Mitt Romney took an immensely positive step earlier this week when he announced a proposal to cut tax rates 20 percent for all individual taxpayers. The former Massachusetts governor wants to cut the 35-percent rate for the top bracket to 28 percent, the 33 percent for the next bracket to 26.4 percent, the 28-percent bracket to 22.4 percent and so on down to the lowest bracket from 10 percent to 8 percent.
It is important that Romney be prepared to respond effectively to the onslaught of class warfare demagoguery about to be flung his way, especially the charge that he's proposing more "tax cuts for the rich" and that the government "will lose revenues." That's when it's time for a strong dose of good old American pragmatism by looking at what happened when tax rates were cut in the past.
There have been four major across-the-board tax rate cuts in recent history, beginning with those by President Coolidge between 1921 and 1926, when the top rate was chopped from 78 percent to 25 percent. Then in 1963, President Kennedy slashed the top rate from 91 percent to 70 percent. President Reagan's 1981 and 1986 measures cut the top rate from 70 percent to 40 percent. The 2003 rate cuts by President George W. Bush resulted in the present top rate of 35 percent.
In all four cases, government revenues from income taxes, including especially those in the top brackets, increased significantly in the years following their enactment, as did the proportion of total taxes paid by the highest earners. James Gwartney, former chief economist for the Congressional Joint Economic Committee, recounts what happened after the Reagan cuts: "Measured in 1982-1984 dollars, the income tax revenue collected from the top 10 percent of earners rose from $150.6 billion in 1981 to $199.8 billion in 1988, an increase of 32.7 percent. The percentage increases in the real tax revenue collected from the top 1 and top 5 percent of taxpayers were even larger. In contrast, the real tax liability of other taxpayers (the bottom 90 percent) declined from $161.8 billion to $149.1 billion, a reduction of 7.8 percent."
By contrast, tax rate hikes on the top brackets invariably encourage the growth of tax shelters and capital to flee to overseas tax havens, while increases on tax rates for the other brackets reduce the incentive to work and save. The net result is always bad for the economy, as seen most vividly in the fact the biggest year-to-year tax hike -- Herbert Hoover's 1932 boost of the top rate from 25 percent to 63 percent -- added years to the Great Depression, according to Gwartney.
These are facts that Romney should drive home at every opportunity to insure that the choice facing voters in November is between a president whose policies redistribute wealth without creating more of it, and a challenger with a plan to make everybody richer, the economy stronger and the nation more secure. Or, as Reagan would say, to help the shining city on a hill gleam brighter than ever.