**Following the Kennedy/Reagan Tax Model**

**By U.S. Rep. John Hostettler (IN-8) May 14, 2003**

The President of the United States visited Indiana this week to talk
about taxes - and how he would like to lower them. In light of this
prestigious visit, and in the midst of a Congressional debate over tax
levels, I thought it might be informative to take a look at the word tax
itself.

One meaning is well known. According to Webster's Dictionary the verb
means "to require to pay a percentage of income, property value, etc.
for the support of a government."

But there's another definition that gives us greater perspective: "to
impose a burden on; put a strain on."

The meanings, though distinct, cannot be separated. By taking money from
taxpayers, the government imposes a burden on its citizens. The higher
the taxation, the greater the burden. It was Chief Justice John Marshall
who observed, "the power to tax involves the power to destroy."

Every dollar taken by the government means a dollar that's not in a
savings account, not invested for retirement, not used to purchase
housing or medicine, not used to pay bills.

When you consider that the federal government alone took
\$1,850,000,000,000 out of the economy last year, you begin to see the
true extent of the burden. Just about everything you earn, own, save or
purchase is taxed. The result is that Americans work longer to pay for
government than they will for food, clothing, and shelter combined.

In an effort to lessen the tax burden on American workers and
businesses, the House last week passed a tax relief plan that will leave
more money in the economy, encouraging consumption, investment,
employment and growth.

The Jobs and Growth Tax Act of 2003, will accelerate the tax rate cuts
scheduled to take place over the next several years; immediately
increase the child tax credit; reduce the marriage penalty, and; bring
relief to individuals subject to the alternative minimum tax.

The bill also includes a tax rate cut on both dividend income and
capital gains, providing relief for the 50 percent of Americans who are
invested in the stock market, as well as the 70 million Americans who
own their homes. Small businesses, the chief source of new job creation
in the U.S., would benefit from provisions in the plan as well.

The Heritage Foundation estimates that the bill will pump \$200 billion
into the economy and create 1.2 million jobs by the end of 2004 -
including nearly 18,000 in Indiana. On average, this boost to the
economy would produce an average of 575,000 new jobs between 2004 and
2008.

That's why this bill is so essential for economic growth. When
government allows taxpayers to keep more of their hard-earned money,
they save, spend, and invest more, improving their lives and boosting
the economy.

Yet in Washington this growth plan is meeting stiff opposition.
Opponents argue that the federal government cannot afford to let people
keep their money during a time of war and growing deficits. It's amazing
how talk of tax relief makes military and deficit hawks out of people
who voted to cut military budgets and tallied up huge debts for decades,
but let's take a look at their argument anyway.

First, when the federal government spends hundreds of billions of
dollars on new and growing programs, the government can certainly afford
to do some belt tightening.

Second, and more importantly, history shows that tax cuts do not result
in revenue cuts. As we discovered in 1961, 1981 and 1997, cutting taxes
*increases* revenues.

President John F. Kennedy signed into law a bill cutting taxes across
the board in 1961. Between 1961 and 1968, the inflation-adjusted economy
expanded by more than 42 percent! During the same period, federal
revenues climbed from \$94 billion in 1961 to \$153 billion in 1968, an
increase of 33 percent after adjusting for inflation.

President Kennedy explained the connection between tax relief and
growing government revenues in a December 14, 1962 speech at the
Economic Club of New York: "Our true choice is not between tax reduction
on the one hand, and the avoidance of large Federal deficits on the
other."

"In short," he continued, "it is a paradoxical truth that tax rates are
too high today and tax revenues are too low and the soundest way to
raise the revenues in the long run is to cut the rates now\... The
purpose of cutting taxes now is not to incur a budget deficit, but to
achieve the more prosperous, expanding economy which can bring a budget
surplus."

That logic was evident to President Ronald Reagan as well. In 1981 he
signed a sizable tax relief bill, with the result that revenues
*doubled* by 1990, even when adjusted for inflation. Both President
Kennedy and President Reagan acted on a fundamental economic fact - tax
cuts should not be confused with revenue cuts.

Yet in 1997, when Congress considered tax relief legislation, opponents
said tax cuts would prevent the budget from being balanced and increase
the national debt, without producing any benefits to the economy.

Fortunately, they were wrong. The following year - 1998 - the budget was
balanced for the first time in 30 years and the government realized a
\$69 billion surplus. The economic growth produced by the tax relief
resulted in \$87 billion more than federal revenues were projected to be
in 1998, \$130 billion more in 1999, and \$274 billion more in 2000.

In fact, the year 2000 was the first year since 1960 that the federal
government did not use a penny of the annual Social Security surplus on
other government programs.

The data supports the common sense notion that money left in the economy
benefits the economy. Today, the tax burden on individuals, families,
businesses and the overall economy is excessive. We can lessen that
burden with the added benefit of growing the economy and increasing
revenues. All of which would make the annual unpleasantness known as tax
day a little more bearable.

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