What this country needs is a good tax cut

Edwin Feulner

September 05, 1991|By Edwin Feulner

THERE'S only one way out of the economic muddle created by last year's disastrous budget deal: Jump-start the economy by cutting taxes.

Here's how it would work: A cut in personal income taxes -- by decreasing rates or increasing the personal exemption -- will allow Americans to keep more of the money they earn. Much of that money will be used to make purchases delayed by the hard economic conditions -- new homes, cars, refrigerators, VCRs. This will revive the moribund retail industry, which in turn, will increase orders to manufacturers, who will hire additional people to meet the rising demand.

And while we're at it, let's reduce capital gains taxes -- what former President Reagan called "a tax on entrepreneurship." This would encourage Americans to invest in the small, bTC entrepreneurial businesses that provide the majority of American jobs. Capital gains cuts also can help break the vicious cycle of poverty by giving inner-city entrepreneurs access to the money they need to build successful businesses.

This isn't just some wild plan dreamed up by an egghead economist. It's been tried before, and it's worked.

In the 1960s, President Kennedy cut taxes, saying that the "soundest way to raise revenues in the long run is to cut rates now." Following these tax cuts, inflation dropped, unemployment fell and the budget was balanced.

And 10 years ago, Reagan signed into law the Economic Recovery Tax Act of 1981, better known as the Kemp-Roth tax cuts, after the bill's principal sponsors, then-Rep. Jack Kemp, now secretary of housing and urban development, and Sen. William Roth, R-Del. The tax cuts -- which slashed individual tax rates by 23 percent over three years -- reversed the "malaise" of the 1970s and sparked a decade of unprecedented growth and prosperity. At the same time, capital gains taxes were reduced from 28 percent to 20 percent.

Unfortunately, it appears that Washington hasn't learned anything from the success of the Kemp-Roth tax cuts. As Reagan noted: "Even now, the drum beat for new taxes is continuing on Capitol Hill. This is despite the fact that the tax increases of last fall are already proven failures."

It's time for a new round of Kemp-Roth tax cuts. Let's get the hand of government out of the people's pockets, and unleash a new decade of prosperity and growth.

Edwin Feulner is president of the Heritage Foundation, a conservative Washington think tank.

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