Reagan’s Tax Cuts are Now A Global Tide

By November 26, 2006Economy

Yesterday’s blog carried a story about a new book on Reagan’s economic legacy by author Gene Heck. His books looks at regulatory costs as well as tax cuts and their impact on the economy.

A recent piece about tax rates around the world, with roughly the same title as this blog entry, shows how powerful the Reagan Revolution has been. The story is fairly simple: countries all around the world have been cutting their tax rates to spur economic growth and lure investment. With the fall of the Berlin Wall in 1989, the author, Dan Henninger, points out that Estonia was the first former Iron Curtain country (in 1994) to cut taxes and tariffs, thus spurring its economy. Most of the rest of the former Iron Curtain countries followed suit, even Russia.

On the other side of that infamous Curtain, the UK was one of the first (in 1985) with a corporate tax rate cut by the Thatcher government. The Reagan administration cut the top marginal rate for individuals from 70 percent to 28 percent.

Lest anyone think that was the end of tax cutting abroad, they only have to look at the rest of the developed world through the lens of the OECD. The average corporate tax rate among OECD countries is a full ten points BELOW the U.S. rate, which has fairly not budged in many years at 40 percent. Only Japan remains higher. Germany, France, Austria, Ireland–the list is lengthy and is proof that Reagan tax cutting has a lot of followers abroad. For a really good chart on this tide, click here or read our report, The Escalating Cost Crisis, which discusses it as well.

The question with the new leadership on Capitol Hill is this: are there any followers left up there? The R&D tax credit needs extending as do a slew of other tax cuts. Will these be passed and give the economy a tonic or will Congress swim against this tide and make U.S. rates even higher while the rest of the world slashes away?

Click here for the full text of Dan Henninger’s column.

Join the discussion One Comment

  • Colleen Yuan says:

    International Corporate Tax Rates should be normalized at around 12 or 15 % in my opinion.

    Huge disparities in corporate tax rates between countries / free trade zones… has adverse affects on Workers, a.k.a. “Off-Shoring”.

    And, the lower the corporate tax rates is not necessarily better… in fact, according the the WTO Subsidies Agreement (rules), http://tinyurl.com/qu4wb which defines a subsidy as including “- foregone government revenue (e.g., a tax credit)” and an actionable violation of the rules… a predatory trade practice.

    Yet India’s corporate tax rate is 0.00 % inside free trade zones. Next, review India’s Income Tax Circular (November 23, 1994) http://tinyurl.com/5jpd2 and what we find here is the term “Tax Holiday” recurring over and over again specifically for “Software Technology Parks (STPS)” and “Electronic Hardware Technology Parks (EHTP)”. There are both 5 year tax holidays and 10 year tax holidays which are a guarantee from the Indian government to the companies who locate onto the shores of India that they will not have to pay any taxes at all for 5 or 10 years.

    Shame on the WTO for allowing this to happen.
    Shame on the US Trade Representatives for allowing this to happen.
    Shame on NAM for encouraging this to happen.
    Shame on Congress.
    Shame on Congressman Crane for creating the Free Trade Zones in India.
    Shame on Congressman Crane for writing the original draft for HR-3005, Fast Track Authority.
    Hundreds of thousands of American Workers have lost their jobs… unable to pay their mortgages… college tuition.
    And shame on Secretary of Labor, Elaine Chaos, for allowing all this to happen on her watch.

    Now if you have any guts at all Bill, you will print this… the truth.
    I hope the truth doesn’t hurt to much.
    If not, I’ll have to kick you again.

    Colleen Yuan