Tax cuts matter

From Calvin Coolidge to John Kennedy to Ronald Reagan, it is evident that tax cuts matter. The reason is both clear and simple. The prime purpose of tax cuts is to generate economic activity, and more activity generates more revenues – with the affluent paying larger shares – even at the lower rates, says Gene W. Heck, author of "Building Prosperity: Why Ronald Reagan and the Founding Fathers were Right on the Economy."

Comparing the magnitude of the Coolidge, Kennedy and Reagan income tax cuts:

In the 1920s, Coolidge cut the marginal tax rate from 70 per cent to 25 per cent; revenues increased from $719 million in 1921 to $1.164 billion in 1927, or by 61 per cent.

In the 1960s, Kennedy cut the marginal tax rate from 90 per cent to 70 per cent, increasing revenues from $94 billion in 1961 to $153 billion in 1968, or 62 per cent (inflation adjusted 33 per cent).

In the 1980s, Reagan cut the marginal tax rate from 70 per cent to 28 per cent; revenues increased from $517 billion in 1980 to $990 billion in 1990, or 99.4 per cent (inflation adjusted, 28 per cent).

Comparing the impact of the Coolidge, Kennedy and Reagan tax cuts:

The 1920s Coolidge tax cuts caused the percentage of income tax revenues paid by those with incomes over $50,000 to rise from 44.2 per cent of the total in 1921 to 78.4 per cent in 1928.

The 1960s tax cuts caused the percentage of income tax revenues paid by those with incomes over $50,000 to rise from 11.6 per cent of the total in 1963 to 15.1 per cent in 1968.

The 1980s Reagan tax cuts caused the percentage of income tax revenues paid by the top 10 per cent of earners to rise from 48 per cent of the total in 1981 to 57.2 per cent in 1988.

Source: Gene W. Heck, Building Prosperity: Why Ronald Reagan and the Founding Fathers were Right on the Economy, Rowman and Littlefield, 2007.

For more on Taxes: http://www.ncpa.org/sub/dpd/index.php?Article_Category=20

FMF Policy Bulletin/ 16 January 2007