Obama argues disingenuously that his tax increases would only affect higher-income workers and "corporate fat cats." But it is precisely these top marginal tax rates that control incentives for savings, investment, entrepreneurship, business expansion, jobs and economic growth.
While he wants to tax the rich, the burden will fall on the poor and the middle class.
In their new book, "The End of Prosperity," Art Laffer, Steve Moore and Peter Tanous argue that the threat of this tax tsunami is already destabilizing our financial markets and causing capital flight from America. They write, "Hot capital is escaping over the borders out of the United States and flowing into China, India, Europe, and even Japan. ... [S]tarting in late 2007, foreigners started pulling their money out of the United States, and Americans started investing more abroad. Global investors are losing confidence in the U.S."
The American economy was in shambles when Reagan entered office in 1981. Inflation had soared by 25 percent over the prior two years, unemployment was heading toward 10 percent, the prime interest rate hit 21 percent, poverty was on a 33 percent upswing and real family income had decreased by almost 10 percent due to the stagflation of the late 1970s.
Reagan cut the top income tax rate from 70 percent to 50 percent, adopted an additional 25 percent across-the-board rate cut and sliced capital gains taxes in half. The 1986 tax reform left us with just two tax rates of 15 percent and 28 percent. Reagan slashed spending growth, lowered tariffs, reduced regulatory burdens and promoted anti-inflation monetary policies.
The result, the authors explain, was actually a 25-year, non-inflationary economic boom, with only two brief, mild recessions in 1990 and 2001. They write: "We call this period, 1982-2007, the 25 year boom — the greatest period of wealth creation in the history of the planet. ... Adjusting for inflation, more wealth was created in America in the 25 year boom than in the previous 200 years."
By 1989, the economy had grown by almost one-third, the equivalent of adding the entire economy of West Germany to our U.S. economy. In 1984 alone, real economic growth boomed by 6.8 percent, the highest in 50 years. Nearly 20 million new jobs were created in the 1980s, increasing U.S. civilian employment by almost 20 percent. Unemployment fell to 5.3 percent by 1989.
Spectacularly, inflation was slashed to 3.2 percent by 1983. The prime rate fell to 6.25 percent by 1992, even though opponents had argued that Reagan's tax cuts would increase interest rates. Family income reversed its decline, poverty reversed its rise, and tax revenues actually doubled.
This is the Change We Need today.
Secretary Jack Kemp is founder and chairman of Kemp Partners. Peter Ferrara is director of entitlement and budget policy for the Institute for Policy Innovation, and formerly served in the Reagan White House.