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.
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