During a presidential debate on October 28, 1980, candidate Ronald Reagan listened to the responses that President Jimmy Carter gave to questions asked. Carter’s response about the economy meant that the federal government would solve problems by spending money on social programs and then raising taxes to pay for those programs.
Reagan said that response was typical of the Democrat’s approach to problem-solving. The Dems seem to believe that it is fair and justified to take income away from people that earned it and give it to people, who for whatever reason, did not earn it.
“Tax and Spend. There you go again,” Reagan said.
That statement resonated with American voters. At the time, the economy was mired in stagflation, meaning the economy was stagnant yet inflation was increasing, eventually reaching 13%. Unemployment was nearing 10%.
A new term was developed called the misery index. This was found by adding the unemployment rate to the inflation rate. The misery index was over 20%. It was obvious that the tax and spend philosophy didn’t work.
Reagan’s position was to do exactly the opposite. He wanted to dramatically cut taxes and make the federal income tax code less progressive. He also wanted to reduce government spending and attempt to balance the budget.
After the election, Reagan did just what he said. He convinced Congress to cut taxes and follow his plan. In 1982 all tax rates were reduced with the top tax rate dropping from 70% to 50%. The lowest tax bracket was decreased from 14% to 11%. The capital gains tax rate was reduced from 28% to 20%.
The combination of a recession and a tight money policy from the Federal Reserve had reduced the inflation rate to 6% by 1982 and down to 3% by 1983. Reagan’s tax cut increased economic growth and brought the unemployment rate down to just over 7%.
More importantly, economic growth accelerated. In 1983, GDP growth was 7.5%. In 1984 almost 6%. When Reagan took office in 1981, growth was negative.
Reagan’s tax cut, coupled with the right Monetary Policy, reduced inflation, reduced unemployment and accelerated economic growth. Although he tried to hold spending down, he knew the military had to be rebuilt causing the budget to be in deficit.
The tax cut did not add to the deficit, because in each year following the tax cut, tax revenue increased. Although the rate was lower, the increase in growth led to a large increase in taxable income. The lower rate but the large taxable income resulted in tax revenue increasing.
A similar situation occurred in 1997. President Clinton reduced the capital gains tax from 28% to 20%. That led to the economy growing at a 4 ½% annual rate for the next four years. Tax revenue increased significantly. Working with the Speaker of the House Newt Gingrich, the deficit was eliminated. And Clinton declared in his State of the Union speech, “The era of big government is over.”
What would happen if the Dems won the presidential election this fall and implemented their policies?
The Dems want to raise taxes. The highest tax rate would be increased from 37% to 39.6%. The corporate tax rate, which Trump reduced to 21% in 2018 would increase to 28%. The capital gains tax rate would increase from the current 20% to 28%.
Joe Biden frequently says that taxes will go up if he is elected.
What would the government do with that extra tax money? They would spend it on social programs. They would give free health care to any American who couldn’t afford to pay for their own care. He would pay the tuition bill for every college student so they could attend at no cost.
He would spend money on social programs that mostly benefit low-income earners. His policy is to raise taxes and vastly increase government spending. In other words, he wants to tax and spend. That policy would lead to stagflation.
We need the economy to grow. We need to have Americans paying less in taxes. We need Americans to contribute to the economy so that they can pay for their own health care and their own college. We need a continuation of President Trump’s policies.
Even if you believe that Trump is a bad person, as the Democrats try to portrait him, you will have to admit his policies are good for America. Vote for the policies that will keep America great.