History's argument for cutting taxes

History's argument for cutting taxes

There seems to be a growing interest in taxation. Over the past several weeks, The Highland County Press has published several articles on the best way to correct the current economic situation. Some believe that tax cuts are the best way route to go. They offer the idea that if more people have more money, they will spend it, thus producing more jobs and

bolstering the economy. Others are certain that raising taxes on the rich is the fair thing to do. They argue that the government must spend money (through public investments) to improve the economy. 

Those in favor of raising taxes also argue that reducing taxes will reduce federal revenues, which would hinder the government's ability to function. While both sides

have made their arguments, very few facts were given. I would like to give history's argument on taxation and what it does to the economy. I hope I don't bore too many people with the statistics, but facts hold much more weight than opinions do.

There are two specific situations in American history where taxes have been cut significantly and the economy has positively responded.

The first was in 1919-20, when a post-World War I recession with high inflation and unemployment occurred. Soldiers returning from the war led to

high levels of unemployment and problems transitioning from a war-time economy to a peace-time economy led to extremely high levels of inflation.

Under Woodrow Wilson the highest tax rate (those making over $750,000) had risen to 76% by 1918, the upper middle class (those making more than $10,000) paid between 15-60%, and the average family ($1,200) paid 6%.

In the early 1920s, President Calvin Coolidge and Treasury Secretary Andrew Mellon cut taxes dramatically. By the time the tax cuts were finished, the highest level paid 24%, the upper middle class paid 5-11%, and the average household only paid less than 1%. The results were striking. The Gross Domestic Product (GDP) of the United States increased

40%, the per capita income increased 30%, while weekly hours decreased (most work days declined from 12 hours to 8 hours per day and most work weeks declined from 6 to 5 days).   Unemployment decreased from 12% in early 1922 to 4.6% in 1929. These statistics show how tax cuts benefitted individual Americans, but did it help the United States as a whole? Tax revenues for the government went from $710 million in 1921 to $1,164 million in 1929, an increase of 61%.

Many of you will remember the late 1970s, where high inflation, unemployment, and interest rates stagnated the economy. In the early 1980s, GDP was $195 billion, unemployment was nearly 11%, and inflation was over 13%. The highest tax bracket paid nearly 70% in taxes. 

President Ronald Reagan gradually cuts taxes 25% during the years of 1981-83. As a result, the GDP increased to $300 billion in 1984, unemployment decreased to 5% in 1988, and inflation was down to 4% in 1988. Tax revenues to the government increased 78% from $956 billion in 1980 to $1,222 billion in 1988. Median incomes increased by $4,000 during Reagan's Presidency even though President Reagan did not raise minimum wage.

Having examined the pertinent information, history tells us that cutting taxes leads to a robust economy. The 1920s and the 1980s were the two most economically productive decades in American history. Both of the booms came directly after economic recessions and resulted directly from tax cuts. Not only did individual Americans benefit economically, the quality of their lives increased as well. With more disposable cash in hand, consumers were more than ready to spend and producers were more than ready to meet that demand with new products. During the 1920's radios, toasters, vacuum cleaners, and refrigerators became common because the number of homes that had electricity increased 331%. Henry Ford was producing a car every 93 seconds. During the 1980s, products like VCRs, CDs, personal computers, cell phones, cable television, and the internet all got their start. National retail stores like Wal-Mart and Home Depot used the extra capital to expand, lowering the price of products for consumers.

While the lives of most Americans improved after tax cuts, the federal government also benefitted from the tax cuts. The government (an increase of 61% in the 1920s and 78% in the 1980s) received more in tax revenues because more people were making more money. It's also worth mentioning that the wealthy began dwindling in 1919-20. In 1916, 206 tax returns were filed for people making more than $1 million. By 1921, there were only 21 (and it was up to 506 by 1929). People were simply leaving the country or hiding their money. Now, I'm sure that most of you are not feeling sorry for the millionaires that lived in the 1920s. But factor this in: the upper tax bracket paid 44% of the total tax revenues for the USA in 1916. By 1929, the upper bracket paid 78%. So, while the wealthy made more money, they also paid a much greater percentage of federal tax revenues.

When the tax cut facts are examined, the information is indisputable. When the government cuts taxes, everyone benefits. Wages increase, the amounts and quality of products increase, and the quality of life improves. Yes, the wealthy get wealthier, but so does everyone else, including the government. Based on the historical information I would like

to pose a new taxation question: Why isn't the government cutting taxes?

