The Democrats and the Great Tax Lie

“An economy hampered by restrictive tax rates will never produce enough revenues to balance our budget – just as it will never produce enough jobs or profits.” John F. Kennedy.

By Robert Farrow

Sometimes politics is a game of deception. One of the clearest examples of this is how the Democrats use of the politics of division. The Democrats, who love to paint the Republicans as exclusive and divisive, love to play in the very destructive and dividing game of race baiting and class baiting.

One of the favorite and most successful Democratic lies is that the Republicans policies then benefit the rich at the expense of the poor. Well, common sense would tell a reader having policies that are anti-business would increase unemployment and thus, in the end, hurt the poor too. But apparently, common sense is not that common. But think about it, who owned the business that gives you a paycheck and allows you to feed your kids, pay your hose payment, and buy your car? Middle class and rich people, that’s who. So how does it help the middle class and poor to make it more difficult for business owners to make a profit and hire more staff?

High taxes are also a recent addition to the Democratic agenda, a fact that is conveniently ignored by Democratic pundits. One might be surprised to hear one of the great figured in the Democratic Party, John F. Kennedy, argue against high taxes.

JFK Tax Cuts

Democrats and the Kennedys are once again proving to be hypocrite fools suffering from the famous case of liberal amnesia. The controversy this time stems from John F. Kennedy in advertisements that support President Bush’s new tax cut plan. Senator Ted Kennedy is fuming over JFK’s name and image being used to support tax cuts, something he vehemently opposes. These ads in question compare the massive tax cuts of JFK to those of Reagan and Bush, and rightfully so. This ordeal is only a small part of the larger problem; that modern day Democrats and socialists have hijacked the good name of John F. Kennedy. One of JFK’s key economic plans included massive, across-the-board tax cuts, similar to those of Reagan. Much like the 1920’s and 1980’s, it was these tax cuts that led to the Golden Kennedy-Johnson years.

Pro-tax lobbyists claim that Kennedy’s tax cuts were significantly different than the tax cuts of Reagan, and the proposed tax cuts of Bush. They claim that Kennedy’s tax cuts benefited low-income families, while Republican tax cuts only benefit the wealthy. On the contrary, they are quite similar. To an extent, Kennedy’s tax cuts benefited the upper and upper middle classes even more. By the time Kennedy took office, the top income tax rate had reached 94%. Kennedy originally asked for it to be reduced to 65%, but Congress slashed this down to 70%. During a speech, JFK stated, “the current tax system exerts too heavy a drag on growth …reduces the financial incentives for personal effort, investment and risk taking.” Without a question, it is mostly the middle and upper classes that undertake risky purchases and investment. As expected, the tax revenue from the top 1%, the top 5%, and top 20% surged as a result of income growth from the tax cuts. Tax revenue from the rich increased from almost 12% in 1963, to 15% by 1966.

The tax cuts from Republicans are no different and produced the same results. Harding and Coolidge cut the top tax rate from 73% in 1921 to 25% by 1925, and the tax share from the rich soared from 44% to 78%. Reagan picked up where Kennedy left off, slashing the highest tax rate from 70% down to 50% as part of his Economic Recovery Tax Act of 1981. His plan cut taxes across-the-board by 25% – this was not a tax cut solely for the rich. The top tax rate was further lowered to 28% in 1986. What resulted was the largest peacetime expansion in the history of the United States, and record lows for inflation and unemployment. Income tax revenue soared 16.3% from 1982 to 1989. Kennedy’s own words concur this: “It is a paradoxical truth, that tax rates are too high today, and tax revenues are too low, and the soundest way to raise the revenues in the long run is to cut the tax rates”.

Apparently, it’s fine for a Democratic President to push for tax cuts that will spur economic growth, but not for a Republican like Ronald Reagan, and now George W. Bush. To say that JFK’s tax cut was any different is a blatant lie. In a way, Kennedy’s tax cut could have benefited the rich even more. Any tax cut from rates as high as over 90% will have a much larger impact than a tax cut on tax rates from 20 through 50%.

