August 13, 2021, marks the fortieth anniversary of President Ronald Reagan’s Economic Recovery Tax Act.
Among other policies, the legislation slashed the highest tax bracket’s rate from 70% to 50% while cutting the lowest tax rate from 14% to 11%. In addition to policies from the Federal Reserve that ended two decades of unpredictable inflation, Reagan’s tax cuts contributed to a significant economic boom in the United States.
During a Heritage Foundation event on Thursday evening, several economists recalled the profound impact of the tax cuts.
“Reagan, in effect, unleashed capitalism,” said Larry Kudlow, who directed the National Economic Council during the Trump administration. “I think we are in danger of re-handcuffing free enterprise and capitalism.”
Matt Dickerson — Director of the Grover M. Hermann Center for the Federal Budget at the Heritage Foundation — told Fox News in a statement that the tax cuts changed the course of American economic history.
“The 1970s were a time of malaise, of high inflation, high unemployment, and low on opportunity. Our nation’s leaders rejected American greatness and thought the American Dream was behind us,” he explained. “As the tax cuts were being debated in Congress, President Reagan reassured the American people that: ‘All the lobbying, the organized demonstrations, and the cries of protest by those whose way of life depends on maintaining government’s wasteful ways were no match for your voices, which were heard loud and clear in these marble halls of government.’”
In sharp contrast to Reagan’s economic philosophy, both experts believe that the Biden administration’s proposed tax policies run the risk of jeopardizing the economic well-being of American families — whether they are high income-earners or not.
On the campaign trail, President Biden promised that Americans earning below $400,000 would not see their taxes rise as high earners “finally pay their fair share.” Among other changes to the tax code, Biden has suggested raising the top individual income rate from 37% to 39.6%, while raising the corporate tax from 21% to 28%.
Analysis from the Tax Foundation, however, shows the President’s budget for 2022 — which contains both provisions — would lead to 60.7% of Americans paying higher taxes while only 29% benefit from tax cuts and credits. Despite the President’s campaign promises, those earning between $200,000 and $400,000 would see their average tax burden rise by $1,570. For Americans making between $500,000 and $1,000,000, the average burden would rise by $8,980.