Posted by: The Dauntless Conservative | May 6, 2012

An explanation why Reagan’s tax cut plan worked.


A while back, I posted my analysis of Reagan’s tax reform here:

https://thedauntlessconservative.wordpress.com/2010/09/01/the-reagan-tax-cuts-lessons-for-tax-reform/

Today, I am going to dig a little deeper and dispel more myths from the demoncrat party. While obamarx trashes Reagan with his tax increases,  he and demoncrats are wrong to use this fact to justify raising taxes. While it is true that Congress passed some tax increases during the Reagan administration, the socialist left try to use the tax increases that Congress enacted to discredit Reagan.  What they fail to to understand is which taxes have the most economic impact and the ones with the least economic impact, which I will try to explain. As a sitting president, Reagan could not always get what he wanted. It must be emphasized that Congress and Reagan were much more congenial in negotiating tax reform than they are today. It is more polarizing today.

They are summarized and available from the U.S. Treasury here in a PDF file:

REVENUE EFFECTS OF MAJOR TAX BILLS

http://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/ota81.pdf

Here is the tax cuts that I would argued that got economy rolling and why:

Economic Recovery Tax Act of 1981 phased-in 23% cut in individual tax rates; top rate dropped from 70% to 50%; accelerated depreciation deductions; replaced depreciation system with ACRS; indexed individual income tax parameters (beginning in 1985); created 10% exclusion on income for two-earner married couples ($3,000 cap); phased-in increase in estate tax exemption from $175,625 to $600,000 in 1987; reduced Windfall Profit taxes; allowed all working taxpayers to establish IRAs; expanded provisions for employee stock ownership plans (ESOPs); replaced $200 interest exclusion with 15% net interest exclusion ($900 cap) (begin in 1985).

Tax Reform Act of 1986 reduced individual income tax rates (top rate 28%) and repealed capital gains exclusion; lowered corporation income tax rates; top rate lowered to 34 percent; increased personal exemption amount from $1,080 to $2,000; set uniform capitalization rules for manufacturing or construction.

The above mentioned WERE KEY CUTS that were important to the average investor…even the average Joe or Mary Sixpack with a 401k at his/her workplace. Depreciation acceleration increases REVENUE for CORPORATIONS by increasing the depreciation expense, which is a write off on their IRS Form 1120 or Schedule C. Couple that with incentives for the average Joe as well as the wealthy to INVEST and whaddayhave? The booming ’80s and ’90s. The socialist left fail or refuse to see this. This drove the economic expansion.

Regardless of the amount of the tax increases, a tax increase in any shape or form is less money in the market place that could be put to work…a simple concept that the communist/socialist/democrat/left cannot comprehend.

A few metrics the socialist left ignore or refuse to accept is a Federal income/corporate tax cut/increase is not just that simple. There are many other types Federal taxes other than income.

Go to: http://www.irs.gov/taxstats/article/0,,id=188060,00.html

Scroll down to table 23 and 24. Notice in the Reagan years the change income levels and tax rates tagged to the income levels and compare them to the previous years. Take look at the Reagan years and notice the income level changes along with the rate changes? Income level changes that went along with the tax rate change (up or down) played a critical role. More ‘average Joes received a tax incentive to invest….well whaddayaknow….an economic boom.

The socialist left worship the state and the state is their milk. The left fails or refuses to understand the power of human creativity even in the most adverse economic conditions.

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