Category Archives: Townhall.com

Larry Kudlow’s Kemp Obituary

On a personal level, been waiting to see what the great Larry Kudlow would say about Jack Kemp’s passing. This does not disappoint.

By Larry Kudlow

May 5, 2009 for Townhall.com

When I first visited with Jack Kemp in his congressional office in Washington, D.C., in the late 1970s, I couldn’t help but notice the row of books on his desk. There was Friedrich Hayek, Ludwig von Mises, Benjamin Anderson, and Milton Friedman. And of course there was Jude Wanniski’s The Way the World Works.

Jack extracted big ideas from these big books, and he applied them to an American nation that was in big trouble. His detractors called him a jock, just as they called Ronald Reagan a dunce. Yet both men proved their critics wrong.

Working with Wanniski, Arthur Laffer, Robert Mundell, Alan Reynolds, Steve Entin, Norman Ture, and many others, Jack developed an agnostic economic formula that solved the vexing problem of economic stagflation and malaise.

Lower tax rates for everyone, he argued. Make it pay after-tax to work, produce, invest, and take risks, and the country will get more of all of it. Along with lower marginal tax rates to reignite economic growth, stabilize the free-falling dollar to curb inflation. And add free trade to that mix, since tariffs are nothing more than taxes on the purchase and sale of international goods.

Foster policies that will unleash our God-given creativity and imagination, Jack Kemp argued. And let individuals take it from there.

Jack was always talking about a rising tide to lift all boats, borrowing from the JFK phrase of the early 1960s. In fact, in meetings in the mid-1970s, Laffer and Wanniski helped persuade Kemp to follow in JFK’s footsteps and propose reduced tax rates across-the-board to get the economy growing again.

Jack, an unbelievably energetic activist, then helped persuade Reagan of the merits of this new policy approach. The economic dons of Cambridge and New Haven scoffed. They wanted to raise taxes, allegedly to curb inflation, and pump up the money supply to expand the economy. Kemp and his group told the dons they had it exactly backwards. He was right. The Ivy League was wrong.

Kemp actually thought of himself as a bleeding-heart conservative. First and foremost, this son of a truck driver wanted to improve the plight of the non-rich in the inner-city housing projects and those trapped in the dead-end welfarism of the barrios. He worked to expand the economic fortunes and political rights of all minority groups, including all those blue-collar workers who were getting killed by high tax rates and virulent inflation.

A perpetual optimist, Jack told the Republican convention in 1996, “You see, democratic capitalism is not just the hope of wealth, but it’s the hope of justice. When we look into the face of poverty, we see the pain, the despair, and need of human beings. But above all, in every face of every child, we must see the image of God.” He then added, “I believe the ultimate imperative for growth and opportunity is to advance human dignity.”

Nobody talks like that anymore. Politicians should. It’s inspirational stuff.

Another of Jack’s pet projects was the bringing together of capital and labor, workers and investors, and businesses and jobs. His ultimate goal was to make the non-rich rich. And to achieve that, he knew Wall Street had to work with Main Street; investors had to work with unions; and high finance had to work with the hard-hit folks in the inner cities. He had a true post-partisan vision long before that phrase became fashionable.

Over the years Jack often called me to affirm and encourage my simple paradigm: You can’t have a good job without a healthy business to create it, and you can’t have a good healthy business without the investment capital to fund it. It’s a unifying message.

This week President Obama unleashed yet another attack on international businesses, essentially calling them unpatriotic tax cheats even though they abide by existing laws. Last week, Obama used his clout to undermine investor contract laws in the Chrysler bailout. The president has also blasted banks and Wall Street, and has launched a war against capital.

Jack Kemp knew all this to be wrong. He said we need to stop taxing saving, investment, and business two, three, and four times. Simplify the tax code, he said. Lower tax rates across-the-board for everyone. Understand that Hispanics in the barrio need the very capital that is supplied by investors. Without it there will be no new jobs. And jobs along with economic growth are the best anti-poverty weapons we have.

