OPINION:
As Americans, we feel the impact of taxes at the federal, state and local levels this week, as well as throughout the year.
Taxes have consequences. This is the central theme of a book written by Arthur B. Laffer, Brian Domitrovic and Jeanne Cairns Sinquefield, “Taxes Have Consequences: An Income Tax History of the United States.”
I had the pleasure of joining Mr. Laffer just before he addressed students at Ave Maria University this week as part of a speaker series for Young America’s Foundation. He does such a great job of explaining the facts, not opinions, about tax policy.
Mr. Laffer and his co-authors reviewed every income tax return in America from 1913 to 2017. In the book, they give a historical analysis of the findings, which demonstrate that tax cuts led to economic growth while high taxes led to stagnation. The latter stifles economic growth and reduces government revenue.
Unlike the theories of so many other economists, the authors looked at the acts. When the tax rate was high, as it was in the 1910s, 1930s, 1940s 1950s and 1970s, tax revenue from the wealthy went down. Those hurt the most were the lowest-wage earners.
In contrast, the research shows that when tax rates were cut and held at lower levels, the wealthy brought their money out of hiding in places such as tax shelters and put it to work in the economy.
Revenue from top earners increased, and lower-income earners saw improvements in their lives.
They note the positive impact of the tax reductions in the 1920s under Presidents Harding and Coolidge, in the 1960s under President Kennedy’s plan, in the 1980s and 1990s under President Reagan’s tax cuts and at the end of the 2010s under President Trump’s tax cuts.
The facts are on the authors’ side when they make the case for lower taxes.
The facts they lay out in their book show that when taxes go up, people with higher incomes look for tax shelters. This is why “income inequity” appears to improve as the wealthy report less income during these times.
What many critics fail to realize is that the impact on lower-wage earners is negative when taxes go up on the top income earners. These are not their opinions but rather facts supported by data from income tax forms spanning more than a century.
The tax increase signed by President George H.W. Bush is a prime example of how wealthy people move their money. That increase was supposed to be a tax on luxury items, but it failed to generate the anticipated revenue because the people who could afford things such as yachts purchased them outside the United States.
I remember the negative impact on boat makers in Wisconsin. Eventually, the government had to repeal the tax because it had such a negative impact on the economy and totally missed revenue projections.
Similarly, overtaxation has a negative impact on work. If you tax the people who work and give it to the people who do not, then people will eventually stop working as hard, or even at all.
Years ago, I told some elementary school students to imagine raking leaves for their grandparents and being paid $10. Then, I told them to imagine going home and their parents took $7 of the $10 from them as a “tax.”
One student stood up and said, “That’s not fair.” Another held up his hands and said, “Why would I even work?”
They got it. That is the impact of the 70% marginal tax rate we had in the late 1970s. It crippled the economy until Reagan came along and lowered taxes, and things took off again.
Many Republican governors were inspired to help increase economic growth in their states by lowering the tax burden and cutting red tape for job creators. I was proud to do that in Wisconsin.
Our reforms have saved the hardworking taxpayers more than $35.6 billion, according to an updated report by the MacIver Institute. In fact, property and income taxes at the end of our eight years in office were lower for a typical taxpayer than they were when we first took office.
Best of all, more people were working in our state during that time than ever before in the history of Wisconsin.
Not surprisingly, states with low or no income taxes consistently outperform states with high tax burdens when it comes to economic growth. Overall, the key to economic growth for all in America includes lower, more flat tax rates.
Money returns to the economy when rates are down and is hidden when tax rates go up.
Let’s bring back the incentive to put more money into the economy, which will lead to more jobs and higher wages for the American people.
The research, shown by a review of all income tax returns for more than a century, shows that this idea is more than an opinion. It is a fact.
• Scott Walker is a columnist for The Washington Times. He was the 45th governor of Wisconsin and launched a bid for the 2016 Republican presidential nomination. He lives in Milwaukee and is the proud owner of a 2003 Harley-Davidson Road King. He can be reached at swalker@washingtontimes.com.
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