It was in the mid-1970s that I embraced what I considered to be common sense policies of cutting income taxes as a powerful way to encourage work, thrift, and investment, while discouraging indolence and sheltered, idle capital. The individual who most influenced me was then-U.S. Congressman Jack F. Kemp (Rep., New York), a self-educated former MVP American Football League quarterback, whose speeches offered lessons from history, delivered in a high energy speaking style he may have honed while calling plays in Buffalo Bills huddles.
Kemp’s legislation proposed to reduce Federal income tax rates by one third, and he soon gained Delaware U.S. Senator Bill Roth as a co-sponsor, and a key endorsement from then-presidential candidate Ronald Reagan. Some months after Reagan’s 1981 inauguration, the “Reagan-Kemp-Roth” legislation passed the Democrat House and the Republican Senate, and was signed into law at the president’s California ranch in 1981.
An indispensable economist advising the revolutionary elected trio was Arthur Laffer, then of the University of Southern California. Laffer spoke in New York City at the behest of the Manhattan Institute for Policy Research (then The International Center for Economic Policy Studies) in 1978, and I was there, paying rapt attention. He advocated precisely the sort of income tax cuts championed by Kemp, and with an energy level to rival the congressman’s.
Back then, I was the young editorial director at New York City-based WOR-TV, and persuaded my editorial board to be the first television station in the United States to support Kemp-Roth and then Reagan-Kemp-Roth.
Those were heady days for many, including me, who hoped for the “Reagan Revolution” that was about to come and create the greatest economic boom in history, with over 20 million new jobs and more earnings delivered to Americans in all income brackets.
‘Taxes Have Consequences’
“Taxes Have Consequences” is the logical, comprehensive extension and culmination of Arthur Laffer’s high-impact career. With fellow economists Brian Domitrovic and Jeanne Cairns Sinquefield, Laffer has produced a magnum opus for supply-side advocates and the curious who want to learn how various “booms” were unleashed in economic history. Indeed, Laffer’s book should serve as a required text in all university economics and business departments.He catalogues the post-World War I doldrums caused by progressive President Woodrow Wilson’s new income taxes, which were undone by Presidents Warren Harding and especially Calvin Coolidge and his secretary of the treasury, Andrew Mellon, whose income tax reductions sparked the Roaring Twenties.
Such was the case thanks to the Kennedy income tax cuts, passed after the president’s death. One architect of those reductions, Norman Ture, also helped to craft the Reagan tax cuts, several administrations later.
The book demonstrates, time and again, that when tax rates spike upward, the wealthy shelter their income, following Dodge’s lead. Tax revenues decline and those with modest incomes lose in various ways. Fewer jobs are generated and there is less revenue for government programs.
This analysis should never be slandered as “trickle down” philosophy, but rather advanced as President Kennedy did, predicting that tax cuts would prompt a “rising tide to lift all boats.”
Indeed, when income tax rates are absurdly high, like the 94 percent marginal rate that prompted Ronald Reagan to finally switch from Democrat to Republican in 1962, virtually no one actually pays at that rate. Instead, they shelter income like Dodge did, or finagle creative tax deductions, sometimes claiming business-related luxuries, to avoid government-imposed financial flagellation.
Rebutting conventional interpretations of the Great Depression, Laffer and colleagues demonstrate how the high-tax, high-tariff, high-spending policies of Presidents Herbert Hoover and Franklin Roosevelt actually had much in common and failed to rouse the American economy from the depression those policies had actually caused.
Laffer’s case is not mere verbiage, as this book is replete with graphs, tables and charts that provide the statistics and particulars that underscore his arguments so persuasively. Some of the tables are esoteric enough to satisfy the graduate economics student, such as “Real GDP less Defense per Adult Detrended vs. Real GDP Per Adult Detrended. Quarterly trend 1Q-39 to 2Q 20, detrended using real GDP values from 1Q-50 to 1Q-217.”
If you are a non-wonky lay reader, there’s no need to recoil from such data, because professors Laffer, Domitrovic, and Sinquefield quickly explain matters clearly for us, to wit: “This statistic tells us best how well the economy was doing in terms of returns to work that the population can use and enjoy against long-term average performance in each particular epoch of policy.”
The trio of economists then demonstrates how the high-tax 1950s offered mediocre aggregate performance, while the booming 1960s were unleashed by the supply-side tax rate reductions they advocate. History repeated itself with Jimmy Carter’s big-tax, punishing-inflation, and proliferating joblessness in the 1970s, with conditions ripe for the robust revival of the American economy triggered by those Reagan-Kemp-Roth tax rate cuts.
As persuasive as this book is, a complementary examination of economic successes and failures might also take a look at monetary policy, along with the costs of business over-regulation versus the fruits of properly-ordered, limited-but-necessary regulation.
The foreword for “Taxes Have Consequences” is provided by former President Donald Trump, who entrusted his economic reforms and tax policy to Larry Kudlow, Kevin Hassett, and other Laffer-friendly supply-siders. Say what you will about some of Mr. Trump’s controversial statements and actions, his tax reductions and economic policy delivered low-inflation, high-growth results for the American people.
Even some President Biden voters and Mr. Trump-averse observers would acknowledge that the Laffer model, and the Mellon-Kennedy-Reagan-Trump results are in startlingly positive contrast with the high tax, shrinking incomes, record spending, punish-the- energy-sector, high inflation economy caused by President Biden’s big-government administration.
That capsulizes the book and this review quite well.