Sincerely,

Mark Faust

Lynchburg

There seems to be a growing interest in taxation. Over the past several weeks, The Highland County Press has published several articles on the best way to correct the current economic situation. Some believe that tax cuts are the best way route to go. They offer the idea that if more people have more money, they will spend it, thus producing more jobs and bolstering the economy. Others are certain that raising taxes on the rich is the fair thing to do. They argue that the government must spend money (through public investments) to improve the economy. 

Those in favor of raising taxes also argue that reducing taxes will reduce federal revenues, which would hinder the government's ability to function. While both sides have made their arguments, very few facts were given. I would like to give history's argument on taxation and what it does to the economy. I hope I don't bore too many people with the statistics, but facts hold much more weight than opinions do.

There are two specific situations in American history where taxes have been cut significantly and the economy has positively responded.

The first was in 1919-20, when a post-World War I recession with high inflation and unemployment occurred. Soldiers returning from the war led to high levels of unemployment and problems transitioning from a war-time economy to a peace-time economy led to extremely high levels of inflation.

Under Woodrow Wilson the highest tax rate (those making over $750,000) had risen to 76% by 1918, the upper middle class (those making more than $10,000) paid between 15-60%, and the average family ($1,200) paid 6%.

In the early 1920s, President Calvin Coolidge and Treasury Secretary Andrew Mellon cut taxes dramatically. By the time the tax cuts were finished, the highest level paid 24%, the upper middle class paid 5-11%, and the average household only paid less than 1%. The results were striking. The Gross Domestic Product (GDP) of the United States increased 40%, the per capita income increased 30%, while weekly hours decreased (most work days declined from 12 hours to 8 hours per day and most work weeks declined from 6 to 5 days). Unemployment decreased from 12% in early 1922 to 4.6% in 1929. These statistics show how tax cuts benefitted individual Americans, but did it help the United States as a whole? Tax revenues for the government went from $710 million in 1921 to $1,164 million in 1929, an increase of 61%.

Many of you will remember the late 1970s, where high inflation, unemployment, and interest rates stagnated the economy. In the early 1980s, GDP was $195 billion, unemployment was nearly 11%, and inflation was over 13%. The highest tax bracket paid nearly 70% in taxes. 

President Ronald Reagan gradually cuts taxes 25% during the years of 1981-83. As a result, the GDP increased to $300 billion in 1984, unemployment decreased to 5% in 1988, and inflation was down to 4% in 1988. Tax revenues to the government increased 78% from $956 billion in 1980 to $1,222 billion in 1988. Median incomes increased by $4,000 during Reagan's Presidency even though President Reagan did not raise minimum wage.

Having examined the pertinent information, history tells us that cutting taxes leads to a robust economy. The 1920s and the 1980s were the two most economically productive decades in American history. Both of the booms came directly after economic recessions and resulted directly from tax cuts. Not only did individual Americans benefit economically, the quality of their lives increased as well. With more disposable cash in hand, consumers were more than ready to spend and producers were more than ready to meet that demand with new products. During the 1920's radios, toasters, vacuum cleaners, and refrigerators became common because the number of homes that had electricity increased 331%. Henry Ford was producing a car every 93 seconds. During the 1980s, products like VCRs, CDs, personal computers, cell phones, cable television, and the internet all got their start. National retail stores like Wal-Mart and Home Depot used the extra capital to expand, lowering the price of products for consumers.

While the lives of most Americans improved after tax cuts, the federal government also benefitted from the tax cuts. The government (an increase of 61% in the 1920s and 78% in the 1980s) received more in tax revenues because more people were making more money. It's also worth mentioning that the wealthy began dwindling in 1919-20. In 1916, 206 tax returns were filed for people making more than $1 million. By 1921, there were only 21 (and it was up to 506 by 1929). People were simply leaving the country or hiding their money. Now, I'm sure that most of you are not feeling sorry for the millionaires that lived in the 1920s. But factor this in: the upper tax bracket paid 44% of the total tax revenues for the USA in 1916. By 1929, the upper bracket paid 78%. So, while the wealthy made more money, they also paid a much greater percentage of federal tax revenues.

When the tax cut facts are examined, the information is indisputable. When the government cuts taxes, everyone benefits. Wages increase, the amounts and quality of products increase, and the quality of life improves. Yes, the wealthy get wealthier, but so does everyone else, including the government. Based on the historical information I would like to pose a new taxation question: Why isn't the government cutting taxes?

Sincerely,

Mark Faust

Lynchburg