NCPA - National Center for Policy Analysis

Economic Miracles From Tax Cuts

October 16, 1998

Cutting taxes on the margin can forestall or mitigate a recession, a Wall Street Journal editorial argues. Laboring under the heaviest tax burden since World War II, the U.S. economy appears headed for a recession next year, most economists warn. So the time is ripe for slashing tax rates.

History has proved that cuts work:

  • President John F. Kennedy's early-1960s initiative to reduce the top marginal rate a full 26 percentage points sent growth rates -- which had been averaging only 2 percent -- soaring into the 4 percent to 6 percent range.
  • In 1978, as it became clear that tax rates on capital gains would be lowered from 49 percent to 28 percent, investments in venture funds increased tenfold as capital once again flowed.
  • President Ronald Reagan's rate cuts, which were phased in from 1981 to 1983, were accompanied by robust economic growth.
  • In 1986, Reagan pushed marginal income tax rates down to an unprecedented 28 percent, thereby generating GDP growth which averaged 4 percent in the following years.

In the estimation of many economists, targeted tax cuts do little or nothing to energize the economy. Cutting rates at the margin -- on the next dollar of income generated by individuals and firms -- have done, and can again do that job.

Source: Editorial, "Tax Cuts for Growth," Wall Street Journal, October 16, 1998.


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