Thirteen years ago, Jack Kemp and I introduced a bill to cut tax rates across the board for individuals and businesses. Roth-Kemp became the basis for President Reagan's economic Recovery Tax Act of 1981.
First, we wanted to restore economic growth. We argued that lower taxes were essential to ending the stagflation of the Carter years.Second, we thought it was possible to increase revenues from certain segments of our economy by lowering tax rates and thus decreasing the attraction of tax shelters.
Third, we saw an opportunity to make the tax code fairer in its burden.
By the end of the 1970s, the American economy was mired in stagflation. The relentless increases in the tax burden of the average American were suffocating the economy.
Such high tax rates reduced the incentive to work, save and invest. This, in turn, curbed the flow of resources into production, depressing output.
To reverse this slide, we emphasized the fundamental premise of the Roth-Kemp tax cuts: The most important engine of economic growth is the private sector. Our strategy was often called supply-side economics, because our goal was to increase the supply of goods and services by increasing the incentives to produce them.
Roth-Kemp laid the groundwork for the longest peacetime expansion in American history. With a return to non-inflationary economic growth, median family income bounced back, climbing 12 percent after adjustments for inflation.
U.S. job growth outpaced that of all the advanced economies combined, while the unemployment rate plunged to its lowest level in 15 years. Investment and construction surged, and manufacturing productivity paved the way for stronger export performance. Great Britain, Sweden, Japan, Canada, Australia and other countries followed our lead with dramatic tax reform.
Total tax receipts rose from $517 billion in fiscal year 1980 to an estimated $1.044 trillion in fiscal year 1990. Income tax payments by individuals rose from $244 billion to $476 billion in the same period. The deficits that dominate our attention today arose only because congressional spending - $1.263 trillion in fiscal year 1990, up from $591 billion in 10 years - increased at an even faster pace than did tax revenues.
Without the 1981 tax cuts, the average American family now would pay $1,500 more in income taxes every year.
Critics of the Roth-Kemp approach argue the rich should pay more, as a necessary principle of fairness or equity. But the rich are paying more. The real issue of fairness in the minds of those who propose higher tax rates is the belief it is unfair for some people to have higher incomes than others.
An obsession with income redistribution rather than a commitment to economic growth will doom the American people to lower living standards and malaise. There is no fairness in such a bleak prospect. We cannot tax ourselves into prosperity.
It would be tragic in the 1990s if we reverted to the errors of the 1970s. Then the economy was strangled by an ever-increasing public sector, diminishing incentives for work, savings and investment, and a mounting tax burden that demoralized the population. Tax increases today would bring us back to the stagflation of the 1970s. They must be strongly resisted.