Jack Kemp never tore people down; he tried to build everyone up. He argued passionately to persuade, not to destroy. He believed in one grand economic coalition that in fact would constitute a rising tide.

So Jack has passed away and we mourn. But his big ideas and dreams will live forever.

Advertisements

Leave a comment

Filed under Op-Ed, Townhall.com

Kemp: Honoring Lincoln

By Jack Kemp

February 3, 2009 for Townhall.com

No matter where we are on Feb. 12, every American from sea to shining sea will celebrate the 200th birthday of our greatest president — Abraham Lincoln. Song, speech, pageant and ceremony will mark the occasion.

The nation’s capital, where Lincoln helped preserve the Union, will offer numerous opportunities to celebrate. The Abraham Lincoln Bicentennial Commission hosts the national ceremony at the Lincoln Memorial, a birthday breakfast, and a Webcast teach-in available to students around the world.

Congress pays tribute in the Capitol Rotunda, and the Library of Congress opens its national exhibit.

Exhibits at several Smithsonian museums offer glimpses into the 16th president’s life with photos, documents and artifacts. In celebrating Lincoln and his legacy of freedom, democracy and equality of opportunity, we celebrate the true meaning of America.

Few leaders in history have captured the hearts and minds of so many people in so many nations as Abraham Lincoln. He is so universally revered that he sometimes seems as much a president for the world as for our own country. From Springfield, Ill., to Warsaw, Poland, from Red Square to Tiananmen Square, Lincoln is an inspiration.

There is a very logical global extension of Lincoln’s view of the “American idea” — that the principles enunciated in America’s Declaration of Independence are universal, and that freedom is not just for some people, but for all people, and not just for one time, but for all time.

These ideals were the driving force behind Lincoln’s life and his political career. The Declaration of Independence was so central to his politics, and so close to his heart, that in the bleak winter of 1861, on his journey from Springfield to the inauguration in Washington, he felt he had to stop at Independence Hall in Philadelphia.

He knew the American experiment in democracy and freedom was in grave peril, as was his own life. And in the very building where the declaration was signed, Lincoln spoke of that “something in that Declaration giving liberty, not alone to the people of this country, but hope to the world for all future time. It was that which gave promise that in due time the weights should be lifted from the shoulders of all men, and that all should have an equal chance.”

And then Lincoln added the words that prophesied his destiny, and that of our nation: “If this country cannot be saved without giving up that principle, I was about to say that I would rather be assassinated on this spot than to surrender it.”

Lincoln risked both his career and his life to save the Union and defend the inalienable rights to life, liberty and the pursuit of happiness for all people.

Were he with us today, Lincoln would remind us that the global surge toward freedom really began in the Revolution of 1776, the revolution whose promise won’t be fulfilled until all nations embrace the inalienable rights Thomas Jefferson inscribed in our declaration.

Lincoln was not the first to link the success of American democracy to the hopes of all mankind. From our republic’s earliest days, George Washington, Alexander Hamilton, Thomas Jefferson, Benjamin Franklin and other great statesmen believed that the American experiment in human freedom and democracy was without precedent — and would, if successful, be a precedent for others.

It is interesting to speculate how different our nation might be today had Lincoln been given the chance to guide America through Reconstruction. It is as true now as it was then that so much depends on having the right leadership with the right motives and at the right time in history. Tragically, from the Emancipation Proclamation until this day, the dream of equality of opportunity and freedom for all has yet to be completely achieved.

But Lincoln showed us the way. He believed that the American system of upward mobility was the bedrock of our democracy, that no individual is excluded from the American Dream and that poverty is not a permanent condition. And, like the story of the “Good Shepherd” from Hebrew and Christian scripture, he believed we must move forward, but not leave anyone behind.

Lincoln drew on this classical liberal view of human nature when he introduced the Homestead Act of 1862, which transferred over a million acres of public lands in the West to the immigrant-poor and became the most successful anti-poverty program in American history.

Within a year, nearly 100,000 homesteaders and immigrants eagerly seized the opportunity to own their own land. They built homes and farms on 1.5 million acres, forging better lives for themselves, their families and indeed their country.

