The Laffer Curve - No Laughing Matter!

John F. Kennedy and Ronald Reagan share something in common. They both cut taxes and saw government revenues increase. So what does this have to do with the Laffer Curve? The Laffer Curve - in the simplest of terms - shows that when tax rates get higher, tax revenues get lower.

In 1963, President Kennedy stated, "In short, this tax program will increase our wealth far more than it increases our public debt. The actual burden of that debt--as measured in relation to our total output--will decline. To continue to increase our debt as a result of inadequate earnings is a sign of weakness. But to borrow prudently in order to invest in a tax revision that will greatly increase our earning power can be a source of strength." Kennedy cut taxes and it had a tremendous impact on our nation's economy.

Walter Heller, Kennedy's Chairman of the Council of Economic Advisers, testified before Congress in 1977 and stated: What happened to the tax cut in 1965...did seem to have a tremendously stimulative effect, a multiplied effect on the economy. It was the major factor that led to our running a $3 billion surplus by the middle of 1965 before escalation in Vietnam struck us. It was a $12 billion tax cut...and within one year the revenues into the Federal Treasury were already above what they had been before the tax cut."

When President Reagan cut taxes, it had a similar impact on the economy. Consider the following information from the Heritage Foundation: "Prior to the tax cut, the economy was choking on high inflation, high Interest rates, and high unemployment. All three of these economic bellwethers dropped sharply after the tax cuts. The unemployment rate, which peaked at 9.7 percent in 1982, began a steady decline, reaching 7.0 percent by 1986 and 5.3 percent when Reagan left office in January 1989."

The current administration and Congress has forgotten the lessons learned from past administrations. I think they may have also forgotten that taxes come from us - they come from our earnings. We need a responsible government that shows fiscal restraint when spending our money.