3 of 21

No

Write now Article Tools

Page 3 of 4

the economy began a prolonged period of expansion.

The later Reagan tax cuts of 1987 and 1988 which brought the top income tax rates down from 50% to 28% should have kicked the economy into overdrive, but it didn't. Except for a startling 22.6% decline in the stock market in one day in 1987, from which the economy quickly recovered, the economy continued to expand. Government revenues increased over 9% each year immediately following the cuts. Factoring in inflation, the real gains were about 5% a year. Government spending continued high also, though, so the public debt did not decrease.

The net result was mixed. The economy improved from its pre-tax-cut state, but the extent to which the tax cuts were responsible is questionable. Monetary policy by the Federal Reserve, the easing of the oil crisis, and increased government spending all contributed to the expansion. A clear one-to-one relationship between the tax cuts and the economy's improvement can't be claimed. The cuts didn't seem to hurt and may have had a mild beneficial effect.

In 2001 President George W. Bush pushed for and signed into law a $1.35 billion tax cut. In the years since Reagan's tax cut, the top rate of 28% had crept back up to 39.6%. Bush's tax cut reduced it to 35%. The lowest tax bracket dropped from 15% to 10%, and a retroactive clause triggered tax rebates mailed during 2001's third quarter to stimulate the economy

Whatever beneficial effects this cut may have had on the health of the U.S. economy, it was not enough to overcome horrific terrorist attacks in September, a wave of corporate scandals, and a leaking stock market bubble that continued to deflate from their highs reached the previous year. The markets only began to recover in late 2002. Meanwhile, budget deficits began to appear and grow, and the job market shrank. Government revenues decreased while spending increased. Again, as with the Reagan tax cuts, the promised immediate economic cure did not happen.

In 2003 a second tax cut led to an improvement in many economic indicators. Four years later, in 2007, tax revenues were 44% higher. This compares to a 39% increase in tax revenues in the four years prior to Bush's taking office. Seasonally adjusted unemployment rates dropped from around 6% to the mid-4% range. Inflation rose with the improving economy, but stayed within the 2.5% to 3.5% range. Inflation-adjusted Gross Domestic Product increased from $10.3 trillion in 2003 to $11.3 in 2006, a 9.1% gain, lagging only slightly

• << previous page
• 1
• 2
• 3
• 4
• next page >>

Add your voice

Know something about Supply-side economics: Do lower taxes increase a country's economic health??
We want to hear your view. Write now!