His support for the Morrill Land-Grant College Act of 1862 revolutionized higher education in America and was a blessing to millions of future students — and to the nation that benefited from their cultivated creativity and genius.

For Abraham Lincoln, true welfare meant not dependency, but well-being; not equality of reward, but equality of opportunity; not reliance on the state, but reliance on oneself and one’s family. He wrote, prophetically, “The progress by which the poor, honest, industrious and resolute man raises himself, that he may work on this own account and hire somebody else … is the great principle for which this government was really formed.”

Professor Gabor Boritt, in his great book “Lincoln and the Economics of the American Dream,” cited the rest of Lincoln’s argument:

“I don’t believe in a law to prevent a man from getting rich; it would do more harm than good. … I want every man to have the chance — and I believe a black man is entitled to it — in which he can better his condition — when he may look forward and hope to be a hired laborer this year and the next, work for himself afterward, and finally to hire men to work for him! That is the true system.”

In the most “radical” speech Abraham Lincoln ever gave, he compared America to a house divided against itself, half-slave and half-free. I would submit that today America is once again in danger of being divided — this time, however, into two economies, one rich, the other poor; one affluent, the other in abject poverty; one a springboard to opportunity, the other a trap of despair and dependency.

Lincoln understood that it is impossible to support equality of economic opportunity without also upholding equal civil, human and voting rights for all.

Until the Civil War, the threat to American democracy had come primarily from foreign powers, but Lincoln faced America’s supreme crisis: The nation that embodied mankind’s last, best hope seemed hopelessly divided. He believed that “as a nation of free men, we must live through all time, or die by suicide.”

Slavery was the first great test challenging the American democracy’s central principle of equality. Lincoln’s moral indignation over slavery was unbounded. In his 1854 Peoria speech replying to the little giant, Sen. Douglas, he said:

“I hate … the monstrous injustice of slavery itself. I hate it because it deprives our republican example of its just influence in the world — enables the enemies of free institutions, with plausibility, to taunt us as hypocrites — causes the real friends of freedom to doubt our sincerity, and especially because it forces so many really good men amongst ourselves into an open war with the very fundamental principles of civil liberty — criticizing the Declaration of Independence and insisting that there is no right principle of action but self-interest.”

To Lincoln, slavery was an abomination, a hideous stain defiling the nation’s soul; it could only be cleansed by a baptism of fire in civil war.

Since the day Lincoln was taken from us by the assassin’s cowardly hand, American democracy has met great challenges again and again: the injustice of segregation, the evil of “Jim Crow” laws, the despair and economic contraction of the Great Depression, the crises of two world wars, the shameful unconstitutional denial of voting rights, among others.

Our democracy is being tested today not only by our war against terrorism here and abroad, but also by levels of poverty, homelessness and despair unacceptable to a compassionate and affluent nation here at home. As the world’s leading example of democratic capitalism, we must make it work better at home so that all our people are empowered and fully enjoy true equality of opportunity.

On the eve of the bicentennial celebration of Abraham Lincoln’s birth, and 145 years after his Gettysburg speech, Lincoln’s belief that all human beings are created equal and endowed with inalienable rights — the faith upon which liberal democracy is based — is still the last, best hope of people around the world.

Because of democracy’s long march from Independence Hall through Gettysburg to the streets of foreign lands, the world increasingly knows this simple yet profound truth: The yearning for freedom cannot be extinguished, the struggle for inalienable rights will never end, and nothing can deny the transcendence of liberal democratic values.

Leave a comment

Filed under Op-Ed, Townhall.com

Kemp: A Strong America Needs a Strong Dollar

By Jack Kemp

March 11, 2008 for Townhall.com

In the early 1970s, as I began serving in the U.S. Congress representing Buffalo, N.Y., I remember the disdain (and disgust) I felt as the Republican Party was torn apart by President Nixon’s Watergate follies, and I felt even worse by his wage and price controls, tax and tariff hikes, and the devaluation of our currency.

