As the U.S. economy enters the final quarter of 2022, Americans are faced with a grim outlook. While inflation continues to soar, gas prices begin to tick back up amid turmoil with OPEC, and S&P Global projects American growth to sit at a measly 1.6% through 2022 (and an even lower 0.3% in 2023), the American people are suffering.
It is clear that decisive action must be taken – and quickly – if we’re going to put our nation back on a path to prosperity. And nowhere do we find a better laid out map to success than in the latest work of Drs. Arthur Laffer, Brian Domitrovic, and Jeanne Sinquefield – “Taxes Have Consequences: An Income Tax History of the United States.”
This expertly woven history explores a previously untold story: how the American economy has adapted to the reality of our income tax system since 1913.
Through booms and busts, ups and downs, bouts of a Keynesian Flu and our Supply Side Recoveries, the authors show the serious negative consequences of high tax rates while exploring the booms resulting from serious tax cuts.
One perfect example of the economic benefit from tax cuts cited comes courtesy of the Kennedy Administration of the early 1960s. As the authors explain:
When president John F. Kennedy’s tax cut lowered the top rate from 91 to 70 percent over 1963-1965, those subject to it saw a whopping 233 percent increase in their rate of return … Boom – suddenly, high-end income-earning activity more than tripled its profitability.
And in the introduction lent by President Donald J. Trump, who bestowed the Presidential Medal of Freedom on Laffer for his work in economics, our former president explains how tax cuts lead to growth by sharing the success of his own Tax Cuts and Jobs Act of 2017:
Businesses responded to the greater incentives: they earned more, their workers earned more, products were produced more efficiently, tax shelters shrunk … In fact, in the two years following my tax bill – from the fourth quarter of 2017 through the third quarter of 2019 – total federal tax revenues grew by 7 percent.
But this period of tremendous growth has unfortunately been overtaken by Joe Biden’s damaging economic agenda.
His administration has perniciously dismantled the growth we enjoyed under Trump through trillions of dollars in new spending, Biden’s expansion of the IRS in the so-called Inflation Reduction Act, and House Ways and Means Chairman Richard Neal’s proposed tax hikes, should his party maintain its House majority after the midterms.
The authors of “Taxes Have Consequences” – Laffer in particular – have long demonstrated how this desire to hike taxes amid economic downturn can only bring further disaster. And as they conclude in their latest work: “Government needs to seriously second-guess itself when it begins to find tax-rate-increase arguments convincing.”
Just as it was when Laffer’s work was first introduced to the economic mainstream in the Mundell-Laffer Hypothesis, it could be said that “The United States has been passing through an economic nightmare.”
The ideas of Laffer helped the Reagan and Trump administrations usher in two periods of historic economic growth, and his latest work will certainly help current policymakers chart our way back into booming economic prosperity.
Nathan Williamson is a conservative activist and writer. His economic commentary has been featured in such outlets as the Daily Caller, the Washington Examiner, and RealClearMarkets.