In his economic address today in Chicago, former Minnesota Gov. Tim Pawlenty established an ambitious goal of 5 percent economic growth and outlined a series of pro-growth tax policies. My friend Dave Weigel snarks: “Cut taxes so we can grow the economy, like it grew after we raised taxes.”
Pawlenty cites the economic booms of the 1980s and ’90s as his evidence a 5 percent growth rate is feasible. Weigel acknowledges the Reagan tax cuts and the 1997 capital gains tax cut under Clinton, but writes: “The thing is… both of those economic expansions followed on tax hikes.” He counters with the 1982 TERFA tax hike under Reagan, as well as the 1993 Clinton tax increase, as belying Pawlenty’s claims.
But 1983 was also the year that the marginal tax rate reductions from the 1981 Reagan tax cuts were fully phased in. Those were net tax cuts and led to lower rates. After the 1986 Tax Reform Act, the top rate went down to 28 percent. I’m not sure Pawlenty’s tax proposals can stimulate the growth he claims, but it’s a bit much to say the ’80s economic boom and all the revenues gains are attributable to TERFA.
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