NCPA - National Center for Policy Analysis

Tax-Cut Consequences

March 19, 1999

By just about any measure, federal taxes are at an all-time high, analysts report. State and local taxes in many cases add to taxpayers' pain.

  • The Tax Foundation reports that taxes at all levels eat up about 38 percent of the typical duel-earner family's income.
  • Such a family is paying more than $22,500 in taxes to all levels of government.
  • The federal government alone will consume 20.5 percent of gross domestic product in taxes this year.

Many economists believe that at lower tax rates, the economy's performance would be even better than it is -- with greater productivity, higher government revenues and more disposable income for consumers.

That has been the story following the three major rate cuts this century:

  • In the 1920s, the government cut the top income tax rate from 73 percent to 25 percent -- and the economy grew 59 percent between 1921 and 1929, with revenues from personal income taxes climbing 61 percent.
  • President Kennedy's tax cuts of the early 1960s saw the top rate decline from 91 percent to 70 percent -- followed by annual GDP gains of 5 percent on average during both the Kennedy and Johnson administrations.
  • Finally, in the 1980s, President Reagan cut the top personal income tax rate down to 28 percent from 70 percent.

Those Reagan cuts pulled the economy out of recession and ushered in a seven-year recovery.

In all three cases, the share of income taxes paid by the highest earners in the nation increased dramatically, economists report.

Source: Macroscope, "Cut Taxes Right Now?" Investor's Business Daily, March 19, 1999.

 

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