One of the major elements of the Reagan Revolution was a reduction in Marginal Tax Rates. This was accomplished through the Tax Reform Act of 1986. This law reduced the top marginal tax rate from 50% to 28%. In the interest of full disclosure we should note that the bottom marginal tax rate was raised from 11% to 15% but the minimum level of income for joint returns where this rate kicked in was raised from $5,720 per year to $29,750 per year.
The Office of Tax Analysis estimated that the revenue impact of this bill was 0.01% of GDP over a 4 year period. So in spite of enacting sweeping reductions the revenue to the Treasury actually went up even if only slightly. This was accomplished because loopholes were closed and therefore taxes were simplified to make up for the lower rates. This also kicked one of the longest periods of economic growth in out countries history.
As we approach a new congress and the next presidential election, there is much talk about a major tax overhaul including simplification and reduction of rates. Experts are saying we could get a corporate tax overhaul with this congress but not any individual relief until after the presidential election. This is ridiculous as our tax code is an embarrassment. It is a political document that is stifling our economies growth.
It also isn’t enough. There is another honeypot that I believe should be the battleground for the next Revolution! Regulation.
The tax policy center estimated that in 2010 corporate taxes raised $358 billion for the treasury and Individual Income taxes raised $1,046 nillion in 2011. The Office of Management and Budget estimates that in 2015 government revenues (remember every dollar comes from you and me) will be $3,300 billion with 13% ($430 billion) coming from corporate taxes and 46% ($1,518 billion) coming from individual income taxes. (FYI, another 32% or $1,056 billion comes from payroll taxes).
No doubt that this is real money and in need of serious reform. It is absolutely a drag on the economy. But the elephant in the room is regulation. While corporate taxes and individual income taxes add up to $1,948 billion, it is estimated that regulations are costing even more… over $2,000 billion as of 2012. (2014 study by the National Association of Manufacturers).
These regulations hit the two groups of employers that every politician claims to love the most: small businesses and manufacturers. While it is estimated that it costs every business $10,000 per employee per year to comply with regulations for manufacturers that number goes to $20,000 and for manufacturers with less than 50 employees the number is $35,000 per employee.
And it’s only getting worse. It seems like everyday we hear of another scheme from the Obama Administration to regulate another part of our lives. From the EPA regulating Carbon Dioxide to the Department of Labor regulating Interns to Michelle Obama and the Department of Agriculture regulating school lunches. No corner of our lives goes unregulated by our government.
I would love to see a candidate make the reduction of regulatory overreach a central theme in their campaign for president. They could lay out regulation after regulation for repeal. A regulation a day for the next two years would capture the imagination of the country. The candidate who lays out concrete steps to be taken can unleash the entrepreneurial engine of our country and we could be the Shining City on the Hill again.
Who is that candidate going to be?