Kemp-Roth Changed American Economic Policy
July 15, 2002
Twenty-five years ago yesterday, then-Congressman Jack Kemp, Republican of New York, and then-Senator William Roth, Republican of Delaware, introduced the Kemp-Roth tax bill, fundamentally altering debate about U.S. economic policy.
The bill proposed cutting statutory tax rates by about 30 percent across the board, reducing the bottom rate from 14 percent to 10 percent and the top rate from 70 percent to 50 percent. It was long overdue.
- Massive inflation meant one needed twice as much income in 1977 to live as well as in 1963-- raising the effective tax rate on most people. (See chart.)
- Cost-of-living raises pushed workers into higher and higher tax brackets as if their real income had increased.
- The average federal income tax rate on a family with the median income rose from 7.09 percent in 1965 to 10.42 percent in 1977, when Kemp-Roth was introduced.
- Over the same period, the marginal tax rate went up from 17 percent to 22 percent -- meaning a worker with the median income went from keeping 83 cents out of every $1 of pay increase to keeping just 78 cents.
Kemp and Roth thought that this sharp rise in tax rates was largely responsible for the stagnation of the American economy in the 1970s. However, the dominant view of economists favored tax increases, not tax cuts.
Ronald Reagan rejected the conventional view and supported Kemp-Roth, making it his principal campaign issue in 1980. To this day, none of the economists who predicted hyperinflation from the Reagan-Kemp-Roth tax cut have ever acknowledged the gross error of their predictions. Yet the 180-degree turnaround in the American economy from the 1970s to the 1980s took place and cannot be denied.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, July 15, 2002
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