Marginal Tax Rates and History Deniers
Arthur Laffer in the Wall Street Journal has a pretty nasty forecast: Basically, we're all going to die a bloody death in 2011 as the Bush tax cuts expire, meaning, as Laffer notes, "the highest federal personal income tax rate will go 39.6% from 35%."
Laffer's historical perspective:
In 1981, Ronald Reagan—with bipartisan support—began the first phase in a series of tax cuts passed under the Economic Recovery Tax Act (ERTA), whereby the bulk of the tax cuts didn't take effect until Jan. 1, 1983. Reagan's delayed tax cuts were the mirror image of President Barack Obama's delayed tax rate increases. For 1981 and 1982 people deferred so much economic activity that real GDP was basically flat (i.e., no growth), and the unemployment rate rose to well over 10%.
But at the tax boundary of Jan. 1, 1983 the economy took off like a rocket, with average real growth reaching 7.5% in 1983 and 5.5% in 1984. It has always amazed me how tax cuts don't work until they take effect. Mr. Obama's experience with deferred tax rate increases will be the reverse. The economy will collapse in 2011.
It's worth noting that the 1983 cuts he's talking about lowered top rates from 69.13% to 50%. (You can see it all here). Top marginal tax rates under all but one year of Ronald Regan's presidency were over 50%. He's remembered as the high priest of low taxes. Obama wants to revert taxes to 39.6%, where they were in the '90s. He's frequently referred to as a socialist.
Those who don't remember this are bound to suffer from thinking that when something goes up, it's high, and when something goes down, it's low. That's crazy. It's the absolute value of taxation that matters, and today's top marginal tax rates are extremely low on a historical basis.