Tag Archives: Employment

How did the Reagan tax cuts and Bush tax cuts affect unemployment?

Consider this article by the Cato Institute, a libertarian think tank, which discusses how the Reagan tax cuts affected the unemployment rate.

Excerpt:

In 1980, President Carter and his supporters in the Congress and news media asked, “how can we afford” presidential candidate Ronald Reagan’s proposed tax cuts?

Mr. Reagan’s critics claimed the tax cuts would lead to more inflation and higher interest rates, while Mr. Reagan said tax cuts would lead to more economic growth and higher living standards. What happened? Inflation fell from 12.5 percent in 1980 to 3.9 percent in 1984, interest rates fell, and economic growth went from minus 0.2 percent in 1980 to plus 7.3 percent in 1984, and Mr. Reagan was re-elected in a landslide.

[…]Despite the fact that federal revenues have varied little (as a percentage of GDP) over the last 40 years, there has been an enormous variation in top tax rates. When Ronald Reagan took office, the top individual tax rate was 70 percent and by 1986 it was down to only 28 percent. All Americans received at least a 30 percent tax rate cut; yet federal tax revenues as a percent of GDP were almost unchanged during the Reagan presidency (from 18.9 percent in 1980 to 18.1 percent in 1988).

What did change, however, was the rate of economic growth, which was more than 50 percent higher for the seven years after the Reagan tax cuts compared with the previous seven years. This increase in economic growth, plus some reductions in tax credits and deductions, almost entirely offset the effect of the rate reductions. Rapid economic growth, unlike government spending programs, proved to be the most effective way to reduce unemployment and poverty, and create opportunity for the disadvantaged.

The conservative Heritage Foundation describes the effects of the Bush tax cuts.

Excerpt:

President Bush signed the first wave of tax cuts in 2001, cutting rates and providing tax relief for families by, for example, doubling of the child tax credit to $1,000.

At Congress’ insistence, the tax relief was initially phased in over many years, so the economy continued to lose jobs. In 2003, realizing its error, Congress made the earlier tax relief effective immediately. Congress also lowered tax rates on capital gains and dividends to encourage business investment, which had been lagging.

It was the then that the economy turned around. Within months of enactment, job growth shot up, eventually creating 8.1 million jobs through 2007. Tax revenues also increased after the Bush tax cuts, due to economic growth.

In 2003, capital gains tax rates were reduced. Rather than expand by 36% as the Congressional Budget Office projected before the tax cut, capital gains revenues more than doubled to $103 billion.

The CBO incorrectly calculated that the post-March 2003 tax cuts would lower 2006 revenues by $75 billion. Revenues for 2006 came in $47 billion above the pre-tax cut baseline.

Here’s what else happened after the 2003 tax cuts lowered the rates on income, capital gains and dividend taxes:

  • GDP grew at an annual rate of just 1.7% in the six quarters before the 2003 tax cuts. In the six quarters following the tax cuts, the growth rate was 4.1%.
  • The S&P 500 dropped 18% in the six quarters before the 2003 tax cuts but increased by 32% over the next six quarters.
  • The economy lost 267,000 jobs in the six quarters before the 2003 tax cuts. In the next six quarters, it added 307,000 jobs, followed by 5 million jobs in the next seven quarters.

The timing of the lower tax rates coincides almost exactly with the stark acceleration in the economy. Nor was this experience unique. The famous Clinton economic boom began when Congress passed legislation cutting spending and cutting the capital gains tax rate.

Those are the facts. That’s not what you hear in the media, but they are the facts.

Two British conservatives to watch: Iain Duncan-Smith and Michael Gove

Here’s an article from the UK Telegraph about Iain Duncan-Smith.

Excerpt:

I’ve known Iain for many years since my days working for Lady Thatcher back when he was party leader. Few British politicians understand the Special Relationship as well as IDS, and he has made a concerted effort to cultivate ties with leaders in the United States, frequently visiting Washington over the past decade both in opposition and in government.

It was refreshing to see a British official showing leadership on an issue that few Washington politicians have seriously addressed since the reforms of the 1990s. His message was a compelling one – that Britain (and for that matter the West as a whole) is facing up to the biggest cultural challenge of the early 21st Century – dealing with “entrenched and intergenerational worklessness and welfare dependency.” In his speech he attacked “an obsession with inputs – with pouring money into social programmes so that governments are seen to be doing something,” a sentiment that tens of millions of Americans would heartily agree with:

So we are now faced with a fundamental challenge. Levels of social breakdown high and rising. Millions of people stuck out of work on benefits. Millions not saving nearly enough for their retirement. And politicians – of all hues – addicted to spending levels as a measurement of success, rather than life change as a measurement of success.

These are areas ripe for reform – but how do you reform when there is no money? The answer – you change the way you reform. Not just cheese-slicing, but recalibrating whole systems so that you change behaviours, and change the culture that allowed spending to get out of control in the first place.

