Robert Samuelson's attack on the Reagan tax cuts [op-ed, July 28] was misplaced.
Mr. Samuelson is doubtless correct in looking to Federal Reserve policy as a critical factor in determining whether American workers face boom times or hard times. Ronald Reagan, by cutting taxes dramatically and moving to deregulate an overregulated economy, changed America from a relatively high-tax economy into a basically low-tax economy. Investors, who tend to base their decisions about investing in businesses on things such as tax rates, and not White House press releases, have responded accordingly. A Wall Street boom and impressive job creation began in 1983 and have for the most part continued.
Before the Reagan tax cuts, federal revenues were $517.1 billion (FY 1980). Economic growth was so strong after the tax cuts took effect that revenues at the end of the Reagan years increased to $991.2 billion (FY 1989). But the Democratically controlled Congress insisted that spending increase even more and never passed even one balanced budget during the 1980s.
The tax system gradually has strayed from the prosperity-producing tax system bequeathed by the Reagan administration. The top tax rate in 1989 was 28 percent. The top tax rate today is 39.6 percent. Taxes as a percentage of GDP at the start of the Clinton administration were 17.8 percent. Today taxes account for 20.7 percent of the economy -- a truly remarkable increase in the tax burden in just six years.
These changes in the tax burden reduce economic growth to a level below what it could be, and they penalize work, saving, investment and entrepreneurship. They also hurt long-term economic growth.
But there's another problem with our high level of taxation. The budget surpluses it produces will not go to debt reduction. According to the research conducted by the Joint Economic Committee, for every dollar of budget surplus accumulated, 60 cents will be spent within one year. Mr. Samuelson and other critics of tax cuts ignore this political reality. Democrats and Republicans (although to a lesser degree) will spend the surplus.
Tax cuts are the best way to ensure that our economy will continue to grow and remain competitive in the world economy. Ronald Reagan understood that. The economy will respond to tax incentives just as powerfully in the future as it did in the 1980s.
U.S. Representative (R-Ga.)