Economy & Budget

Reagan’s ‘voodoo economics’ are precisely what America needs

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Here we go again. In an article about President Trump’s proposed tax cuts, the New York Times trotted out the old George H.W. Bush cliché, “voodoo economics,” to discredit the notion that cutting tax rates will increase revenues.

One can forgive the Times for being too lazy to come up with a new cliché. One cannot forgive them for being too lazy to examine the result of voodoo economics.

{mosads}Senate Minority Leader Chuck Schumer quickly weighed in: “That’s not tax reform,” he said on the Senate floor. “That’s just a tax giveaway to the very, very wealthy that will explode the deficit.”


That’s exactly what Schumer said about the tax cuts of 1997. “Explode the deficit.” Since then Chuck has spent a good part of the past 20 years applauding President Clinton for being the first president in 40 years to balance the budget which was, of course, the budget built on those “explosive” tax cuts.

Since voodoo economics has been around for over 30 years, it might be worth our time to examine exactly what occurred after that adventure into witchcraft.

When Ronald Reagan proposed tax cuts in 1981 our economy was in the ditch. The prime interest rate was 21 percent, inflation was 14 percent, home mortgage rates were 17 percent and we had double-digit unemployment. The top marginal tax rate was 70 percent. They even had a name for it – stagflation.

President Reagan agreed with economics professor Arthur Laffer’s theory that high tax rates depress economic activity. The “Laffer Curve” argued that there is a point beyond which you will stop earning if most of your earnings go to others and tax revenues will decline. There is also a level below which you will bust your butt if you get to keep most of what you produce and tax revenues will increase.

For all of the ridicule the Laffer Curve has been subjected to since it was first adduced over 40 years ago, the Reagan tax cuts of 1981 proved it to be common sense.

In the second quarter of 1980, six months before President Reagan took office, the U.S. GDP declined by eight percent – the same decline President Obama inherited in the quarter before he was inaugurated. In 1980 the Gross Domestic Product, in today’s dollars, was about $3 trillion.

Reagan was faced with a Democrat majority in the House of Representatives that did not take kindly to the idea of cutting taxes on the rich. They loved George Bush’s term, voodoo economics, and threw it about with abandon. But a few serious Democrats in the House, led by former economics professor Phil Gramm of Texas, agreed with Reagan and Laffer. They looked at a negative economic growth rate in 1980, compared with the average economic growth since 1945 of more than 3 percent, and sided with tax cuts.

The bipartisan agreement “slashed” taxes all the way down to 50 percent on wages, 48 percent on corporate income and 20 percent on capital gains.

During the next 10 years the American people responded to the new tax regime by creating 4 million new businesses and 20 million new jobs. The size of the economy doubled from $3 trillion to $6 trillion. And tax revenues to the federal government doubled from about $500 billion in 1980 to over $1 trillion in 1990.

The American people, discovering more money in their pockets, responded with their generosity. They doubled their gifts to strangers – people they never met – through charities – from $44 billion in 1980 to nearly $100 billion in 1990.

You will hear a lot of talk over the next few months about how Reagan’s tax cuts increased the debt from one trillion to four trillion dollars. The debt did increase, but not because of declining revenues. Revenue doubled. Unfortunately spending more than doubled and the debt increased accordingly.

Since 1929, the longest consecutive stretch of years in which the United State saw real GDP grow by 3 percent or better was the seven year period from 1983-89, during Ronald Reagan’s presidency.

In his first inaugural address President Reagan addressed our challenges at home and abroad. Then he said this: “With a reliance on God’s help, and our commitment, we believe that we can meet those challenges. And why shouldn’t we believe that. We are Americans.” 

Bring on the witches. Voodoo coming up!

John Linder (@Linderje) was a member of Congress from Georgia from 1993-2011.

The views expressed by contributors are their own and are not the views of The Hill.

Tags Chuck Schumer Donald Trump George H.W. Bush John Linder Ronald Reagan Voodoo Economics
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