectifying the nation's
fledging economy, Reagan had adopted a coherent policy for fiscal restoration.
His policy was based upon a combination of supply-side (tax cuts) and monetarist
(tight money supply) policy. The crux of the policy was a 25% across the board
tax cut (coupled with the indexing of tax brackets to prevent inflation pushing taxpayers
into higher tax brackets [1986 tax plan]) that would be implimented over a 3 year period.
First there would be a 5% tax cut, subsequently followed by two 10% tax breaks.
Additionally, the top marginal rate would be reduced from 70% to 50%. This was the most
ambitious economic plan since the New Deal.
There was staunch, resistance, however, most notably by the liberal
Democratic House, led by the Cambridge, Massachusetts Congressman, Speaker Tip O'Neil.
Despite liberal demagougary and portrayal of the tax bill as a benifit for only the
wealthy, ardent public support forced the speaker to allow for a vote on Reagan's tax
proposal, Roth-Kemp. This legislative proposal contained nearly everything Reagan appealed
for.
The Reagan tax proposal, thanks to a coalition of Republicans and conservative
Democrats passed, 238-195. In the Senate the vote was 89-11. David Broder of the
Washington Post deemed it, "One of the most remarkable demonstrations of presidential
leadership in modern history." He was certainly correct. Tip O'Neil rudely
informed the newly elected president, on one of their first meetings, that Reagan was
"in the big leagues now", refering to the disparity between political atmosphere
of the Sacramento State House and the United States Capitol. Unfortunately for the
Democratic speaker, Reagan proved he was up to the challenge and defeated O'Neil in both
his shrewd bargaining (which Tip O'Neil characterized as "verging on blackmail")
and his appeal to the public. It worked and the Reagan tax plan went into effect.
THE FALLACIES
Both then and now the tax cut has had its critics. Much of it
based upon the dishonest and misleading "facts" and "studies" produced
by embarrased Keynesian economists and anti-Reagan liberals. The first argument
presented was that the tax cuts would not work or that they may even be detrimental, since
many Keynesians rationalized the failure of Keynesian theory by declaring that the economy
had expanded to its capacity. When the economy began to improve, they declared it a
Keynesian recovery, however, when that tactic failed they attempted to discredit
"Reaganomics", through duplicitous methods.
One aspect of this assault on the Gipper is the blatantly false notion that the deficit
increased due to a lack of government revenue that resulted from the tax cuts. However,
the release of wealth into the economy, caused by the tax cuts, made the economy more
productive, thus expanding the tax base, just as the Supply-Siders predicted. The
following chart, proves the tax revenues actually increased
| Year |
Revenue (In Billions of Dollars) |
| 1981 |
312.5 |
| 1982 |
287.7 |
| 1983 |
275.3 |
| 1984 |
290.6 |
| 1985 |
302.7 |
| 1986 |
346.5 |
| 1987 |
325.0 |
| 1988 |
349.0 |
| 1989 |
354.4 |
Source IRS Statistics of Data
| Year |
Lowest |
Next Lowest |
Middle |
Next Highest |
Highest |
| 1977 |
2.0 |
7.3 |
13.5 |
21.7 |
55.4 |
| 1980 |
1.6 |
7.0 |
13.4 |
22.2 |
55.7 |
| 1985 |
1.9 |
7.0 |
13.1 |
21.9 |
55.9 |
| 1990 |
1.6 |
6.6 |
12.6 |
21.0 |
58.1 |
Source: Ronald Reagan
Homepage
Orginal Source: Congressional Budget Office (CBO)
Additionally, the claim that only the wealthy benifited from this tax cut is
untrue. The preceding chart displays what the real effect was. While some
liberals have tried to pass off a later report, stating the poor suffered while the rich
made great gains, as the truth, it is actually a partisan revision of Congress' initial
report. This initial report proved exactly what the Democrats didn't want to hear, so a
later Congress readjusted the report to include excise taxes, corporate taxes, and other
unrelated taxes that actually don't affect workers. This later report "proved"
exactly what the Democrats wanted and has been passed off as gospel by liberals. Also, of
note both Congress' were controlled by Democrats.
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