Thank you President Reagan for the enormous economic prosperity you ushered into the world with your Economic Recovery Tax Act you signed into law 25 years ago this weekend. The elite big government tax and spend liberals scoffed at your accross the board pro-growth/pro-investment tax cuts labling it as “voo-doo economics” (as our recent guest on our radio show Peter Beinart did in his book “The Good Fight.”) But they were wrong. Thank you for having the wisdom and courage to advance fiscal conservatism President Reagan!
“Reaganomics at 25” in today’s WSJ (subs req)
What did Reagan inherit?
Remember 20% mortgage interest rates? Terms like “stagflation” and “misery index” entered the popular vocabulary, and declinists of various kinds were in the saddle. The perception of American economic weakness encouraged the Soviet empire to ever bolder adventures, as reflected by Soviet tanks in Kabul and Communists on the march in Nicaragua and Africa.
What did Reagan do?
Monetary restraint was needed to break inflation, while cuts in marginal tax rates would restore the incentives to save and invest. With Paul Volcker at the Federal Reserve and Reagan at the White House, those two levers became the essence of the “supply-side” policy mix.
What have the results been?
The results have been better than even some of its supporters hoped. The Dow Jones Industrial Average first broke 1,000 in 1972, but a decade later it was barely above 800 — one of the worst and most enduring bear markets in history. In the 25 years since Reaganomics, however, the Dow has climbed to about 11,000, accounting for an increase in national wealth on the order of $25 trillion. To match that increase in percentage terms, the Dow would have to rise to some 150,000 in the next quarter century. American living standards have risen steadily, and U.S. businesses have created entire industries that didn’t exist a generation ago.
And the “Gipper’s” Supply Side Tax Cuts have not only helped America but have spurred enormous economic growth world wide:
Daniel Mitchell of the Heritage Foundation finds that the average personal income tax rate in the industrialized world is now 43%, versus 67% in 1980. The average top corporate tax rate has fallen to 29% from 48%. This decline in global tax rates has been the economic counterpart to the fall of the Berlin Wall. Most of Eastern Europe has adopted flat tax rates of 25% or lower, and the Russians now have a flat income tax of 13%. In Old Europe, Ireland’s corporate and personal income tax rate cuts have helped generate the swiftest economic growth in the EU.
Thank You President Reagan!