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Margaret Thatcher’s tax cuts had made Britain the strongest European Union economy until Ireland passed it with even lower tax rates. Russia and almost all the former Soviet bloc countries in East Europe have moved to low flat-tax-rate systems. Western Europe, until recently, has not. Consequently, their economic growth rate has fallen 25 percent behind the pace set in the U.S. over the last decade.
A recent BusinessWeek article notes that only last year “Germany was among the ringleaders of an effort to force low-tax countries like Estonia to raise their rates.” Now Germany is joining the race to cut taxes by slashing their corporate income tax. BusinessWeek continues, “Chances for just such economy-boosting tax cuts are looking better.” (My italics.)
Back at home, real-world evidence throughout the 20th century shows a stark contrast between high- and low-tax policies. In the 1920s, the Harding-Coolidge-Mellon tax cuts produced the Roaring Twenties. But repeated tax increases by Herbert Hoover and Franklin D. Roosevelt produced and prolonged the Great Depression.
John F. Kennedy vowed to get the economy moving again after the sluggish growth of the high-tax Truman-Eisenhower years. JFK made good on his promise when he lowered the top income-tax rate from 91 percent to 70 percent. The result was the 1960’s boom. Twenty years later, Ronald Reagan turned stagflation into the 1980’s boom by slashing the top personal tax rate from 70 percent to 28 percent.
President Clinton, you might recall, raised taxes in his first term, but lowered them in his second term, contributing to a burst of investment and growth. Note the difference. In his first four years, the economy increased at a 3.2 percent annual rate. But his next four years produced a 4.2 percent economic pace.
