Growing the Economy:
Three Models of Failure, Three Models of Success
There’s a debate raging in Washington over how to improve economic growth. On the one side, the liberal establishment wants to “stimulate” the economy by stealing money from taxpayers and giving it to unionized government make-work projects. On the other side, free market conservatives favor lower marginal tax rates, full business expensing, tax-free savings, free trade, sound money, and lower government spending. In the recent past, there have been three models of “stimulus” failure, and three models of free-market success.
Failed “Stimulus” Plans
* In 1997, Argentina’s economy began to worsen. In response, Argentine non-interest government spending grew from 23% of GDP in 1997 to 25% of GDP by 2001. The equivalent in the U.S. would be an immediate increase in government spending of nearly $300 billion. Despite this, average real GDP growth in the period was just 0.7%
* In the 1990s, Japan tried to grow government to “prime the pump” of the economy. Government spending grew from 32% of GDP in 1991 to 38% of GDP in 2000. The equivalent in the U.S. would be an immediate increase in government spending of nearly $900 billion. After this experiment, Japan’s per-capita national income fell from 86 percent of the U.S. level in 1991 to only 74 percent in 2000. The people of Japan became poorer after this massive government “stimulus”
* In 1929, the U.S. entered the Great Depression. In the decade following, a Republican failed president (Herbert Hoover) and a Democrat failed president (FDR) increased federal spending from 3.4% of GDP in 1930 to 10.3% of GDP in 1939. The equivalent today would be an immediate increase in government spending of $1 trillion. Despite all the spending of the New Deal, the U.S. economy actually shrank from $97.4 billion to $89.1 billion, or nearly 10 percent in 10 years
Successful Growth Models
* In late 1963, Congress implemented the Kennedy tax cut, which lowered the top marginal personal income tax rate from 91% to 70%. Until LBJ raised taxes to pay for the Vietnam War and Great Society, average annual real GDP growth from 1964-1966 was 6.2%.
* In 1983, the Reagan tax cuts were fully implemented. They reduced the top marginal income tax rate from 70% to 50%, and also cut the corporate income tax rate. The top personal rate was reduced to 28% in 1986. Average annual
real GDP growth from 1983 to 1989 (the last year before the George H.W. Bush tax hike) was 4.3%
* In 2003, President George W. Bush cut the top personal rate from 38.1% to 35%, the dividend rate from 38.1% to 15%, and the capital gains rate from 20% to 15%. Until Democrats took over Congress in 2006 and announced the imminent end of these lower tax rates, real GDP growth averaged 3.0% per year
There are two models at work here:
* Keynesian Stimulus. The government spends taxpayer money on projects to “create jobs.”
.....The only jobs that are created are in the sprawling government bureaucracies. Because the government cannot spend any money on the economy it did not first take from the economy, this model cannot create economic growth. (emphasis mine)
It failed in Japan and Argentina in the 1990s, and right here in America in the 1930s. Economic growth was stagnant or negative in all three cases. The government purely and simply wasted taxpayers’ money
* Growth Economics. When marginal tax rates on work, saving, and investment are cut, incentives to produce more work, savings, and investment go up. The Kennedy tax cuts worked. The Reagan tax cuts worked. The Bush tax cuts worked. In all three cases, lowering marginal tax rates caused economic growth to rise and for all Americans to be better off.
How to Grow the Economy Now and Permanently
* Cut the top personal income tax rate from 35% to 25%
* Cut the corporate income tax rate from 35% to 25%
* Cut the capital gains and dividends rate from 15% to 0%
* Move to full business expensing of all business investments
* Stop double-taxing U.S. employers on their income earned overseas
* Kill the Death Tax
* Kill the Alternative Minimum Tax (AMT)
* Cut the payroll and self-employment tax rate in half, from 15.3% to 7.5%
* Cap government spending to the pre-Bush level of 18% of GDP
* Require full government transparency to ensure that taxpayer money is not wasted
All real GDP growth figures in the successful models taken from U.S. Department of Commerce, Bureau of Economic Analysis, National Income and Product Account
Americans for Tax Reform is a non-partisan coalition of taxpayers and taxpayer groups who oppose any and all federal and state tax increases. For more information, or to arrange an interview with Mr. Norquist please contact John Kartch at (202)785-0266 or by email at email@example.com.
Because the government cannot spend any money on the economy it did not first take from the economy, this model cannot create economic growth.
Take care ..........pilgrim.