Bush only plans to reduce the top income tax rate from 39.6 to 33%. Kennedy cut taxes for the rich by one-third. Bush’s income tax cut is only a one-sixth reduction. Additionally, Bush’s tax cut would return less than 7 cents on each dollar earned, whereas Kennedy’s tax cut returned 26 cents on each dollar. These are facts conveniently left out by Ted Kennedy and other Democrats – that Kennedy too drastically cut taxes for the rich, and that Reagan’s tax cuts were across-the-board and caused tax revenue to increase. The evil Republicans’ tax cuts even propose an end to the marriage penalty tax and the tax on Social Security benefits!

Part of Ted Kennedy’s argument is that Kennedy’s tax cut returned less money to those earning above $300,000. Well, of course. During the 1960’s, the size of the upper class was considerably lower. From population growth and upward mobility caused by the tax cuts of Kennedy and Reagan, the number of people earning as much is larger. Ted also fails to take into account the rising value of the dollar. A current income of $300,000 translates to $50,000 forty years ago. Neither did Kennedy curb federal spending or the national debt, possibly the most trivial and over-exaggerated economic concerns.

The only fundamental difference lies in the end to double taxation on dividends. Business income is already taxed through a corporate tax. When shareholders are paid this income as dividends, and taxed again, this double taxation discourages investment in the stock market, and for businesses to pay dividends to shareholders. And unlike forty years ago, the numbers and types of people invested in the stock market have skyrocketed. Regardless, the parallels shown in the pro-Bush tax cut advertisements are real. All three Presidents have passed massive tax cut legislation, including the infamous “tax cuts for the rich”.

Ted Kennedy and his comrades in the Democratic Party have exploited the legacy of Kennedy. Being the relatives of one of the most popular Presidents, it is fairly easy to fool the public into believing them. However, their sole claim to any legitimacy is shattered by the fact that the very same tax cuts they are vocal opponents of, were not only passed, but also defended by Kennedy. The Kennedys and Democrats will go to great lengths to suppress this, as if they have the sole rights to an ex-President’s public record, video footage, and words. It’s extremely strong partisanship. Kennedy is a Democrat. They hate the fact that he cut taxes, so they conveniently hide that detail whenever they attack tax cuts. Kennedy is like Teflon when it comes to tax cuts.

Why do schools and the liberal media rarely, if ever, mention JFK’s tax cuts, but readily focus on, and denounce the tax cuts of Reagan? Why do they only mention the boom of the 60’s and its social programs, but never mention the positive aspects of the Reagan years? Could it be that the socialists only intend taxes to continually increase, and that any tax cut, that in any way helps the largest taxpayers, is only a “tax cut for the rich”? This thinking is what led to the 90 % tax rates that a member of their own party cut.

The advertisements in dispute are fully justified. One only needs to examine the true economic policy and beliefs of JFK. History is on the side of tax cuts – the same side of Calvin Coolidge, John F. Kennedy, Ronald Reagan, and George W. Bush. If JFK had been alive today, it is likely he would have switched to the Republican Party. Actual quote from Kennedy: “An economy hampered by restrictive tax rates will never produce enough revenues to balance our budget – just as it will never produce enough jobs or profits.” Yep, JFK was a supply-sider, one of those greedy, rich, white, [insert liberal buzzword here] politicians who likes to cut taxes.

John F. Kennedy – the last, and one of the few, good Democrats.

the link is here.

In reality both parties have diametrically opposing strategies for helping the poor. The Democrats like social programs, which do help the poor on the short term, but wind up increasing dependency on the long term. The Republican solution is tax cuts for a stronger economy so the poor are more likely to find work and become the middle class, and thus no longer be poor.

Sadly, the Republicans do an awful job conveying this message, and thus give the Democrats an excellent opening to label the Republicans as the Party of the Rich. The Democrats also like to claim that tax cuts in the end have little benefit for the poor. But there is ample proof who is right and who is wrong in this debate. Also, some widely held beliefs about taxes turn out to be quite incorrect.

There is a distinct pattern throughout American history: When tax rates are reduced, the economy's growth rate improves and living standards increase. Good tax policy has a number of interesting side effects. For instance, history tells us that tax revenues grow and "rich" taxpayers pay more tax when marginal tax rates are slashed. This means lower income citizens bear a lower share of the tax burden – a consequence that should lead class-warfare politicians to support lower tax rates.

