John F. Kennedy vowed to get the economy moving again after the sluggish growth of the high-tax Truman-Eisenhower years. JFK made good on his promise when he lowered the top income-tax rate from 91 percent to 70 percent. The result was the 1960s boom. Twenty years later, Ronald Reagan turned stagflation into the 1980s boom by slashing the top personal tax rate from 70 percent to 28 percent.
President Clinton, you might recall, raised taxes in his first term, but lowered them in his second term, contributing to a burst of investment and growth. Note the difference. In his first four years, the economy increased at a 3.2 percent annual rate. But his next four years produced a 4.2 percent economic pace.
Are we to throw out all this overwhelming historical evidence? Hardly. More likely, former Sen. Connie Mack, the head of President Bush's tax-reform commission, will recommend a new tax plan for the United States that will borrow heavily from the path-breaking flat-tax-reform work of Steve Forbes, Dick Armey and Art Laffer. No amount of academic-style econometric finagling can take away from the historical evidence that flatter and simpler taxes are the best way to maximize our economy's potential to grow.
To think otherwise only defies the laws of common sense. Higher after-tax returns to work, investment and entrepreneurial risk-taking will promote more employment, more capital formation and more wealth. If it pays more to produce, then people will produce more. As Laffer put it three decades ago, when you tax something more, you get less of it. When you tax something less, you get more of it. Higher after-tax rewards always generate a greater supply of work effort and investment capital.
In our capitalist free-market system, strengthening the link between effort and reward has proven to work time and again. I respectfully disagree with Anna Bernasek and The New York Times. More tax freedom will always fuel our free economy.