As the country divided over the Vietnam War, stagflation began to appear, first under Nixon, surging under President Ford and reaching its most dangerous heights under President Carter. It didn’t end until the early 1980s, when President Reagan began cutting tax rates on both labor and capital investment and as Paul Volker, chairman of the Federal Reserve Board, sharply tightened monetary policy. This was the right combination of fiscal, tax and monetary policies that ended the simultaneity of inflation and recession, what we now know as “stagflation.”

In those dark days of the 1970s, economic malaise, Watergate crimes and fierce debates over the Vietnam War, John Gardner of Common Cause wrote something in Newsweek I’ve never forgotten: “America is caught in a crossfire between the ‘uncritical lovers’ and the ‘unloving critics.'”

His description of crossfire between chauvinists who saw nothing wrong in America and the nihilists who wanted America to implode and be built into a new “socialist” model was the perfect metaphor for that decade. Actually, that’s a pretty apt description about some of the debates taking place today over the Iraq War and at a time we are beginning to see the incipient stages of a new round of stagflation.

John McCain versus Barack Obama or Hillary Clinton will square off in the presidential campaign, with McCain “the older and wiser” versus Obama, the “charismatic and younger,” or Clinton, “the experienced one.” (Not!)

It’s no secret I’m a strong John McCain guy, but not without respect for both Obama and Clinton. As Sen. McCain has pointed out, it will be a civil and respectful debate, but very, very spirited, as indeed it should be, with Obama and Clinton both on the far left.

With the dollar’s weakness pervasive and the economy slowing down to a near halt, with more and more evidence of too many Americans, particularly people of color, losing their homes and their nest eggs of wealth, I believe McCain will chart a political and economic course for our nation that will do far more than just offer “hope” or “change.” I believe he will pursue policies that will actually lead to strong economic growth while ending these early stages of dollar weakness and inflation.

Those on the left will ask in response, “Don’t you have to have higher interest rates to strengthen the dollar?” Absolutely not!

As David Malpass, chief global economist at Bear Stearns, points out, “The two aren’t tightly connected. Many countries with low interest rates have had strong currencies, including the German mark in the 1960s and the euro now. The dollar strengthened in the first years of the Reagan administration when he focused on it and put in good economic policies. We should do that again. The United States is a great country, and the dollar is normally a great currency.”

McCain, I firmly believe, will do that again.

As I wrote recently, moving our nation toward a flatter, fairer and simplified tax code that is both pro-growth and pro-family while strengthening the investment climate in our country will immediately strengthen the demand for the dollar here and around the globe. McCain knows we need a tax policy for the 21st century that both recognizes the need for a competitive economy in an increasingly flattening world while encouraging capital formation and job creation here at home. His ideas for cutting corporate tax rates from 35 percent to 25 percent, expensing all investment in machinery, equipment and technology, making permanent the 15 percent tax rate on capital gains, dividends and estates while eliminating the alternative minimum tax would give us the answer to the dangerous simultaneity of inflation and recession.

These pro-growth initiatives by candidate McCain will force Sens. Obama and Clinton and their political advisers to say, “Oh no, we can’t cut tax rates, we need higher taxes – but only on the rich.” But soaking-the-rich rhetoric and policies to redistribute wealth will weaken the U.S. investment climate, further weaken the dollar and, in the end, exacerbate stagflation.

McCain’s thesis of noninflationary growth will have the winning edge against Obama and Clinton’s “antithesis.” I truly believe this, among the other issues, like free trade, immigration reform, national security and a strong foreign policy, accompanied by McCain’s pledge of strong appointments to the Supreme Court like Roberts and Alito, will give Republicans the opportunity to both win the White House and gain seats in the U.S. Congress.

Leave a comment

Filed under Op-Ed, Townhall.com

Kemp: The 25-year bull market

By Jack Kemp

August 14, 2007 Townhall.com

The great “existentialist philosopher” Yogi Berra once famously said, “history is just one damn thing after another.” Of course the antithesis of Yogi was George Santayana, an equally famous philosopher who said wisely, “those who neglect the mistakes of the past, are doomed to repeat them.” As I write these words in the dog days of August, with all the bad news of the subprime mortgage market, liquidity crunch and a fluctuating stock market, it’s important to keep things in perspective and heed the words of Santayana, not Berra.

