The Heritage Foundation, April 27, 2001
One element of the debate over President Bush's tax plan concerns how it will affect household and government budgets as well as the U.S. economy. To assess the plan's economic and budgetary effects and to help frame this debate, analysts in The Heritage Foundation Center for Data Analysis (CDA) conducted a dynamic simulation of the proposals in the President's tax relief plan. The final results show that the Bush plan would significantly increase economic growth and family income while substantially reducing federal debt.
Well, that wasn't right. But there's an excuse. 9-11 and subsequent wars. A huge drain on the economy.
But when I talk about the excellent economic performance our country produced in the 40's through the 70's that doesn't count. The wars were an economic boon. Why were the prior wars a boon but the present war a drain?
Not only did we have wars, we somehow managed to pay the debt down at the same time. Take a look at historical debt for the US government. It was amazing until the 80's.
So we've resolved this debt ceiling business now. As I show here the effective tax rate for high income earners prior to 1980 was about 70%. Reagan brought that right down to about 37%. Right about where the debt starts to take off. Clinton raised them again to just shy of 50%. That is, right about where the debt starts to come back down. Then Bush brought them back to where they were a bit lower than the Reagan levels. That is, right about where the debt skyrockets again.
The solution for the debt ceiling? Not a return to Clinton era tax levels. Keep the Bush tax levels. Why? I don't know. But that's what most economists think we should do.