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.