President Reagan's Legacy: Lower Taxes Worldwide
In his column for the Investor's Business Daily's weekend edition, Stephen Moore asserts:
"The living legacy of Reaganomics, or supply-side economics, is that tax rates keep falling all over the world. Imitation really is the sincerest form of flattery.
"After Reagan cut the top marginal individual income tax rate from 70% in the late 1970s to 28% by the end of his presidency in 1989, a funny thing happened: Rates started falling like dominoes in nearly every corner of the globe. The punitive rates of 60%, 70% and more that were the worldwide norm in the '70s are today almost all gone — and seem as outdated as Bee Gees music.
"Consider evidence compiled by the World Bank and the Organization for Economic Co-operation and Development. The average personal income tax rate of industrialized countries in 1980 was 64%. It fell to 50% in 1995 and by 2010 stood at 41% — all in all, a decline of one-third."
And it's not just reducing individual tax rates. According to Moore, "Tax-cutting has been even more pronounced on the corporate side. Since the start of the Reagan era, the average rate in industrialized nations on corporate income has fallen nearly in half — from 48% to 25%."
Here's the basis for Moore's argument:
"Reagan changed the way the world looked at taxes as the U.S. economy experienced one of its strongest and longest booms, with 40 million new jobs created over the next 18 years. Bill Clinton raised income tax rates, but he also cut capital gains taxes to 20% from 28%.
"From 1982 to 2005, middle-class Americans' after-inflation income rose by nearly a third.
"The U.S. began sucking capital out of the economies of other nations as jobs and businesses flowed back to America. Other industrialized nations had to respond by cutting their tax rates in order to stem the outflow and keep their economies afloat."Yet this still isn't accepted wisdom . . . ."
Admittedly, there is no clear consensus on the Reagan-era tax cuts. For example, in a February 3, 2011 Washington Times article, Stephen Dinan quotes a critic who has just published a book on President Reagan:
“If you look at the specifics of his agenda — cutting federal spending — well, he didn’t. … He readjusted [taxes] somewhat, but total federal tax takes were the same when he left office as when he came in,” said Michael Schaller, a professor at the University of Arizona who has just published a book, “Ronald Reagan.” “Somehow those details are forgotten, and what we tend to remember is the ceremonial president who tends to evoke a sense of pride and can-do spirit.”
“Parts of him have aged very well — the Reagan image. Even I, who disagreed with almost all the substance of his policies, have come to have a higher regard for his skills. I think those will last, you can’t deny them,” Mr. Schaller said. “The public Reagan is probably here to stay, like the public FDR, the public Teddy Roosevelt. That’s pretty well enshrined now. I think the substance of the policy is still much contested.”
A September 12, 2010 article at CNN*Money reminds us "it's worth considering just what Reagan did -- and didn't do -- as lawmakers grapple with many of the same issues that their 1980s counterparts faced: a deep recession, high deficits and a rip-roaring political divide over taxes."
It's also important to recognize that, as the Regan Foundation reminds us, when President Reagan took the oath of office on January 20, 1981, "the country was experiencing some of (the) bleakest economic times since the Depression. Taxes were high, unemployment was high, interest rates were high and the national spirit was low."
Peter Sperry, an economics fellow at the Heritage Foundation, wrote a more extensive Backgrounder (No. 1414, March 1, 2001) on the Reagan economic record. He also points to another Backgrounder (No. 1415, March 5, 2001) on tax rates and class warfare.
The Institute for Research on the Economics of Taxation (IRET0 published a 34-page Policy Bulletin (No. 102, November 11, 2011) on Reagan era tax policies, and includes the modeling of the Reagan tax changes. It includes numerous tables and charts.
Thomas Sowell weighed in with a paper in 2012, published by the Hoover Institution (Publication No. 635), that dealt with the "trickle down" theory and "tax cuts for the rich" -- terms used by the left to argue against Reagan tax cuts.
A search at the Tax Foundation produces a list of documents on Reagan tax cuts, includinga comparison of Kennedy, Reagan, and Bus tax cuts, by William Ahern, (Fiscal Fact 15, August 24, 2004).
Finally, there's this short study, dated approximately 1994, from Congress' Joint Economic Committee (JEC) on the Reagan tax cuts, which provides lessons for tax reform.