In other words, we should turn to history and its empirical evidence, and not give in to irrational decisions based on fatalism and the neglect of real history.

One such historical fact to remember is that the past 25 years have been the best stock market for investors in U.S. history. As the widely respected New York Times financial journalist Floyd Norris wrote, (and blogged) recently, the Dow Jones industrial average hit bottom on Aug. 12, 1982, at 776.9, while interest rates were at 15 percent.

Since that date, the compounded rate of return from the last quarter of 1982 until this summer, circa 2007, has been 11.8 percent. Taking into account inflation, the rate of return has been 8.5 percent. Norris pointed out this quarter of a century is the best ever in U.S. history.

This remarkable achievement didn’t just happen, it was the result of policy decisions in the 1980s, 90s and more recently – confirming the fact that lower tax rates on capital and labor, sound monetary policies, with open market initiatives and liberalized trade leads to stronger economic growth and rising values in equities.

We neglect these lessons at our peril.

As economist Art Laffer pointed out recently, “if these pro-growth policies that have led to our 25-year bull market are reversed, don’t be surprised if our financial gains and competitive edge quickly disappear.”

Make no mistake dear readers, listening and watching the presidential candidates in the Democratic Party debate over the economy, I believe they are all headed in the direction of higher tax rates, and protectionist trade policies. Have they all forgotten John F. Kennedy in the early 1960s and indeed Bill Clinton in the 1990s? Where, oh where is the pro-growth, pro-trade, pro-internationalist wing of the Democratic Party? Except for Joe Lieberman, they apparently no longer exist.

Some history for all of us, 25 years ago, there was a mighty revival of classical economics led by two young economists named Robert Mundell of Columbia University and the aforementioned Art Laffer then a professor at USC.

They posited that the only answer to the Keynesian dilemma of simultaneous inflation coupled with recession was to restore sound money and sharply reduced marginal tax rates on both capital and labor. In other words, a hardened dollar, combined with lower taxes, reduced regulation and liberal trade policies would spur economic growth and jobs while combating inflation.

Theses two economists, took me, a GOP Congressional backbencher from Buffalo, N.Y., and turned me from a rather orthodox conservative in the Eisenhower wing of the Party, into a radical tax rate cutter and classical liberal on trade and globalization.

Candidate for President Ronald Reagan in 1980 turned out to be the one (and only) candidate among Republicans who fully (and firmly) bought into this neo-classical school of supply side economics because he’d been educated at Eureka College in the late 1920s at the height of the teachings of the 18th century Adam Smith and David Ricardo.

Most people forget that when Ronald Reagan took office the top tax rate was 70 percent and the capital gains rate was near 50 percent. The soft money policies of the Carter administration had left us with rising unemployment and inflation rate of 16 percent, (i.e. stagflation.) Trade was virtually shut down because of the mercantilist trade policies of “the left” in the U.S. and those of “the right” in Japan and “old Europe”.

Despite several exogenous events from Y2K to 9/11, from Hurricane Katrina and the rising defense spending in the war on terror, the U.S. economy is the model for the world as more and more nations from Brazil and India to Russia, China, and Eastern Europe begin to emulate our entrepreneurial pro-growth economic ideas.

As I’ve said, August 1982 was the real beginning of the lower tax rate, lower interest rate and lower tariff policies that turned out 25 years later to have been the policy prescriptions that brought us this remarkable record. As I write this on Monday, the Dow is at 13,335 – not bad!

So to summarize Santayana, yes, we must learn from our mistakes, but equally important we must remember those decisions that from Reagan to Clinton to Bush have given the world a road map to prosperity.

We’ve come a long way and we’ve still got a long way to go in lifting more people out of poverty, creating more minority business owners and to further democratize our capitalistic system. So to both Democratic and Republican candidates for the presidency: let’s hear a real debate about growth and prosperity and not redistribution of wealth and soaking the rich.

