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The total impact of the Reagan tax cuts on capital lowered the effective cost of capital to American industry by an estimated 1.2 percent. Unfortunately, the Laffer curve did not work as advertised. Lower tax rates did not produce more tax revenues. They produced deficits.
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Chapter 5, Taxes, p. 208

 

Robert Kuttner

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I never bought into the Laffer curve, a theory, named after an American supply - side economist who had been an adviser to the Reagan administration, that essentially argues that a government will increase its revenue by reducing its taxes. If it were that easy, everybody would do it. What politician doesn't want to reduce taxes in order to win votes? Taken to its logical extreme, the Laffer curve makes no sense because, if you lower your taxes to zero, how are you going to get higher revenues? In practice, every government that toyed with this theory ended up with larger deficits, higher interest rates and greater social inequality.

 

Jean Chretien

 

"One of the hackneyed liberal complaints goes something like this: 'Bush is the first president in history to cut taxes during a war.' Nonsense. Bush didn’t cut taxes; he cut tax rates across the board - on income, dividends and capital gains. And that’s precisely why tax revenues have soared. When a department store wants to make more money, it doesn’t raise its prices, it cuts them and announces a big sale. If you want more work and investment, you hold a sale on economic activity by cutting tax rates, thereby reducing the cost of productive activity and increasing the prospect of after-tax returns on work and investment."

 

Mike Rosen

 

Gibson: And in each instance, when the [capital gains tax] rate dropped, revenues from the tax increased; the government took in more money. And in the 1980s, when the tax was increased to 28 percent, the revenues went down. So why raise it at all, especially given the fact that 100 million people in this country own stock and would be affected?
Obama: Well, Charlie, what I’ve said is that I would look at raising the capital gains tax for purposes of fairness.

 

Barack Obama

 

Tax revenues are up 59 percent since 1980. Because of our economic growth? No. During Carter's four years, we had growth of 37.2 percent; Reagan's five years have given us 30.7 percent. The new revenues are due to four giant Republican tax increases since 1981. All republicans rightly chastised Carter for his $38 billion deficit. But they ignore or even defend deficits of $220 billion, as government spending has grown 10.4 percent per year since Reagan took office, while the federal payroll has zoomed by a quarter of a million bureaucrats... big government has been legitimized in a way the Democrats never could have accomplished. It was tragic to listen to Ronald Reagan on the 1986 campaign trail bragging about his high spending on farm subsidies, welfare, warfare, etc... the IRS has grown bigger, richer, more powerful, and more arrogant. In the words of the founders of our country, our government has "sent hither swarms" of tax gatherers "to harass our people and eat out their substance." His officers jailed the innocent George Hansen, with the President refusing to pardon a great American whose only crime was to defend the Constitution. Reagan's new tax "reform" gives even more power to the IRS. Far from making taxes fairer or simpler, it deceitfully raises more revenue for the government to waste... I want to totally disassociate myself from the policies that have given us unprecedented deficits, massive monetary inflation, indiscriminate military spending, an irrational and unconstitutional foreign policy, zooming foreign aid, the exaltation of international banking, and the attack on our personal liberties and privacy.

 

Ron Paul

 

Hundreds of millions in capital has been invested to develop our resources. Let me repeat: American capital, English capital, French capital: Welcome!

 

Maurice Duplessis