With good reason IDS consistently ranks at the top of ConservativeHome’s poll of cabinet ministers, with an approval rating in the latest survey of 84 per cent. Together with Michael Gove (who currently ranks second), he has been the most consistently impressive minister in Cameron’s government. It is not hard to see why he is so popular with the grassroots. Duncan Smith is a conviction politician offering clear-cut conservative solutions to major problems, emphasising individual responsibility, a strong work ethic, and traditional values as opposed to big government meddling. His welfare reforms are a major step in the right direction, and the most radical since the system’s creation in the 1940s. They deserve widespread support, on both sides of the Atlantic.

Iain Duncan-Smith stands for pro-family policies and welfare reform. What does Michael Gove stand for?

Here’s an article about him in the UK Daily Mail. (H/T Dina)

Excerpt:

One Cabinet minister is increasingly standing apart from the crowd. Yesterday, this newspaper revealed that Education Secretary Michael Gove wants to bring back O-level-style exams.

Although this brave proposal is popular with parents across England, it is not uncontroversial. It takes us back to a system that separated academically gifted children from those with different aptitudes.

But I would argue that the abolition of O-levels in the Eighties was actually an early sign of the culture of dishonesty in our national life.

Britain fell into the grip of a dishonest kindness. We started to hand out good exam results like sweeties — regardless of whether pupils had really learnt anything at school.

We told ourselves that it didn’t matter whether parents spent their time working with their children or just letting them lounge in front of the TV.

We allowed school-leavers to think that a life on benefits was socially acceptable when it’s actually a place where they would easily rot and never fulfil their potential.

The statistics that poured out of the schools system suggested that all was well, however.

Like tractor production data from the old Soviet Union the latest exam grades were always better than last summer’s.

We were told to rejoice but employers and universities saw through the big lie. They complained that the children graduating from Britain’s schools lacked basic literacy and numeracy skills. Britain started sliding down the international league tables that compared the abilities of children in China, Germany, Korea and Britain.

Michael Gove is the first Education Secretary to say that enough is enough. He has said he’s not afraid to preside over a drop in exam grades. They’ll look less good, he concedes, but they’ll be more honest.

The teaching unions that have presided over the ‘All Must Have Prizes’ system will fight him tooth and nail. They want to protect their jobs-for-life regime where bad teachers are rarely sacked but are instead allowed to damage countless pupils’ life chances, year after year.

Gove is undeterred. He’s ready to close down a system where children who can’t manage their times tables are studying for exactly the same exams as those who are on track to study physics at Oxbridge.

[…]The compassionate politician who cares about equality of opportunity won’t accept this status quo, and will point out that the current system is dishonest. It puts children with very different abilities through the same sausage machine and then pretends that those who get ‘F’ or ‘G’ grades have still passed.

Michael Gove wants academically gifted children to be stretched by studying O-levels.

He wants other children to have a more appropriate educational experience, albeit an equally rigorous and demanding one.

This Government’s investment in high-quality apprenticeships and a new generation of technical colleges is early proof that it is serious about restoring the standing of vocational education.

Michael Gove’s specialty is education reform – he wants to stop the left from bashing kids into the same mold, regardless of their individual abilities and aptitudes.

Those are the two guys to watch. They’re not perfect, but they are the two best in the UK, in my opinion.

How can you convince a high school student to study something useful?

You can give them this book by Captain Capitalism.

Excerpt:

Graduation is coming up.  Lots of little kinder will be graduating and off to bigger and better things.  Matter of fact many of you probably have little kinder graduating or even nieces, nephews or neighborhood kids you’ve seen grow up over the years.  Regardless, the question is what do you get them for a graduation gift?  Very simple.  “Worthless.”

My regular readers already know what Worthless is about, but for those of you unfamiliar with the book it is THE SINGLE MOST IMPORTANT BOOK high school and college-age kids can read.  It IS the perfect graduation gift and I do not say that out of hyperbole or salesmanship. I say it because I believe it’s true.  “Worthless” is the perfect graduation gift.

The reason why is very simple.  Millions of kids make a huge and life-destroying decision every year – they major in a worthless subject.  Take your emotions or feelings out of it.  In today’s economy, we really cannot afford the luxury of sparing their feelings and lying to them, saying,

“Hey kid, follow your heart and the money will follow.  You’re going to be a great French Art History major!”

as we nervously put on a fake smile hiding our concern.

The amount of money they (or you) are going to spend on tuition, not to mention the sheer volume of their youth they will spend pursuing a degree, can NOT be wasted simply because nobody had the courage to tell the kids the truth about economics and the realities of the labor market.

But you don’t have to.  The book will do it for it you.

“Worthless” explains first and foremost to the reader that the reason somebody got them this book is because that person really cares about them.  And while it may not be what they want to hear, they will end up appreciating it in the future.  “Worthless” also goes into detail and explains in clear, understandable language the economics behind the labor market, showing the reader how and why some degrees are worthwhile and others are literally worthless.

The book is $13 in paperback and only $5 on Kindle.  A miniscule fraction of the tuition and time costs of earning a four year degree.  Because of its potential to prevent kids from making a VERY costly mistake, the cheap price practically compels you to at least consider it.

So do a graduate you care about a huge favor.  Buy them “Worthless” for a graduation gift.  And if you’re so kind, do me a favor and simply spread the word by sending people this post.

You do not want to have someone you love go off to college and study things that don’t lead to a job. You especially don’t want them to rack up tens of thousands of dollars in student loans only to be unemployed after graduating.