Monday, September 28, 2009

The Kennedy Tax Cuts and Prosperity--Part II

Nancy Tengler

Here's one for you. In 1894which prominent newspaper opposed the imposition of an income tax describing it as "...a vicious, inequitable unpopular, impolitic and socialist act?" Hmmm. Another hint: In 1909 they wrote that taxing income would get the government in the habit of "helping themselves to the property of others" a habit they feared would not be easily cured. (From The End of Prosperity, Laffer, Moore and Tanous (49).) Give up?
The New York Times published those comments as the question of initiating an income tax (direct taxation to the Founders) was being considered. As we know, the tax was eventually allowed through the ratification of the Sixteenth Amendment in 1913. And as we have already discussed, it didn't take long--approximately 50 years--for the tax to balloon to a top marginal tax rate of 91%. So that we're clear, that means that Americans in the top marginal tax bracket paid the government 91% of every incremental dollar they made. In other words they gave the government 91 cents and kept 9 cents.
Enter Kennedy. 1963. The Economics Club of America. " rates are too high today, and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the tax rates."
Most notably, he proposed the top rate be reduced from 91 to 70 percent.
The issue was debated for months, eventually passed and the economy grew robustly in '64, '65 and '66. The employment picture improved as well to the fullest employment in decades.
There is a lesson for today's politicians in Kennedy's example. Cutting taxes is not partisan. It is sound economic policy. Allowing American's to make the decisions of how to spend the money they have earned is the essence of liberty as outlined by our Founders. They knew what the New York Times knew and what Kennedy understood in his core: When you free capital to be invested by those who earned it, the economy will flourish. Companies will grow and hire, incomes will rise and revenues will grow.
"An economy constrained by high tax rates will never produce enough revenue to balance the budget, just as it will never create enough jobs or enough profits." John F. Kennedy, Democrat.
Congress, President Obama please take a look at our history. Cutting taxes is good for Americans. It's time to return to your roots.

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