Under government-funded anesthesia, however, facts from the history of economics don't much matter. But, when the anesthesia finally is withdrawn--just like for a crack addict--the facts will cause even greater pain...that those who are currently on the dole will have to bear patiently until the nation's economy can be turned around.
How bad will the pain be?
Consider some facts concerning the growth of the federal government since 1983. According to an analysis conducted by the Chairman of the History Department at Sam Houston State University, Brian Domitrovic:
- Between 1983 and 1999, the federal government grew by 33%. Meanwhile, the US economy grew 78%. That's very good! An expanding economy increases tax revenues to the federal government at lower tax rates. More Americans and American businesses keep more of their incomes.
- In 2013, the United States spent 55% more money than it did in 1999 (a total of $6.4T/year). Economic growth increased only 30%. That's very bad! A slow-growing or contracting economy lowers tax revenues to the federal government. The options: 1) raise taxes; 2) incur a deficit; or, 3) cut the size of government and, hence, spending. The first option means less income kept by Americans and American businesses. The second option anesthetizes Americans and American businesses. The third option would cause too much pain for all--"spreading the pain around"--and is a political "nonstarter."
With the nation nearing an $18T accumulated deficit and with Congress raising the nation's debt with impunity, there is no doubt that the second option--anesthesia--will eventually "hit the wall" of economic reality. And when the anesthesia wears off, those on the dole will be in tremendous economic pain and will demand immediate solutions.
Unfortunately, there aren't any and there won't be any, unless one desires a socialist state.
But, Domitrovic offers a lesson from history that proves instructive.
In 1981, President Ronald Reagan signed the Kemp-Roth tax cut into law. Kemp-Roth brought income tax rates down 23% on average, lowered the capital gains tax rate by 29%, and reduced taxes for businesses. This reduction in tax rates stimulated much of the economic success of the 1980s and 1990s, reversing the Ford-Carter years that were characterized by "stagflation."
The facts prior to Kemp-Roth:
- From 1979 to 1981, inflation was 10%+. Economic growth was 1.2%/year. That's dreadful!
- In 1982, inflation dropped to 6%, but economic growth was at -1.9%/year. That's awful!
In contrast, Kemp-Roth stimulated the economy and generated economic growth between in the 18 years spanning 1981 and 1999:
- Lower tax rates caused businesses to pay their taxes, rather than hiring lawyers to find loopholes to save cash.
- 40M new jobs were created (or, 2.222M/year).
- Unemployment dropped from 11% to 4%.
- Inflation dropped from a 12-year, 8% average to 3%.
When the anesthesia wears off and it certainly will because deficit spending cannot continue unabated without severe economic consequences, the Kemp-Roth solution--which has proven itself time and again to renew the nation's economy as well as state and local economies--will need to be explained carefully to those who will be in great economic pain. Wanting an immediate solution, they will want the equivalent of a "quick fix."
However, there won't be a quick fix because the government won't have a powerful enough anesthesia to deaden the pain. The only solution will require a long-term "fix": To expand the nation's economy by cutting marginal tax rates to the nation's citizens and businesses.
Let the discussion begin...
To read Brian Domitrovic's analysis, click on the following line:
"Tax Revolt! It's Time to Learn from Past Success."