Tag Archives: Reaganomics

Mort Kondracke Responds To NYT Hit Piece

Mort Kondracke has responded to the pitiful hit piece by the New York Times and “writer” Tim Noah. See Peter Robinson’s entire post here for the complete story.

Morton Kondracke Replies to the New York Times

By Peter Robinson for Ricochet

Mort Kondracke and Fred Barnes have just published a marvelous book, Jack Kemp, the Bleeding Heart Conservative Who Changed America. Reviewing the book today, the New York Times slams it. Not only did the Kemp-Roth tax cut legislation of 1981 fail to do any good, Tim Noah, the reviewer, insists, but the legislation — the centerpiece, you will recall, of Reagan’s first-term economic reforms — proved “a disaster.”

Although the most genial of men, Mort Kondracke is fighting back. Below, a reply that he sent to a couple of dozen of his friends, asking us to publish it wherever we could. Honored to have been on that list, I hereby comply, and–as you are about to see, Mort’s takedown of Noah’s slovenly work is a thing of beauty — I do so with relish.

By Morton M. Kondracke

I feared that The New York Times would assign a Reagan-hater to review Jack Kemp: The Bleeding Heart Conservative Who Changed America. Mercifully, it didn’t pick Paul Krugman, who would have been savage. Instead, it chose Tim Noah, now of Politico, whose review is polite, just misguided.

First thing, he labels both me and co-author Fred Barnes “right of center,” which Fred definitely is, but I’m not. “Mushy moderate” is Fred’s characterization of me. Moderate Independent is what I call myself. He gets it wrong that Kemp passed his tax bill in 1978; it didn’t happen til 1981. He has Kemp serving as HHS Secretary under Bush 1; it was HUD. And he dismisses Kemp, whose life and political career were devoted to ideas, optimism, growth, civil rights and fighting poverty, as proof that “nice guys finish last.” That’s to throw cold water on the idea that Kemp could be (as we hope) a model for ever-warring contemporary politicians.

But the big policy beef I have with the review is the assertion that Kemp’s signal achievement—the across-the-board supply-side tax cut proposal (“Kemp-Roth”) that became the basis of Reaganomics– “was a disaster.”

According to Noah, “it inaugurated two decades of sky-high budget deficits, accelerated a nascent growth trend in income inequality and did (depending on who you ask) little or nothing to ease the brutal 16-month recession that began around the same time the bill was passed.”

Noah systematically ignores the great economic turn-around in that Reagan achieved in the 1980s, using Kemp-Roth and then the 1986 tax reform partially developed by Kemp. He barely refers to the pre-Reagan 1970s — the era of “stagflation,” the “misery index” (unemployment up to 9 percent and inflation, 13.5 percent) and growth rates averaging 1.6 percent per year (vs. the post-war norm of 3.6 percent.)

Noah is right that the 1981-83 recession was brutal. It was caused by Federal Reserve Chairman Paul Volcker’s successful efforts to crush inflation by raising interest rates above 20 percent. Reagan’s 1981 tax cuts, lowering the top rate from 70 percent to 50 and the middle-income rate from 37 percent to 23, did not take full effect until the end of the recession.

Afterwards, there was a boom, not a disaster. The economy grew 7.8 percent in 1983, 5.6 percent in 1984, 4.3 percent in 1985 and averaged 4.5 percent for the rest of Reagan’s presidency and 3.7 percent through 2000. (See for yourself here.) The misery index dropped from a high of 23 in 1980 to 7.7 in 1986 and 9.7 in 1989. (Again, see for yourself.)

Sixteen million jobs were created during the Reagan years, a record exceeded only by Bill Clinton’s 22.9 million. (Clinton raised the top income tax rate from 36 percent to 39.6 percent in 1993, but reduced the capital gains tax rate from 28 percent to 20 percent, a distinctly supply side action.) In terms of percentage gains in job numbers, Clinton scored 20.8 percent, Reagan 17.7. Barack Obama, as of the end of 2014, had produced only a 4.3 percent increase. But George W. Bush trails all recent presidents with just a one percent increase, raising legitimate questions about the Republican party’s belief that tax cuts are the solution to every problem. Tax reform, lowering rates and eliminating loopholes, is a good idea, though.

Back to Reagan: in 1979, only 13 percent of American adults were satisfied with the way things were going in the country, according to the Gallup poll. [“Satisfaction on Rise in U.S., Gallup Poll Finds” by Michael R. Kagay, New York Times, 25 Dec 1988, p. 18.] That number reached its highest-ever point, 66 percent, in March 1986 and was at 59 percent when Reagan left office.

Noah is correct to say that deficits expanded under Reagan, increasing the gross federal debt from $909 billion in 1980 to $2.9 trillion in 1989, or from 33.4 percent of GDP to 53.1 percent. But falling revenues do not account for the increase, averaging 18.2 percent a year, about the historic average (in spite of the tax rate cuts.) Spending increased dramatically, from 20 percent of GDP during the 1970s to 22.2 percent under Reagan. By comparison, the gross debt increased under Bush 43 from $5.6 trillion (57.3 percent of GDP) to $11.8 trillion (84.2 percent) and has gone from there to $19.3 trillion so far under Obama (to 102.7 percent of GDP). (The figures are all right here.)

