[Congressional Record (Bound Edition), Volume 157 (2011), Part 2]
[Senate]
[Pages 1789-1790]
[From the U.S. Government Publishing Office, www.gpo.gov]




                       REMEMBERING RONALD REAGAN

  Mr. KYL. Mr. President, last week we were all celebrating what would 
have been the 100th anniversary of Ronald Reagan. There was a piece in 
the Wall Street Journal by one of the economists who advised Ronald 
Reagan, Arthur Laffer, which I think recounts and discusses probably as 
good as any other summary I have ever seen the contribution Reagan and 
his administration made to the economy of the United States.
  Therefore, I ask unanimous consent to have printed in the Record the 
article from the Wall Street Journal dated February 10, 2011.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

             [From the Wall Street Journal, Feb. 10, 2011]

                      Reaganomics: What We Learned

                         (By Arthur B. Laffer)

       For 16 years prior to Ronald Reagan's presidency, the U.S. 
     economy was in a tailspin--a result of bipartisan ignorance 
     that resulted in tax increases, dollar devaluations, wage and 
     price controls, minimum-wage hikes, misguided spending, 
     pandering to unions, protectionist measures and other policy 
     mistakes.
       In the late 1970s and early '80s, 10-year bond yields and 
     inflation both were in the low double digits. The ``misery 
     index''--the sum of consumer price inflation plus the 
     unemployment rate--peaked at well over 20%. The real value of 
     the S&P 500 stock price index had declined at an average 
     annual rate of 6% from early 1966 to August 1982.
       For anyone old enough today, memories of the Arab oil 
     embargo and price shocks--followed by price controls and 
     rationing and long lines at gas stations--are traumatic. The 
     U.S. share of world output was on a steady course downward.
       Then Reagan entered center stage. His first tax bill was 
     enacted in August 1981. It included a sweeping cut in 
     marginal income tax rates, reducing the top rate to 50% from 
     70% and the lowest rate to 11% from 14%. The House vote was 
     238 to 195, with 48 Democrats on the winning side and only 
     one Republican with the losers. The Senate vote was 89 to 11, 
     with 37 Democrats voting aye and only one Republican voting 
     nay. Reaganomics had officially begun.
       President Reagan was not alone in changing America's 
     domestic economic agenda. Federal Reserve Chairman Paul 
     Volcker, first appointed by Jimmy Carter, deserves enormous 
     credit for bringing inflation down to 3.2% in 1983 from 13.5% 
     in 1981 with a tight-money policy. There were other heroes of 
     the tax-cutting movement, such as Wisconsin Republican Rep. 
     Bill Steiger and Wyoming Republican Sen. Clifford Hansen, the 
     two main sponsors of an important capital gains tax cut in 
     1978.
       What the Reagan Revolution did was to move America toward 
     lower, flatter tax rates, sound money, freer trade and less 
     regulation. The key to Reaganomics was to change people's 
     behavior with respect to working, investing and producing. To 
     do this, personal income tax rates not only decreased 
     significantly, but they were also indexed for inflation in 
     1985. The highest tax rate on ``unearned'' (i.e., non-wage) 
     income dropped to 28% from 70%. The corporate tax rate also 
     fell to 34% from 46%. And tax brackets were pushed out, so 
     that taxpayers wouldn't cross the threshold until their 
     incomes were far higher.
       Changing tax rates changed behavior, and changed behavior 
     affected tax revenues. Reagan understood that lowering tax 
     rates led to static revenue losses. But he also understood 
     that lowering tax rates also increased taxable income, 
     whether by increasing output or by causing less use of tax 
     shelters and less tax cheating.
       Moreover, Reagan knew from personal experience in making 
     movies that once he was in the highest tax bracket, he'd stop 
     making movies for the rest of the year. In other words, a 
     lower tax rate could increase revenues. And so it was with 
     his tax cuts. The highest 1% of income earners paid more in 
     taxes as a share of GDP in 1988 at lower tax rates than they 
     had in 1980 at higher tax rates. To Reagan, what's been 
     called the ``Laffer Curve'' (a concept that originated 
     centuries ago and which I had been using without the name in 
     my classes at the University of Chicago) was pure common 
     sense.
       There was also, in Reagan's first year, his response to an 
     illegal strike by federal air traffic controllers. The 
     president fired and replaced them with military personnel 
     until permanent replacements could be found. Given union 
     power in the economy, this was a dramatic act--especially 
     considering the well-known fact that the air traffic 
     controllers union, Patco, had' backed Reagan in the 1980 
     presidential election.
       On the regulatory front, the number of pages in the Federal 
     Register dropped to less than 48,000 in 1986 from over 80,000 
     in 1980. With no increase in the minimum wage over his full 
     eight years in office, the negative impact of this price 
     floor on employment was lessened.
       And, of course, there was the decontrol of oil markets. 
     Price controls at gas stations were lifted in January 1981, 
     as were well-head price controls for domestic oil producers. 
     Domestic output increased and prices fell. President Carter's 
     excess profits tax on oil companies was repealed in 1988.
       The results of the Reagan era? From December 1982 to June 
     1990, Reaganomics created over 21 million jobs--more jobs 
     than have been added since. Union membership and man-hours 
     lost due to strikes tumbled. The stock market went through 
     the roof.

[[Page 1790]]

     From July 1982 through August 2000, the S&P 500 stock price 
     index grew at an average annual real rate of over 12%. The 
     unfunded liabilities of the Social Security system declined 
     as a share of GDP, and the ``misery index'' fell to under 
     10%.
       Even Reagan's first Democratic successor, Bill Clinton, 
     followed in his footsteps. The negotiations for what would 
     become the North American Free Trade Agreement began in 
     Reagan's second term, but it was President Clinton who pushed 
     the agreement through Congress in 1993 over the objections of 
     the unions and many in his own party.
       President Clinton also signed into law the biggest capital 
     gains tax cut in our nation's history in 1997. It effectively 
     eliminated any capital gains tax on owner-occupied homes. Mr. 
     Clinton reduced government spending as a share of GDP by 3.5 
     percentage points, more than the next four best presidents 
     combined. Where Presidents George H.W. Bush and Bill Clinton 
     slipped up was on personal income tax rates--allowing the 
     highest personal income tax rate to eventually rise to 39.6% 
     from 28%.
       The true lesson to be learned from the Reagan presidency is 
     that good economics isn't Republican or Democrat, right-wing 
     or left-wing, liberal or conservative. It's simply good 
     economics. President Barack Obama should take heed and not 
     limit his vision while seeking a workable solution to 
     America's tragically high unemployment rate.

                          ____________________