Leave a comment

Filed under Op-Ed, Townhall.com

Kemp: Fighting a new war on poverty

By Jack Kemp

May 25, 2007 for Townhall.com

To ignore the potential contribution of private enterprise is to fight the war on poverty with a single platoon, while great armies are left to stand aside. – Sen. Robert F. Kennedy

Mario Cuomo of New York electrified the 1984 Democratic Convention with his tale of America as two cities, one rich and one poor, almost permanently divided into two classes. Today John Edwards is running for president on this same platform and using the same metaphor.

But America is not divided into two cities; instead, America is divided into two separate and unequal economies, one that works well and one that is fatally flawed and must be fixed so as to combat poverty.

Our mainstream economy is entrepreneurially capitalistic: It is market-oriented and based on private property, ownership, the rule of law and with widespread access to capital and seed corn for new business ventures. It rewards work, savings, investment and productivity. This economy dominates the American market and serves as an example to the world of democratic capitalism.

The second economy functions in almost direct opposition to our mainstream capitalist economy. Similar to a Third World socialist economy, it denies people an entry into the mainstream due to the barriers to economic activities along with a virtual absence of any link between human effort and reward. It perpetuates poverty, dependency and welfare while discouraging employment, and it prevents access to capital, ownership of assets and quality education. The irony is that this second economy was created out of a desire to help the poor, alleviate suffering and provide a social safety net. However, instead of independence, this welfare-based economy has led to near perpetual dependency, and the social and economic costs to our nation are enormous in terms of unfulfilled potential and dashed dreams. As secretary of Housing and Urban Development from 1988 to 1993, I visited pockets of poverty in ghettos and barrios throughout America. I spoke personally with people living in the depths of poverty and hopelessness. I vowed then to take part in a bipartisan effort to help create an urban American Renaissance. I applaud Edwards’ attempts to raise the issue of poverty and challenge the Republican candidates to join in the debate.

The problem is that self-improvement and ownership of assets are discouraged by regulatory and tax policies that trap people in impoverished areas. In too many cases, the poverty that exists today is due in part to government welfare coupled with regulatory and tax policies that punish work, savings and investment and discourage ownership of assets. The system redlines certain areas of our country, limiting people’s access to capital, credit, mortgage loans and well-paying jobs.

To wage a real war on poverty, we should launch a 21st century Marshall Aid Plan in the cities of America to reform education; create job opportunities; and provide access to capital, credit and ownership opportunities for low-income Americans. This plan must be based on equal opportunities to get jobs, own homes and launch businesses.

The first step is to create Enterprise or Empowerment Zones that would eliminate the capital gains tax in the newly “green-lined” zones, allow for expensing of all investment in plant machinery and technology, and eliminate payroll taxes for men and women who are first-time job holders up to 200 percent of the poverty line.

Next we need to cut the bureaucratic red tape that makes development in urban areas. We need to look at the legal barriers to production and commerce. Local impact (development) fees, application processing costs, building codes, zoning and land use restrictions, and nongrowth policies greatly increase construction costs. Instead of creating regulations that make it more difficult to build in urban areas, entrepreneurs need to be offered incentives for investing in cities.

We must develop a tax reform system that rewards labor, savings and capital formation. A sure way to harm the economy and slow growth is through a capital gains tax, which is not a tax on the rich but rather on the poor who hope to improve their situations. You can’t get rich on wages. The only way to create wealth is to work, save, invest, make a profit and reinvest.

Finally, we need to provide homeownership opportunities and affordable housing to the most impoverished in society who often become trapped in public housing. Through public-private partnerships with organizations such as the Federal Housing Administration, Fannie Mae and the Federal Home Loan Bank, we need to dedicate a percentage of profits to help develop work-force and affordable housing while encouraging homeownership policies to get people on the path out of poverty.

Through eliminating America’s second economy and tapping into the economic forces of a more democratic system of capitalism, we can develop a formula for ending chronic poverty in America. Everyone should have the opportunity to go as high as their merit, ability, determination and quality of their performance can carry them.

