Presidential candidates, including Elizabeth Warren, are pushing the unorthodox proposition that massive tax increases will somehow help the economy.
This radical notion has been debunked by years of historical economic experience both here and abroad.
Yet Warren and Bernie Sanders have signed on to the theory that higher taxes would increase economic growth, not reduce it, as generations of economists from all political persuasions have long held. Others, like Joe Biden, want higher taxes on high-earners, seemingly regardless of the negative economic effects.
Warren and her supporters dismiss the very real likelihood that the tax increases she is pushing (a 50% increase in tax revenues) would crush the economy, crippling investment, consumer spending, and economic growth.
Tax increases of this magnitude, amounting to trillions and trillions of dollars, would destroy millions of jobs, hammer the stock market, and push the economy into a recession.
This type of economic experimentation has been tried and failed miserably by social democratic governments in Europe and South America. The tax increases proposed by Warren would transform the United States from a low-tax nation to one of the highest-taxed nations. The result inevitably would be slower economic growth and less economic prosperity.
Over the past five decades, we have seen that tax cuts are actually the best way to increase economic growth. In the 1960s, President John F. Kennedy proposed his tax cuts “to get the country moving again” after years of sluggish growth in the 1950s when wartime tax rates of up to 91% still prevailed.
Kennedy told Congress that “the drag of federal income taxes” on the economy was “the largest single barrier to a higher rate of economic growth.” After the Kennedy tax cuts were enacted in 1964, the U.S. economy grew by an average annual rate of 5.5% over the next five years.
In 1981, the economy was a mess. Years of double-digit inflation had pushed millions of taxpayers into higher tax brackets, resulting in a stagnant economy, falling wages, and rising unemployment. President Ronald Reagan proposed a tax cut to “put America back to work again.”
The Reagan tax cuts unleashed an economic boom, increasing economic growth 7.9% in 1983 and 5.6% in 1984. Between 1983, when the tax cuts became fully effective, and 1989, the U.S. economy grew at an average annual rate of 5.1%.
Most recently, the Trump tax cuts have produced rising wages, the lowest unemployment rate in 50 years, and the highest stock market in our history.
The record is clear. Higher taxes will hurt economic growth, killing jobs, savings, and wealth. Lower taxes will encourage greater economic growth, which will bring economic prosperity to all.
Bruce Thompson is a contributor to the Washington Examiner’s Beltway Confidential Blog. He is a Washington consultant. During the Reagan administration, he was assistant secretary of the Treasury for legislative affairs.
