NCPA - National Center for Policy Analysis

Tax Cuts Play in Other Countries, So Why Not Here?

January 13, 2000

Japan slashed tax rates early last year and German officials want to do the same -- all in the name of reviving their economies, just as President Ronald Reagan did in the 1980s. Although Republican presidential candidates are vying with one another to publicize their own tax-cutting programs, tax hikes have been characteristic of the 1990s.

It appears that the incentive for the U.S. to cut rates has so far been undermined in part by our surging economy. "When things are going well and the economy is growing, it's hard to get a consensus for change," explains National Center for Policy Analysis economist Bruce Bartlett.

So must tax cuts depend upon disappointing economies? That appears to be the case in Germany and Japan.

  • Japan cut taxes by $77 billion -- slashing, among other things, the top personal income tax rate by 13 percentage points and the effective corporate tax rate by 9 percentage points.
  • German Chancellor Gerhard Schroeder has promised to cut the top personal income tax rate to 45 percent from 53 percent over five years -- and the top federal corporate tax rate to 25 percent from 40 percent.
  • Bartlett points out that when the U.S. and Great Britain cut their tax rates in the early 1980s, other nations followed.
  • In fact, the top average income tax rate worldwide fell from 58.2 percent in 1980 to 37.3 percent in 1998, according to economist James Gwartney of Congress' Joint Economic Committee.

Economists say that Germany's tax-cutting agenda could spread to other European countries but the outlook at this point is doubtful.

Source: Charles Oliver, "Tax-Cutting in Foreign Countries: Trying to Jump-Start Economies," Investor's Business Daily, January 13, 2000.


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