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Big Tax Cuts Could Lead to ‘Strong Prosperity’: Amity Shlaes

Daily Ticker

When President Obama gave his State of the Union address Tuesday he said the country deserves a tax code that follows these three tenets:

  1. Is less complicated for everyone.
  2. Ensures that billionaires don’t pay a lower rate than their secretaries.
  3. Increases incentives for businesses to create jobs in the U.S. and keep them here.

He proposed “closing tax loopholes and deductions for the "well-off “ to help reduce the deficit and prevent deeper cuts to education and Medicare and using tax credits to reward companies hiring the long-term unemployed. “Now is our best chance for bipartisan, comprehensive tax reform that encourages job creation and helps bring down the deficit,” Obama said.

Amity Shlaes, a columnist for Bloomberg View and author of the new book, Coolidge says tax cuts are the way to go because they will yield higher revenues. During Coolidge’s presidency from August 1923 to March 1929 the top income tax rate was cut in half, from 50% to 25%.

“The Coolidge experiment” shows that more revenues than expected were collected after taxes were cut, which helped the economy grow, says Shlaes.

But Rutgers History and Journalism Professor David Greenberg, who wrote a 2006 biography of Coolidge called "Calvin Coolidge," writes on Slate.com that Coolidge doesn't deserve all the credit for a booming economy while he was office. Greenberg says “wartime spending under Wilson buoyed the economy into the 1920s” and Coolidge made “many errors.” He says more than one-half of American families then were living near or below subsistence despite the economic boom and Coolidge failed to restrain Wall Street speculation.

Shlaes admires Coolidge especially the big cuts he made to tax rates. She would like today’s politicians including President Obama to make big policy changes.

"It would be not that hard to get strong prosperity in the U.S.--that's really what the '20s showed--if you had violent, serious moves to make the U.S. more stable and attractive." Instead, for example, "the parameters of the [current tax] debate are very narrow.”

Shlaes likes the idea of a flat tax, which would be simpler and more understandable for most Americans, and a deep cut in the capital gains tax. That tax was raised this year to 20% from 15% for couples with taxable income sabove $450,000 and individuals with incomes above $400,000

If you cut the cap gains rate to 5% and kept the income taxes where they are and make sure foreign businesses were really welcome....the flow of money to the to U.S. would expand and our unemployment would go way down says Shlaes.

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