The Wall Street Journal
Comments by Jim Campbell
Revisionist historians would have us believe that the tax policy of Art Laffer, implemented by President Ronald Reagan adversely affected the U.S. Economy when the opposite is the case. Who you going to believe, the socialists professors or me?
In the link above Professor Paul Krugman tells us, that “Reaganomics” was a failure. The Reagan economy was a one-hit wonder. Yes, there was a boom in the mid-1980s, as the economy recovered from a severe recession. But while the rich got much richer, there was little sustained economic improvement for most Americans. Yea Mr. “I’ve never lived a day in the private sector,” sing to your choir nobody else can hear your pitch.
That’s my story and I’m sticking to it, I’m J.C. and I approve this message.
For 16 years before Ronald Reagan’s presidency, the U.S. economy was in a tailspin—a result of bipartisan ignorance that resulted in tax increases, dollar devaluations, wage and price controls, minimum-wage hikes, misguided spending, pandering to unions, protectionist measures and other policy mistakes.
When Reagan entered center stage. His first tax bill was enacted in August 1981. It included a sweeping cut in marginal income tax rates, reducing the top rate to 50% from 70% and the lowest rate to 11% from 14%.
What the Reagan Revolution did was to move America toward lower, flatter tax rates, sound money, freer trade and less regulation. The key to Reaganomics was to change people’s behavior with respect to working, investing and producing. To do this, personal income tax rates not only decreased significantly, but they were also indexed for inflation in 1985. The highest tax rate on “unearned” (i.e., non-wage) income dropped to 28% from 70%. The corporate tax rate also fell to 34% from 46%. And tax brackets were pushed out, so that taxpayers wouldn’t cross the threshold until their incomes were far higher.
The true lesson to be learned from the Reagan presidency is that good economics isn’t Republican or Democrat, right-wing or left-wing, liberal or conservative. It’s simply good economics. President Barack Obama should take heed and not limit his vision while seeking a workable solution to America’s tragically high unemployment rate. Will he? Unlike Bill Clinton who would do anything to get reelected, Obama will cling to his Marxist ways.
Over the past decade, states without an income levy have seen much higher growth than the national average. Which state will be next to abolish theirs?
Barack Obama is asking Americans to gamble that the U.S. economy can be taxed into prosperity. That’s the message of his campaign for the Buffett Rule, which raises income-tax rates on millionaires to a minimum of 30%, and for the expiration of the Bush tax cuts. He wants to raise the highest income tax rate by 20%, double the rate on capital gains, add a new 3.8% tax on all capital earnings, and nearly triple the dividend tax rate.
All this will enhance “economic efficiency,” insists a White House economic report. As for those who disagree, says President Obama, they’re just pushing “the same version of trickle-down economics tried for much of the last century. . . . But prosperity sure didn’t trickle down.”
Mr. Obama needs a refresher course on the 1920s, 1960s, 1980s and even the 1990s, when government spending and taxes fell and employment and incomes grew rapidly.
But if the president wants to see fresher evidence of how taxes matter, he can look to what’s happening in the 50 states. In our new report “Rich States, Poor States,” prepared for the American Legislative Exchange Council, we compare the economic performance of states with no income tax to that of states with high rates. It’s like comparing Hong Kong with Greece or King Kong with fleas.
Every year for the past 40, the states without income taxes had faster output growth (measured on a decadal basis) than the states with the highest income taxes. In 1980, for example, there were 10 zero-income-tax states. Over the decade leading up to 1980, those states grew 32.3 percentage points faster than the 10 states with the highest tax rates. Job growth was also much higher in the zero-tax states. The states with the nine highest income tax rates had no net job growth at all, and seven of those nine managed to lose jobs.
Then there’s the question of in-migration from state to state—or how people vote with their feet. As common sense would dictate, people try to move from anti-growth states and cities to more welcoming climates. There are relevant factors other than tax policy, of course (as in North Dakota today, where the oil boom has brought about the lowest unemployment rate in the nation), but in general the most popular destination states don’t have income taxes. That’s as true recently as it was 40 years ago.
Associated PressA worker hangs from an oil derrick outside of Williston, N.D., in July.
Over the past decade, states without an income tax have seen 58% higher population growth than the national average, and more than double the growth of states with the highest income tax rates. Such interstate migration left Texas with four new congressional seats this year and spanked New York and Ohio with a loss of two seats each.
The transfer of economic power and political influence from high-tax states toward low-tax, right-to-work ones is one of America’s most momentous demographic changes in decades. Liberal utopias are losing the race for capital. The rich, the middle-class, the ambitious and others are leaving workers’ paradises such as Hartford, Buffalo and Providence for Jacksonville, San Antonio and Knoxville.
Illinois, Oregon and California are state practitioners of Obamanomics. All have passed soak-the-rich laws like the Buffett Rule (plus economically harmful regulations, like California’s cap-and-trade scheme), and all face big deficits because their economies continue to sink. Illinois has lost one resident every 10 minutes since hiking tax rates in January. California has 10.9% unemployment, having lost 4.8% of its jobs over the past decade.
Now these blue states may raise tax rates again. In California, a union-backed ballot initiative would raise the state’s highest tax rate to 13.3%. Union-funded groups in Illinois aren’t satisfied with last year’s income tax rate hike to 5% from 3%, so they now want to go as high as 11%. That would put them in the big leagues with California and New York. And in Oregon, lawmakers are considering raising the highest rate to 13% from 9.9%. In all of these states, proponents parrot Mr. Obama, insisting that the rich can afford it.
They can, but they can also afford to save hundreds of thousands or more each year by getting out of Dodge. Every time California, Illinois or New York raises taxes on millionaires, Florida, Texas and Tennessee see an influx of rich people who buy homes, start businesses and shop in the local economy.
Republican governors in Florida, Georgia, Idaho, North Dakota, South Carolina, Ohio, Tennessee, Wisconsin and even Michigan and New Jersey are cutting taxes to lure new businesses and jobs.
Asked why he wants to reduce the cost of doing business in Wisconsin, Gov. Scott Walker replies: “I’ve never seen a store get more customers by raising its prices, but I’ve seen customers knock down the doors when they cut prices.”
Georgia, Kansas, Missouri and Oklahoma are now racing to become America’s 10th state without an income tax. All of them want what Texas has (almost half of all net new jobs in America over the last decade, for one thing).
Taxes aren’t all that matters, to be sure, and low-tax states don’t always outperform high-tax ones. Often people who smoke don’t get cancer, and sometimes people who don’t smoke do get cancer, but that doesn’t mean it’s smart to smoke. It’s a dangerous gamble to raise taxes on capital and businesses to nearly the highest rates in the world and hope that nothing bad will happen.
Mr. Laffer is president of Laffer Associates. Mr. Moore is a member of the Journal’s editorial board.