2018 Reading List | Book 23 of 52
JFK and the Reagan Revolution
“Our tax rates, in short, are so high as to weaken the very essence of the progress of a free society, the incentive for additional return for additional effort.”
I was surprised to learn that this statement came from John F. Kennedy on August 13, 1962. JFK began the work of cutting the personal income and corporate tax rates that ushered in a period of intense prosperity. Before JFK, the highest tax rates were 91% of for high income earners, meaning that for every dollar someone earned, the government would take an insane $0.91. Very few rich people ever paid 91% tax and made use of lobbying power and loopholes to pay much lower rates.
The thinking with a 91% tax rate is that the government needs money to pay its bills. However, tax cuts were counter-intuitive measures to actually generate more income from the government. If taxes were so high as to be burdensome, people simply wouldn’t work past a certain point, especially if that work meant they would enter a higher tax bracket with a higher percentage of taxes.
JFK surrounded himself with advisers who argued about the finer points of economic theory and he came out with a strong sense that tax cuts would raise more money and be more fair. He was right. Reagan then took a lot of JFK’s ideas and took them further, reducing the complex tax code to just two brackets of 15 and 28%.
JFK’s two most recognized accomplishments were his Civil Rights and tax cut bills. He actually didn’t get either bill passed due to his 1963 assassination, but LBJ ushered them through in 1964. JFK said civil rights and tax cuts were tied together. High taxes disproportionately disadvantaged African Americans. If black Americans didn’t have jobs, they wouldn’t have the resources or power to protest or make their grievances heard.
I learned a lot from this book. I learned about the difference between fiscal and monetary policy (fiscal is what the government does through taxes and spending and monetary is in the domain of the federal reserve – adjusting interest rates and the money supply), demand-side and supply-side economics (demand side deals with increasing the demand of the consumer by giving them more money while supply-side deals with increasing the supply of goods and services available to the consumer), and the meaning of marginal tax rates (across all tax brackets). My only complaint is that a lot of the definitions of these terms were not given until 200 pages into the book. It would have been nice for those definitions to have appeared earlier in the book.
This was a very interesting book and an important one in today’s political climate. Until more recent times, votes on tax cuts were actually quite bi-partisan in favor of the cuts. If you care about tax policy and the history of tax cuts, this book is for you.