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101 IRET Byline 1 (1992)

handle is hein.taxfoundation/iretbyln0101 and id is 1 raw text is: April 21, 1992 No. 101 THE TAX BILL - FAIRNESS OR FOLLY? The Democratic-controlled Congress has taken its best shot and sent the President a tax bill designed to make taxes fair for middle class families and restore growth to our economy. Unfortunately, somewhere in the morass of political debate, Congress mixed up the concepts of tax fairness and economic growth. The tax bill the President vetoed will neither promote fairness nor increase economic growth. Indeed, to achieve tax fairness, we need to first achieve economic Higher inc growth. jobs go a promoting In viewing the economy today, I than dot am reminded of the situation reduction confronting the nation during the taxesfor a inflation and stagnation of the late of ourfaml 1970s and early 1980s. That was a time of falling real incomes, rising unemployment, and diminished economic opportunities. While today's inflation rate is much lower, we are again faced with falling real incomes and rising unemployment, compounded by an inadequate rate of investment in new production capability. It is clear that the politics of income redistribution and class warfare are not going to show us the way out of this mess. Congress needs to put these aside and do what we did in 1981 - work together to craft a Institute for Research on the Economics of Taxation Dm lot ta IRETL s a small of income relatively few ilies. We can learn s from the 1981 t demonstrated t rates on labor result in more jobs. The 1981 ome great lessons ax cuts. The cuts hat reducing tax and capital does growth and new tax act also shows that increasing productivity and economic growth are the keys to raising incomes and living standards. Higher incomes and new jobs go a lot farther in promoting tax fairness than does a small reduction of income taxes for a relatively few of our families. Some inequity does exist in our tax system today. The payroll tax is regressive and places an onerous burden on the American worker. In fact, many low to middle income workers pay more in payroll tax than bipartisan bill aimed squarely at promoting economic growth to benefit all Americans. In the late 1970s, the economy was brought to its knees by sharply higher marginal tax rates on work effort, saving, and investment. Inflation was driving taxpayers into higher tax brackets, reducing the incentive to save, work overtime, or invest in a small business. Inflation also drove the cost of capital higher, causing productivity, real wages, and employment to slump. Two great policy shifts overcame these difficulties. The Federal Reserve curbed inflation by restraining money supply growth, and the Tax Act of 1981 was passed. The tax act lowered individual marginal income tax rates across the board, which in turn reduced the tax on labor, saving, and investment. The act also contained provisions that lowered the cost of capital. The twin reductions in inflation and tax rates ushered in the longest peacetime economic expansion in history and created 20 million new jobs. Wages and family incomes, which fell between 1979 and 1982, turned around at all income levels farther in and rose across the board during Lx fairness the recovery. IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1331 Pennsylvania Ave., N.W., Suite 515, Washington, D.C. 20004 Phone: (202) 347-9570

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