Reagan’s increased outlays were mainly for defense — part of the “peace through strength” strategy that eventually toppled the Soviet Union — and for interest on the national debt, which had to be repayed in non-inflated dollars.

As to income inequality, everyone should read Washington Post fact-checker Glenn Kessler’s debunking article, “Elizabeth Warren’s claim that the bottom 90 percent got ‘zero percent’ of wage growth after Reagan.” (October 23). As Kessler wrote: “Families in the top 1 percent saw their after-tax income triple from 1970 to 2011, but other groups saw a sizable improvement in household incomes” when taxes and income transfers like the Earned Income Tax Credit are counted. The Congressional Budget Office calculated that Americans in the bottom fifth of incomes gained 50 percent and those in the middle fifth, 36 percent.

Reagan (and Kemp) actually increased the progressivity of the US tax structure. In 1980, the top marginal income tax rate (paid by those making over $215,000 ) was 70 percent. And those people paid 19 percent of all income taxes. People in the middle bracket (making $30,000 a year) paid at a rate of 37 percent (the Clinton and Obama top rate). After Reagan (with help from Kemp) had passed the 1981 and 1986 tax cuts, those at the top were paying at a rate of 28 percent , but paying 55 percent of income taxes. Those below $30,000 paid a tax of 15 percent, but the personal exemption was raised to $2,000 and the standard deduction to $5,000, reducing their tax burden. The bottom 50 percent of taxpayers paid just 5.8 percent of all income taxes. (Yet again, take a look.)

Finally, Noah ignores the fact (see page 45 of our book) that Kemp modeled Kemp-Roth on proposals made by John F. Kennedy in 1962 and enacted after his death, dropping the top income tax rate from 90 percent to 70 percent. Kemp loved to quote Kennedy’s speech to the Economic Club of New York: “It is a paradoxical truth that tax rates are too high and tax revenues are too low. And the soundest way to raise revenues in the long run is to cut taxes now.” Kennedy’s proposals were hailed by Democrats at the time and opposed by Republicans as budget-busting. Most Democrats and practically every liberal (including Tim Noah) have forgotten that history.

The bottom line for me is that Kemp-Roth and Reaganomics worked — economically, politically, and geopolitically. We’re in trouble again as we were in the 1970s. Incomes are flat. Growth is glacial. Voters are furious. Washington is paralyzed. What we need is ideas, not insults and more division. That — plus the fact that Kemp deserved a biography—is why we wrote the book.


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Five Years Without Jack Kemp

It’s hard to believe it’s been five years.

I remember hearing late in the evening on May 2, 2009 that Jack Kemp had passed away. I was out of town that weekend.

On Monday, May 4, I awoke to hear Bill Bennett Mornings playing loud and clear on my radio. I listened to guest after guest join Mr. Bennett to pay tribute to Jack Kemp as the week began. I was still somewhat groggy when Congressman Paul Ryan was on the show to remember Jack Kemp. I can remember that interview like it was yesterday. I remember Bill Bennett pointing out that Jack Kemp would note that Adam Smith wrote The Wealth of Nations, not The Poverty of Nations. Kemp wanted the focus to be on what worked, not on what failed. Solutions oriented folks operate that way.

Jack Kemp has been in my thoughts a lot lately. As I have gotten a little older and have started to realize that in politics many of the arguments never find resolution, I have been looking closely at some of the work Kemp did to improve the lives of the less fortunate.

Jack Kemp was compassionate, a bleeding heart conservative, and this may have been his greatest gift. Kemp was able to apply a humanitarian view to many of the problems that ailed society simply by showing up. Kemp spent countless hours in places modern Republicans rarely tread. Kemp believed in the American Dream, the belief that in America, every single person had the capacity to reach for the stars, and get there, if they simply wanted it and worked toward it. Kemp wanted a level playing field, rather than viewing America as red or blue and taking a “every man for himself” approach, Kemp wanted to make sure that being trapped was an option, not a predetermination.

I’ve written recently about Congressman Paul Ryan and Robert Woodson, founder of the Center for Neighborhood Enterprise. I won’t rehash that work here, you can read it on your own if you like, but it’s worth noting that Bob Woodson worked closely with Kemp, and in turn some twenty years later is working with Congressman Ryan as they both look to address some of the same issues on which Kemp had begun to work. Kemp is no longer with us, but that certainly does not mean his work does not continue.

Finally, Jack Kemp wanted economic growth. Serious, unlimited, no-holds-barred, through-the-roof, economic growth. He figured cutting taxes would spur entrepreneurs and development. Sure, he wasn’t as worried about the deficit side of things, the logic of the day was, if you cut taxes and more people went to work, there would be more people paying in to the government till, and deficits would go down just by their nature. And we have to remember, Jack Kemp helped introduce tax cuts to the Republican platform, tax cuts were not always part of the Republican mantra. If you read a little history from the late 1970’s, you’ll see that Ronald Reagan and Jack Kemp had some pretty fierce arguments about tax cuts. Kemp ultimately won the debate, Reagan adopted Kemponomics as Reaganomics, and the 1980’s saw a great economic recovery. The rest is history.

