September 19, 2005


Tax cuts key to sustained economic growth (CHRISTOPHER LINGLE, 9/19/05, The Japan Times)

Political officials around the world, even in European welfare states, have discovered that offering tax cuts are not just a vote winner that can swing the outcome of an election. They are also a good way to spark sustained economic growth. So it is not surprising that President Susilo Bambang Yudhoyono has pledged to reduce both corporate and personal taxes to encourage increased investment in Indonesia.

Clearly he is looking beyond the bogus claim that cutting taxes benefits only the rich. Perhaps he and his advisers were impressed by the experience of other countries. For example, several economies that had veered far off their long-term growth paths during the early 1980s were revived by reductions in the marginal tax rate (amount of tax imposed on an additional unit of income).

For example, Turkey reduced its minimum marginal tax rates from 40 to 25 percent and the maximum from 75 to 50 percent in 1983 to 1984. Real economic growth was about 7 percent over the following four years and rose to 9 percent in 1990.

South Korea cut tax rates and expanded deductions three times, sparking a surge in economic growth that averaged 9.3 percent a year from 1981 to 1989. More recently, Ireland became known as the "Celtic Tiger" after a round of tax cuts.

And then there is the U.S. experience with cutting marginal income-tax rates in 1981 and in 1986. These sparked nearly two decades of relatively high growth into the late 1990s, interrupted only by a mild recession in 1990-91.

And the 90-91 slowdown -- despite coming at the historically difficult point when an economy transitions off of a war footing -- turns out to have been so mild it won't even qualify as a recession.

Posted by Orrin Judd at September 19, 2005 6:44 AM

President Bush’s tax cuts and spending after 9/11, accompanied by The Fed’s interest rate cuts prevented disaster after the fueled NASDAQ crash. Two hundred billion or so for Katrina will also help. President Hoover took a different approach and gave us sixty years of Democrat enacted ‘destructive compassion’, along with other foolishness.

Posted by: tgn at September 19, 2005 10:55 AM