Parting Thoughts from Don Regan: Tax Cuts Increase Growth
June 11, 2003
The late Don Regan, a Treasury secretary in the Reagan administration, comments in today's Wall Street Journal that the recent debate over President Bush's tax proposal reminds him of the 1981 debate over President Reagan's tax cuts.
- In 1981, the economy was entangled in stagflation -- a combination of slow growth and inflation that could not be accounted for by Keynesian economics.
- Tax cuts, it was feared, would only create more deficits, stimulate more inflation and raise interest rates -- which were already in the high teens.
- President Reagan, recognizing that growth was held back by high tax rates and excessive regulation, proposed tax cuts and economic deregulation.
Opponents predicted dire consequences, but today we know better:
- Although the deficits during the Reagan period were higher (as a percentage of gross domestic product) than the deficits projected today, interest rates declined after the Reagan tax plan was adopted.
- Tax cuts, from the Kennedy tax cuts of 1962 through the Reagan cuts of 1981 and 1986, have spurred economic growth by improving incentives to work and invest and by making more money available for new ventures and small business -- where the real job growth occurs.
- Similarly, today's dividend tax cut and the cut in the capital gains rate will increase long-term growth.
Today's economy is changing, as unskilled or semiskilled jobs are going overseas, and jobs involving knowledge and skill -- technology, specialized services, finance, health care, energy, entertainment and communications -- are growth areas here at home.
The Bush tax program is ideally suited for this new economy.
Source: Donald T. Regan, "A Reaganomic 'GPS,'" Wall Street Journal, June 11, 2003.
For WSJ text
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