NCPA - National Center for Policy Analysis


August 14, 2007

President Reagan's momentous policy change --  the enactment of a 25 percent across-the-board tax cut in 1981 -- unleashed the entrepreneurial spirit and creativity of America that dwells within all of us, says George Allen, former governor and senator from Virginia.

Census Bureau statistics bear out the benefits of President Reagan's tax relief:

  • Americans prospered and their lives improved with lower inflation, from 13.5 percent in 1980 to 4.1 percent in 1988.
  • Interest rates lowered from 18 percent on a 30 year fixed mortgage in 1981 to 8 percent in 1987.
  • Job growth was outstanding; unemployment had peaked at near 10 percent in the recession of 1981-1982 and dropped to 5.5 percent in 1989 once the whole 25 percent tax cut took effect.
  • Additionally, the American people kept more of what they earned; saw investments increased, and in the process, enjoyed the creation of 17 million new jobs.

Unfortunately, this new majority in Congress is beginning to ring the false alarm for increasing taxes.  But there are some basic principles the American people should insist on to ensure our economy continues to prosper, says Allen.  For example:

  • Taxpayers should have a choice in paying their taxes to the federal government, either a flat percentage without deductions, or the option to use the current complicated system with deductions.
  • An 18 percent tax on monthly internet access bills should be avoided; it would exacerbate the economic digital divide between low and middle income Americans, as well as limit the use of the Internet as an entrepreneurial tool.

In addition, there should be no increase in capital gains taxes:

  • The current tax cut has helped investment increase 9 percent per quarter-- more than double the growth rate of the economy.
  • Extension of the lower rates will ensure this continued economic growth.

Source: George Allen, "Reagan Tax Cuts Lifted Americans,", August 13, 2007.


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