REAGAN'S REVOLUTION: A LEGACY REVERED AND EMULATED

June 30, 2004

Despite its critics, Reagan's legacy of lower taxes has seen its influence emerge all over the world. Dozens of countries, such as India, Ireland, Russia and even China, have attempted to emulate Reagan's successful economic policies, says Alan Reynolds.

  • His policy of cutting taxes led to a 26 percent growth in federal tax revenues from 1980 to 1989.
  • This increase in tax revenues is a larger gain than from 1970 to 1979, an era of high taxation.
  • From 1983 to 1989, the economy grew by 4.3 percent a year.

Reagan understood that lower taxes generate higher levels of productivity, investment and entrepreneurship. Also, people are less likely to shelter their income when government takes less of it, explains Reynolds.

Contrary to popular belief, Reagan's dictum of lower taxes was also embraced during the presidency of Bill Clinton, a period in which the economy grew by 3.7 percent a year. While some assert that it was President Clinton's tax increases that spawned this economic boom, few understand that key tax rates were actually much lower during the Clinton years than during most of the Reagan years, says Reynolds:

  • From 1983 to 1986, the highest income tax rate was 50 percent on individuals and corporations.
  • Conversely, from 1993 to 1996, the highest income tax rate was 39.6 percent for individuals and 35 percent for corporations.
  • Similarly, the capital gains tax rate was 28 percent from 1987 to 1990, as compared to just 20 percent from 1997 to 2000.

Though some continually fail to understand why the economy and tax receipts grow faster with lower tax rates, for Reagan, this was no surprise at all.

Source: Alan Reynolds, "The Reagan renaissance," www.townhall.com, June 10, 2004.

 

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