Leave a comment

Filed under Op-Ed, Poverty, Townhall.com

Kemp: Guns, butter and tax code reform

One of this nation’s premier journalists (also a friend of long standing) wrote a column last week that can only be labeled as “Bush bashing” writ large. E.J. Dionne Jr. writing in the Washington Post and Investor’s Business Daily, wrote the following: “winning the war in Iraq was never the Bush administration’s highest priority, saving its tax cuts was more important.” Ugh! E.J., E.J., what’s gotten into you, don’t you read my columns, haven’t you listened to my speeches for the past three decades or so? (People say I talk too much, but how else will they learn!)

One more time Mr. Dionne, and “fellow travelers,” Paul Krugman, Bob Rubin and everyone else who makes the claim that Bush cut taxes in the face of a “war.” Everyone please “read these words carefully,” Bush didn’t cut taxes, he cut tax rates!

Revenues didn’t go down, they went up.

The “rich” didn’t get “tax relief” at lower rates on income and investments, they are paying more in revenue to the federal (and state) government than ever before in history.

The top 1 percent of people in America pays more than 35 percent of all taxes, even at lower rates on capital gains and dividends. By the way, the proper tax rate on capital gains and dividends would be zero, because the tax on corporate income has already been taken out and you shouldn’t tax the same income source more than once. All income should be taxed, but once, not four, five and six times as we do today.

The tax on labor, i.e. primarily payroll taxes, are equally onerous, they should be cut as well, with 6 or 7 percentage points to be allowed to be put into an IRA. This would give workers a much higher rate of return and they would own it.

Back to Iraq and taxes, I actually agreed with Mr. Dionne, who wrote that “it’s absurd that the most powerful country in the world finds itself forced to treat our armed forces so shabbily.” Right on E.J.! You’re exactly right. His conclusion, however, is wrong, the U.S. is “not willing to pay for a large enough military, so now we are paying for their deficit in logic and courage.” E.J. reasons we need to raise taxes on dividends and upper incomes to pay for more troops.

Well, I favor more troops and better armaments, but raising taxes – raising tax rates on incomes more than $250,000 to 300,000 as has been suggested by “the left” – will not raise revenues. It will chase those upper-income taxpayers into tax shelters, or offshore, or both. One more point about “the rich,” the top 1 percent earn 15 percent of total income and pay 35 percent of income taxes. Compared to 10 years ago “the rich” are paying actually a larger share, not a smaller share of income taxes. As I’ve said many times, if you want to “soak the rich” lower the tax rates to 20 or 25 percent where there is absolutely no incentive to go offshore, go into tax shelters or stop producing income by going on longer holidays.

The president wants to achieve a stable Iraq, as all or most of us do, and that will take more boots on the ground to help pacify Baghdad. But slowing down the economy is just plain counterproductive, counterintuitive and counter to historical evidence. President Kennedy cut tax rates during the Vietnam War and the budget came into balance in 1965. Ronald Reagan cut tax rates during the Cold War and unemployment came down, (as did inflation) while the economy more than doubled in the ’80s.

Richard Nixon raised taxes during the Vietnam War, (spreading the sacrifice, E.J. would say) and a recession followed and revenues fell. President Carter raised taxes in the late ’70s and revenues went down, not up.

The Bush tax rate reductions have had a positive impact on the U.S. economy by lowering unemployment to 4.6 percent. Since the second half of 2003, the U.S. economy has grown by around 4 percent on an annual basis, added more than 6 million new jobs and added revenues to the federal treasury of over 15 percent per year for three straight years. Why would E.J. Dionne and others want to jeopardize economic growth?

Even though “the left” is enamored by former Treasury Secretary Robert Rubin’s advice to raise taxes to lower the deficit, the real answer to this challenge of funding the war, expanding our military and reducing the burden of debt is to reform and simplify the tax code while lowering the tax rate on both labor and capital while cutting rate of growth in government spending.

John F. Kennedy said in 1961, “the purpose of cutting tax rates is to achieve a more prosperous, expanding economy … and the soundest way to raise revenues in the long run is to cut the tax rates now.” He did, and those who ignore the empirical evidence of the last 60 years are threatening the growth of our economy and putting the poor in harms way.