Conversely, periods of higher tax rates are associated with sub par economic performance and stagnant tax revenues. In other words, when politicians attempt to "soak the rich," the rest of us take a bath. Examining the three major United States episodes of tax rate reductions can prove useful lessons.

1) Lower tax rates do not mean less tax revenue.

The tax cuts of the 1920s
Tax rates were slashed dramatically during the 1920s, dropping from over 70 percent to less than 25 percent. What happened? Personal income tax revenues increased substantially during the 1920s, despite the reduction in rates. Revenues rose from $719 million in 1921 to $1164 million in 1928, an increase of more than 61 percent.

According to then-Treasury Secretary Andrew Mellon:

The history of taxation shows that taxes which are inherently excessive are not paid. The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business and invest it in tax-exempt securities or to find other lawful methods of avoiding the realization of taxable income. The result is that the sources of taxation are drying up; wealth is failing to carry its share of the tax burden; and capital is being diverted into channels which yield neither revenue to the Government nor profit to the people.

The Kennedy tax cuts
President Hoover dramatically increased tax rates in the 1930s and President Roosevelt compounded the damage by pushing marginal tax rates to more than 90 percent. Recognizing that high tax rates were hindering the economy, President Kennedy proposed across-the-board tax rate reductions that reduced the top tax rate from more than 90 percent down to 70 percent. What happened? Tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 62 percent (33 percent after adjusting for inflation).

According to President John F. Kennedy:

Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits… In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.

The Reagan tax cuts
Thanks to "bracket creep," the inflation of the 1970s pushed millions of taxpayers into higher tax brackets even though their inflation-adjusted incomes were not rising. To help offset this tax increase and also to improve incentives to work, save, and invest, President Reagan proposed sweeping tax rate reductions during the 1980s. What happened? Total tax revenues climbed by 99.4 percent during the 1980s, and the results are even more impressive when looking at what happened to personal income tax revenues. Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).

According to then-U.S. Representative Jack Kemp (R-NY), one of the chief architects of the Reagan tax cuts:

At some point, additional taxes so discourage the activity being taxed, such as working or investing, that they yield less revenue rather than more. There are, after all, two rates that yield the same amount of revenue: high tax rates on low production, or low rates on high production.

2) The rich pay more when incentives to hide income are reduced.

The tax cuts of the 1920s
The share of the tax burden paid by the rich rose dramatically as tax rates were reduced. The share of the tax burden borne by the rich (those making $50,000 and up in those days) climbed from 44.2 percent in 1921 to 78.4 percent in 1928.

The Kennedy tax cuts
Just as happened in the 1920s, the share of the income tax burden borne by the rich increased following the tax cuts. Tax collections from those making over $50,000 per year climbed by 57 percent between 1963 and 1966, while tax collections from those earning below $50,000 rose 11 percent. As a result, the rich saw their portion of the income tax burden climb from 11.6 percent to 15.1 percent.

The Reagan tax cuts
The share of income taxes paid by the top 10 percent of earners jumped significantly, climbing from 48.0 percent in 1981 to 57.2 percent in 1988. The top 1 percent saw their share of the income tax bill climb even more dramatically, from 17.6 percent in 1981 to 27.5 percent in 1988.

Harmful Spending & Complexity
Lower tax rates are important, but they are not the only critical issue. Both the level of government spending and where that money goes are very important. And even when looking only at tax policy, tax rates are just one piece of the puzzle. If certain types of income are subject to multiple layers of tax, as occurs in the current system, that problem cannot be solved by low rates. Similarly, a tax system with needless levels of complexity will impose heavy costs on the productive sector of the economy.

So everybody in the end, (except for the government of course) is hurt with higher taxes. For further proof one only needs to look at the tax rates, GNP, and unemployment rate of socialist Europe. To no surprise to me, the high tax rates of Europe have lead to a GNP less then half ours and an unemployment rate double ours. How does this help the poor? The truth is that like their views on race, crime, and defense, the economic views of the Democrats wind up hurting those they claim to love.

But who cares if your policies hurt the entire country if it helps you politically?

This is what the Democratic Party has warped into.