Anyway, on the five year anniversary of Jack Kemp’s passing, I wanted to add my two cents. It may be closer to fifteen cents, and you loyalists will get that and laugh. It’s a hodgepodge of thoughts, but that’s rather the point.

It’s hard to believe it’s been five years…

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Kemp: Cheney opens door to supply side of Bush administration

By Jack Kemp

August 2, 2000 for Townhall.com

Richard Cheney, George W. Bush’s choice for his vice presidential running mate, understands that this marvelous “new” economy we enjoy today began with the across-the-board tax-rate reductions in 1981 and the return to sound money ushered in by Paul Volcker and sustained by Alan Greenspan at the Federal Reserve Board. Vice President Al Gore, on the other hand, just doesn’t get it.

The Gore presidential campaign is based on a two-part, “happy days/sad days” myth. The sad-days part consists of a fallacy long promoted by the Democratic Party that Reaganomics was a failure that resulted in huge budget deficits, a painful economic recession in 1990 and economic hard times for many Americans. The happy-days part of the myth is that the economic recovery from the 1990 recession, America’s current economic prosperity and federal budget surpluses have been a direct result of Clinton-Gore policies that reversed Reaganomics.

The fact is, Reaganomics, that so-called “risky” supply-side “scheme,” was a spectacular success, and the budget deficits of the 1980s were a product almost entirely of excessive congressional spending far exceeding the spending required to retool America’s national defense forces. The vast majority of Americans prospered mightily during the 1980s as their inflation-adjusted, disposable personal income rose at an average annual rate of 3.5 percent, as compared to only 2.9 percent during the Clinton years.

As for the 1990 recession, it was a short downturn, which ended before Bill Clinton took office and was brought on not by Reaganomics but rather by an accumulation of policy deviations away from supply-side principles, specifically a badly flawed tax-reform measure enacted in 1986 that penalized saving and investment, a tax increase and regulatory binge in the early 1990s, and unduly tight monetary policy by the Federal Reserve Board.

Cheney understands all of this, and by choosing Cheney as his vice-presidential running mate, Bush demonstrates that he, too, understands it. It was, after all, Cheney in 1974, then President Gerald Ford’s deputy chief of staff, for whom supply-side economist Art Laffer scribbled the famous Laffer curve on a napkin to demonstrate how, when tax rates are too high, lowering them can actually increase revenues. Cheney, then, not Ronald Reagan or Jack Kemp, actually was the first modern-day Republican to put supply-side economic theory into practice when he helped dissuade Ford from raising taxes and helped convince him instead that lower taxes were called for.

Then, while serving as the congressman from Wyoming, Cheney perceived the many flaws in the Tax Reform Act of 1986 and courageously broke with his own party and voted against the bill. Arguing against the bill on the floor of the House of Representatives he said presciently, “I believe the bill will result in lower levels of economic activity, slower growth, less investment and fewer jobs.”

He explained his reasoning by warning that the tax-rate reductions contained in the bill, as desirable as they were, nevertheless were insufficient to offset the “significant rise in the cost of capital” that the bill would bring about through an increase in the capital-gains tax, a restriction on the availability of IRAs and a change in the write-off periods for capital equipment and real property. It turns out he was right; it was the anti-supply-side aspects of tax reform that helped bring on the recession.

So, what about the claim that Clinton-Gore policies are responsible for the economic recovery and today’s prosperity? They are vacuous, for the Clinton administration has been merely a caretaker presidency in the transition from the old to the new economy.

In the June issue of the American Economic Review, Nobel Prize-winning economist Robert Mundell places recent economic events into the larger historic context of the history of the 20th century and by doing so nullifies any notion that Clinton’s policies – beyond those that perpetuated the supply-side policy mix, such as free trade and the reappointment of Greenspan at the Fed – have had anything to do with today’s prosperity: “The third part of the century, 1972-1999, starts with the collapse into flexible exchange rates (i.e., the world goes off gold) and continues with the subsequent outbreak of massive inflation and stagnation in the 1970s, the blossoming of supply-side economics in the 1980s and the return to monetary stability and the birth of the euro in the 1990s.”

Mundell goes on to credit Reagan with the successful implementation of supply-side economics, which he characterizes as “a policy system alternative to short-run Keynesian and monetarist demand-side models.” He then puts the Clinton years in context: “Growth continued until the nine-month downsizing recession of 1990-1991, which probably cost President George H.W. Bush re-election. Expansion resumed in the spring of 1991 and continued at least until the end of the decade, making the combined period 1982-2000 the greatest expansion in the history of any country.”

Cheney opens the door to the supply side of a Bush administration. Now Bush has a perfect opportunity to walk through that door by announcing he will choose Steve Forbes to serve as his Treasury secretary.

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