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Lower tax rates + biased researchers = ‘hatchet job’

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David Schweikert and Jim Rounds are as fine a congressman and economist as you could hope to resolve complex issues. Their analysis (Arizona Capitol Times, May 5) allows us to more fully engage the intellectual wars of tax reform.

President Reagan’s tax rate reductions, from 72 percent to 28 percent, put America on a profoundly new course. However, opposition by the research community and media obscures the results. How many of us have heard that, since 1980, France has lost 3 billion hours of work per year while the U.S. has gained 87 billion? That difference is equal to 53 million full-time jobs. Are you aware that household consumption in Europe was 25 percent higher than the U.S. in 1980 and is now 50 percent lower? These numbers should be the essence of economic analyses and public discussion.  Even a glance makes obvious the success of reducing tax rates.

John Huppenthal

John Huppenthal

In 1980, the top 1 percent in the United States paid $50 billion or 19 percent of all personal income taxes. Today, that same group – inflation adjusted, people making more than $240,000, pays over 55 percent of all taxes, or 460 billion dollars – exactly as supply siders predicted – a much higher share of the burden at much lower tax rates.

By comparison, people making more than $240,000 in Europe pay less than $320 billion dollars in income taxes despite higher rates, less than 25 percent of Europe’s personal income tax burden.  As supply siders predicted, higher rates in Europe did not produce greater revenues, they produced less. Think about that. Europe’s GDP was 30 percent above us in 1980. Now, they are 15 percent behind us, despite a population 50 percent larger – 50 percent!  We adopted supply side economics, they did not.

If the success of supply side economics is so obvious, why doesn’t the research show it? We know the bias of the university research community – over 80 percent of their campaign contributions go to Democrats. The expression of this bias in the pages of research journals has been non-stop. It started immediately in the 1980s with a claim that the revenue benefits from rate reduction came from people switching away from corporate form. Yet, the value of our listed corporations has increased from $3 trillion in 1980 to over $27.3 trillion today. By comparison, Europe’s corporate market value stands at a paltry $6.3 trillion.

Because so many researchers echo each other and because the mainstream media echoes this false consensus, this false research “consensus” has flowed easily into the economic models of the Congressional Budget Office (CBO) and the Joint Tax Committee (JTC).

The bibliography, the research papers cited by the CBO, the JTC and the Treasury Department all exclude European data. In fact, they exclude any data outside of the United States. So, the cited research only includes econometric models based on American data. Further, these USA data-based models all exclude controls for welfare and regulatory effects – effects known to have extremely large impacts on economic growth. These are not small issues; the federal regulatory burden alone has increased from 100,000 pages in the Code of Federal Regulations to 170,000 pages since 1980. Combined, these issues are massive violations of excellent research methods.  As a result, the CBO is fixing to shortly do a hatchet job on the administration’s tax proposal.

This intellectual conflict can be boiled down to a technical estimate of what is known at the “revenue maximizing tax rate.” The black-hooded Bernie Sanders supporters rioting at Berkeley believe it is 63 percent or even higher and that it is morally reprehensible to deprive the poor and the sick of those resources simply for the greed of the 1 percent. The red hat Trump supporters, struggling under bone crushing regulatory and tax burdens, burdens that whip them into a fury, have directly seen the job-destroying effect of these ideas play out over the last 8 years.

We are tearing ourselves apart as a country because of massive specification errors in econometric equations.

Our congressional leaders who will lead this charge on tax reform: Andy Biggs, Jeff Flake, Trent Franks, Paul Gosar, John McCain, Martha McSally and David Schweikert are as good as any in the nation. They are about to be tested.

— John Huppenthal was the Arizona superintendent of public instruction from 2011 to 2015 leading Arizona to the highest combined math and reading score gains in the nation (National Assessment of Educational Progress).

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The views expressed in guest commentaries are those of the author and are not the views of the Arizona Capitol Times.

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