KempRothPod

The following is a collection of the materials used in creating the twenty-first episode of the Citizen Reagan podcast (pending permission from the Reagan Foundation) about the Reagan's Radio Commentaries.

Transcript

Taxation! A subject that is just as fun a topic of discussion as its sister in certainty: death. It was a frequent topic of discussion for Reagan and when he found a tax reduction bill he liked, he made sure we knew about it. One such bill was the Kemp-Roth bill which would lower tax rates and, very importantly, index the tax code to shift with the cost of living.

Here's Reagan:

Congress has finally stewed around with a so-called tax reduction until it got something it could call a tax cut but you and I won't have any extra money to spend. I'll be right back.

We are told by voices from our Mt. Olympus—Washington D.C. that is—that our taxes have been cut, but don't count on having any extra money to spend. Oh there are one or two parts of the bill that offer some benefit to the economy with changes in the business and capital gains tax; but an across the board tax cut, it is not.

The Kemp-Roth bill is supposedly dead, a victim of assassination by those who believe in higher progressivity in the income tax and that taxation is a method of redistributing the earnings from the most productive to the least productive. Kemp-Roth is not dead,—ideas do not die, it is simply waiting for the wisdom of the people to be accepted by the majority in Congress.

Andrew Mellon who was Sec. of the Treasury under Presidents Harding, Coolidge and Hoover, in his hook "Taxation: The People's Business:" explains why the progressive tax idea is really a rip-off, not of the rich but of the worker. He says: "The history of taxation shows that taxes which are inherently excessive are not paid." And then he explains away the foolish demagoguery of those who want ever higher surtaxes and label every effort by individuals to minimize their tax burden as a shameful use of loopholes. Let me read a paragraph from his book.

"The high tax rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business and invest it in tax-exempt securities or find other lawful methods of avoiding the realization of taxable income. The result is that the sources of taxation are drying up; wealth is failing to carry it's share of the tax burden; and capital is being diverted into channels which yield neither revenues to the govt. not profit to the people.... What rates will bring in the largest revenue to the govt., experience has not yet developed, but it is estimated that by cutting the surtaxes in half, the govt., when the full effect of the reduction is felt, will receive more revenues at the lower rates OF TAX than it would have received at the higher rates."

Acting on the philosophy expressed in that paragraph Mellon succeeded in getting Congress to cut the highest bracket from the World War I high of 66% to 25%. There were no screams of protest about benefiting the rich and very soon there was such an expansion of the economy and such prosperity FOR ALL THE PEOPLE that we actually made a huge dent in the war debt.

When J.F. Kennedy cut taxes across the board in the 60's, the top marginal rate was 91% and the base 20%. He cut these to 70% and 14%. The result was the longest, sustained, economic expansion in the history of our country. Kemp-Roth would further lower the rates to a 50% top and an 8% base. And our most noted economists predict another economic expansion. It is time for Washington to hear from the people.

This is Ronald Reagan.

Thanks for listening.

So, where to begin. First, after listening to this broadcast for the umpteenth time, I decided to check on something. Andrew Mellon's book, Taxation: The People's Business was published in 1924, which means it entered public domain in 2020, over a year ago. Uh, oh! Someone must be selling it digitally, right? I mean the man was the Secretary of the Treasury for over a decade, Surely, someone like Project Gutenberg had made this available?!

Well, no actually, no one had, and don't call me Shirley.

So, I found a scanned copy online, went through my process and I now am the only seller of a e-book edition of Taxation: The People's Business on Amazon. There'll be a link on the wiki, I'm only selling it for $1.70.

So, what about what Reagan said from the book? Not 100% perfect. Well, the words, yes, but, he says, "let me read a paragraph from his book." Did he? In a manner of speaking. He did not read a complete paragraph, nor was it a contiguous section of text. If you read the transcript, which is available in the book Reagan In His Own Hand, page 279, there is a set of ellipsis. Reagan had started reading from the book with the line: The history of taxation shows that taxes which are inherently excessive are not paid. He pauses quoting the book to summarize, but when he picks back up, it's actually the next 2 sentences. Then comes the ellipsis and he skips more than 4 paragraphs before continuing to quote the book. It might be hard to picture, so I’ll map this all out on my wiki, poorrrichardsprintshop.com/wiki if you want to see.

[Image to right. Yellow highlight is first section of text. Green is second section. Dark blue is portion skipped by ellipsis.]

What is Reagan's point? High tax rates do not necessarily translate into high tax revenue for the government. When taxes are excessively high, people will find ways not to pay them. There are legitimate and illegitimate ways to reduce what would be high taxes. Legitimate would include making charitable donations, intentionally taking capital losses and using alternative income streams. Illegitimate might include, to cite one of Reagan’s own examples, barter. In my 4th podcast episode, Reagan mentions Sweden's high tax rate and how using barter might allow workers to avoid getting bumped into a higher tax bracket.

Kemp-Roth, named after Representative Jack Kemp and Senator William Roth, was a bill to reduce overall taxes and index the tax code. The Carter administration fought against and eventually defeated it... but I don't know how. Did it die in a committee? Floor vote? Did Carter veto it? In researching the bill, the vast majority of what I find references the successful version from 1981, not the failed attempt about 3 years earlier.

Let's take a moment to cover indexing. What this means is the tax brackets would shift according to cost of living. Reagan talked about this a couple times and, well, I think he explains it better than I would. From a 1975 broadcast (75-11-A5, 1:21-1:58):

Let's turn to your paycheck because here's where the government really profits from inflation. We have a progressive income tax. As your income increases you find the government takes a higher percentage, say, of the second $10,000 you earn than of the first. Now let's say you get a raise simply to keep even with the increased cost of living, to make you able to buy what you could before the raise. But you can't. For that increase in the number of dollars put you into a higher tax bracket. The government takes a greater share of those new dollars, and suddenly you find you haven't kept up with inflation. After taxes you're worse off than you were before the raise. Nine times out of ten though you blame high prices, not your taxes.

This broadcast is one of those available on the Reagan In His Own Voice audiobook.

These broadcasts obviously foreshadow Reagan's actions as President, where he embraced Kemp-Roth along with Milton Friedman, the Laffer Curve and supply-side economics putting his own spin on things and ending up with, as Paul Harvey called it, Voodoo Economics.

No, Mr. Stein, that's what George Bush called it in the midst of the 1980 primary when Bush was running against Reagan. "What I call a voodoo economic policy."

Paul Harvey would coin the less derogatory term Reaganomics.