Leave a comment

Filed under Op-Ed, Townhall.com

Kemp: Tax cuts are right for the 21st century

By Jack Kemp

August 8, 2006 for Townhall.com

Twenty-five years ago, on Aug. 13, 1981, President Reagan signed what was called the largest tax cut in U.S. history. In actual point of fact, it was no larger then the Kennedy tax cuts of 1961-62. Both were designed to get America moving again, and both worked well as they lowered marginal tax rates about 25 percent across the board over three years.

In 1978, I had, along with my Senate colleague Bill Roth of Delaware, co-sponsored the Kemp-Roth Bill that advocated a 30 percent across-the-board tax rate cut. The top rate in the ’70s was 70 percent, and the capital gains rate was 49 percent. I argued that lower tax rates on labor and capital would grow the economy and put an end to the Keynesian dilemma of simultaneous inflation coupled to recession.

What escaped the attention of both the conventional “left” and “right” was that tax rates at 70 percent on income and 49 percent on capital gains led to a slow growth or, even worse, a recession. Tax revenues were falling; thus a reduction in tax rates would lead to more revenues, not less. I quoted President Kennedy to candidate Reagan over lunch in 1979, and he took up the “cause” of supply-side economics and made it his signature issue in the primaries of 1980.

I went a step further and quoted Sen. Robert Kennedy to argue for enterprise zones in urban and rural pockets of poverty to unleash the power of private enterprise to wage a new war on poverty: “To ignore the potential contribution of private enterprise is to fight the war on poverty with a single platoon while great armies are left to stand aside.”

Thanks to President Clinton and a GOP Congress in 1995, we finally got a mild version of the Enterprise Zones (Empowerment Zones). I had hoped, though, that they could be bolder and eliminate capital gains taxes on those people who would put their surplus capital at risk in the “green-lined” areas of America from the Gulf Coast of Louisiana and Mississippi to the still “de-facto” red-lined zones of the urban Northeast and south central Los Angeles. Any community would qualify that had a high level of unemployment, welfare and poverty.

Today tax rates are still too high on labor and capital and prohibitively higher still on those low-income men and women who want to leave welfare to take entry-level jobs. When a person leaves welfare, which is tax-free, to take an entry-level job, they lose welfare payment and face income and payroll taxes that push them, in some cases, over 100 percent tax at the margin. According to a study done by Christopher Jencks and Kathryn Edin in American Prospect magazine, a mother with two children who is employed at about $5 an hour would take home about 45 cents an hour less than if she were on welfare. She loses $4 a day after taking into account the loss of government benefits, taxes and such work-related expenses as transportation and child care.

President Bush has been stalwart in defending his efforts to make permanent the lower tax rates on capital gains dividends plus his attempts to put an end to the insidious tax on death. The trouble with the White House is that they keep calling this a policy of tax relief. That term implies tax revenue losses, when, in reality, we’ve seen three years of tax revenue growth. On average, tax revenues are up 15 percent a year for the last three years, with unemployment dropping from 5.5 percent to 4.7 percent.

No economic policy lasts forever, but with lower rates on all sources of income, economic growth has averaged more than 4.5 percent. Despite terrible conditions of war and instability with spiking oil prices, our economy is growing with inflation relatively low.

As one of the few legislators who was around in the ’70s and ’80s when controversy surrounded the Kemp-Roth Tax Rate Reduction Act signed into law 25 years ago by President Reagan, I leave you with the single greatest quote of President Kennedy 1961 that convinced me and President Reagan of the efficacy of lower tax rates:

“Our true choice is not between tax reduction, on the one hand, and the avoidance of large federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough jobs or enough profits. Surely the lesson of the last decade is that budget deficits are not caused by wild-eyed spenders but by slow economic growth and periodic recessions, and any new recession would break all deficit records. It is a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise revenues in the long run is to cut rates now.”

Leave a comment

Filed under Op-Ed, Townhall.com