In short, 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 1980s President Ronald Reagan presided over two major pieces of tax legislation that, together, reduced the top tax rate from 70 percent in 1980 to 28 percent by 1988. The economic effects of the Reagan tax cuts were dramatic. The tax cuts helped to pull the economy out of its doldrums and ushered in a period of record peacetime economic growth. During the seven-year Reagan boom, economic growth averaged almost 4 percent.
Critics charge that the tax cuts caused higher deficits, but they misread the evidence.
The Reagan tax cut, although approved in 1981, was phased in over several years. The economy received an unambiguous tax cut only as of January 1983. As Chart 8 shows, revenues then climbed dramatically. The share of income taxes paid by the top 10 percent of earners jumped significantly, climbing from 48.0 percent in 1981 to 57.2 percent in 1988. According to Representative Kemp, At some point, additional taxes so discourage the activity being taxed, such as working or investing, that they yield less revenue rather than more.