Larry Kudlow: Reagan's tax cuts launched a 3 decade-long prosperity cycle

So, as we've said time and again, does anybody in their right mind believe that with an economic boom, a jobs boom, a consumer boom, an inflation boom and a stock market boom that the right fiscal policy is to spend six trillion dollars more? Does anybody really believe that and does anybody in their right mind really believe that with a $3 trillion tax hike we're really going to tax our way into prosperity? It kind of begs credulity. 

In fact, as we will discuss later in the show, Biden's plunging polls show that ordinary voters have a much better grip on reality than the Biden administration. 

Among many fiscal sins, President Biden is launching the first major tax hike on capital in 50 years. It will be taxing top income earners, capital gains, dividends, corporations, small businesses and estates. 

In other words, his so-called "tax the rich" income-redistribution progressive left policies, are hell-bent on assaulting the geese that lay the golden eggs. Again, we've seen nothing like this in a half-century. So, what we'll have is more and more spending with monetary support from the Fed to boost demand along with higher tax rates on investments and success to choke off supply. 

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Now I don't honestly know if today's inflation problem is temporary or permanent. Right now, it is what it is and it's not good, but I can guarantee you if Mr. Biden's high-tax, high-spend, high-regulate policies are legislated in reconciliation, today's inflation will become permanent and will become permanently worse. 

The Bidens are determined to reverse President Trump's policies of lower taxes, minimal regulations, and energy independence.  

Parenthetically, Mr. Trump did not beg OPEC to produce more oil. Instead, he opened the door to American oil production with more than ample energy supplies at low cost. The results of Trump's policies were recorded low unemployment and very low inflation with lower poverty, reduced inequality and a steady king dollar. 

So, let's get to the main point this evening. 

Tomorrow is the 40th anniversary of Ronald Reagan's revolutionary tax cuts. We will celebrate that tonight. Reagan dropped the income tax rate from 70% to 28%. He also was a minimal regulator—including the de-control of oil prices—which led to a huge drop—so did gold, silver and inflation. 

Working with Fed Chair Paul Volcker, their combined economic policy was basically low taxes and a steady, strong, reliable king dollar.  

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Tax cuts rejuvenated the economy. King dollar vanquished inflation. The theoretical roots of this new paradigm traced back to what became known as the Laffer-Mundell hypothesis. 

From that, of course, came the Laffer Curve (AKA: Lower tax rates generated higher tax revenues through faster economic growth and less tax avoidance). If all of this sounds like the direct opposite of Biden policies, you would be right. 

According to Art Laffer and Steve Moore, the economy grew at a 7.3% annual rate from 1981 to 1989.  

Tax revenues almost doubled. The share of taxes paid by the richest one percent rose from 19% to 26% under Reagan and later on grew to 40%. 

The stock market stood at roughly 1,000 and it rose 12-fold under Reagan. Today, the DOW Jones is well over 35,000, which is roughly a 35-fold increase.  

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Basically, Reagan's tax cuts launched a 3 decade-long prosperity cycle from late 1982 through 2007—a 25-year period, the economy grew at 3.4% at an annual rate.  

It wasn't until the financial crisis of 2008 and 2009 that the cycle was broken and that, by the way, was caused by regulatory financial and monetary mistakes. Reagan's low tax regime actually remained in place and even after the recovery weakening over-regulation by President Obama, 

President Trump restored prosperity by slashing taxes and regulations—thereby successfully following the Reagan playbook. 

I'll be moderating a Reaganite panel later today over at the Heritage Foundation and on the show this evening we'll have our own panel with Reaganites: Art Laffer, Stephen Moore, Steve Forbes, and yours truly. 

In fact, yours truly is one of the few blessed with the opportunity to serve both Reagan and Trump. I'm just going to call it a great honor and lots of fun and to sum it all up, what we're trying to do this evening is show you in economic terms that there's a right way and a wrong way. 

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History, with real-world facts, is our guide. There's a way to make America prosperous and a way to not make it prosperous. There’s a way to make America the world's leader or not the leader.  

I prefer American leadership using American ideals. I like seeing this country remaining the great city on the hill.

This article is adapted from Larry Kudlow's opening commentary on the August 11, 2021 edition of "Kudlow."