Larry Kudlow on Tax Cuts and the Democrat Hiding Within Reaganomics

Earners keepers? According to Larry Kudlow, there's a secret history behind the US's history of tax reduction and it involves John F. Kennedy.

Larry Kudlow: The so-called liberal argument, which is probably more liberal today than it has been in many, many decades, they argue that we should have equality. Everybody should be equal. We should all make the same amount of money. We should all have the same assets and wealth. I don't believe that. I think that's fundamentally inimical to free market capitalism. I think that's a kind of Soviet East Europe old communist socialist model that has never worked. You can't make everybody equal. They tried to redistribute income and wealth rather than increase it. My credo here is instead of making the economic pie smaller and handing smaller pieces to everyone, let's make the pie bigger and get everybody a larger piece. And I think history has proven, really since the fall of Soviet communism, that that model of income leveling is a bad model. It's a model that doesn't work. It took seventy years for the Soviets to fall but they fell.

And China, for example, the other big communist country, I won't say that they have fallen but they've changed their economy. It's now much more of a market oriented economy. In my judgment markets distributes goods. Markets set prices. And if there are free opportunities inside markets that's how people who work hard will do well. And I think the ethos in America is to work hard. That's always been where we are. In other words we all start at the same beginning, the starting line is the same. By law and tradition we should be prejudice free, color free, gender free, whatever. We all have the same legal starting line, but that doesn't mean we all finish at the finish line at the same and I think that's human nature. So we talk about this in the book, and in particular as you asked about tax policy, taxing rich people- at high confiscatory rates has never worked in this country. It's outside of our tradition. It's been tried a couple of times. F.D.R. tried it in the 1930s and it didn't work. Economy was no better in the late '30s than it was when he took over in 1932. The war spending did help, but the great new deal experiment failed.

The great times of prosperity in this country is when we lower tax rates and we shrink government, we put government in a lesser position. I'm a believer in the private sector. The government does not run the economy; we run the economy. So you go back and look at some unbelievable prosperity periods like the post-Civil War period, unbelievable prosperity. The 1920s, unbelievable prosperity. The 1960s, unbelievable. The 1980s and 90s, fantastic economic growth. Those all have some common characteristics and usually they include low marginal tax rates so you keep more of what you learn. That's a reward for your work and investment and entrepreneurship. Less government. Fewer regulations. That doesn't mean no government. It doesn't mean no regulations. I'm for a safety net. But it means at some point you go to far and you're strangling businesses. You're strangling small businesses. That's who I'm really worried about. So that's my basic argument.

John F. Kennedy, to get right to the chase in this book, John F. Kennedy's tax legacy has been lost. It's a very strange story and that's one of the reasons why Brian Domitrovic and I wrote this book. Kennedy was the first post-World War II supply side tax cutting president. He was the first. Eisenhower wouldn't do it in the 1950s, despite certain urban legends the 1950s were a lousy economy, three recessions in eight or nine years. Kennedy knew, having won of my cats whisker against Nixon, Kennedy knew that he had to grow the American economy at five percent a year. That was his target. Nixon didn't go there. And Kennedy never really told us in the 1960 election how he was going to grow at five, but he said this is what we're going to do. And then he went back-and-forth with his advisers in 1961 and 1962. The first step he made was one I disagree with. He allotted government spending, lots and lots of government spending, safety net spending, infrastructure spending, you name it, which his liberal academic advisers suggested to him. That was their idea spend, spend and leave tax rates high. Do you know what the top tax rate was? Ninety-one percent. It's inconceivable.

So you earn an extra dollar, you get nine cents; the government gets the rest. That's a big number. That's a big number. So anyway, make a long story short, or at least this part of the story short, Kennedy had several Republicans in his cabin. This is an interesting side note very important for today. One of them was a guy named Douglas Dylan who came from a famous banking family just like Kennedy he has as much money as JFK's father and is a banking guy and owned a vineyard south of France. He was Eisenhower's under secretary of state. Anyway, Kennedy puts him in the top tier treasury department and Dylan makes the argument that the liberals were wrong and that instead we should give men and women more opportunities, more rewards, more incentives to grow the economy. If you get paid more you're likely to work more, or if the tax rate is lower on investment for a new business, if you are rewarded with higher pay after tax you're going to be rejuvenated. You're going to get out there and go for the gold. And that hadn't been happening since World War II. That hadn't happened in the 1950s.

Let me just throw out one number for you. It's in the book. A 91 percent tax rate, so as I said you make an extra dollar you get nine cents, the government gets 91 cents. Ronald Reagan as a movie actor quit acting because he decided nine cents on the dollar was not enough for him to motivate him. True story. Kennedy cut the top tax rate from 91 to 70. So instead of taking home nine cents on the dollar you took home 30 cents on the dollar, that's an over 200 percent increase in after tax income. And Kennedy argued he was the pioneer, not Reagan, Kennedy, that this would create opportunities and incentives. You'll get government out of the way. I will get people working harder. It will get them to take risks to start new companies. A lot of new companies, a lot of technology and Silicon Valley stuff was started in the '60s after the Kennedy tax cuts. That was his argument. And then 20 years later the top rate was at 70 and Reagan cut it to 28 in two steps, 1981 and 1986, 28. So now instead of getting 30 cents on the dollar you got 72 cents on the dollar. It's about 145 percent increase. That's what I call reward. It's a basic economic principle. We don't work to finance the government. We don't work unless we are compensated for the hard work. We might go on welfare but that's not going to necessarily help the country, it helps the poor but we want less poverty. We want more opportunity. So give us more after-tax income. That's what Kennedy did and it's called an incentive. That's what Reagan did and it's called an incentive and both times it worked. That's the thing.

Kennedy the Democrat. A lot of people said he was a liberal Democrat, actually he was not he was very conservative, but Kennedy the Democrat using a Republican treasury secretory, Dug Dylan, Reagan 20 some years later, the Republican who wooed Democrats in Congress to get his tax cuts through they presided over the best economic decades postwar and it is not a coincidence that they both were tax cutters. And we can talk about this later, but they also wanted a steady and strong reliable dollar as our currency, but incentives a matter. The government does not run our economy. We run our economy as long as we are properly rewarded for our efforts and our entrepreneurship. And the Soviet Union the Soviets ran the economy. It was horrible. Horrible. Rapid poverty. China it was horrible. East Europe horrible. Latin America horrible. And then came the free market revolution and things picked up quite a bit because people had more economic freedom. And that's why I argue - I'm not talking politics here I'm just talking straight out economics.

On December 14 in 1962, at the Waldorf Astoria Hotel in New York City, President John F. Kennedy unveiled an economic plan that would breathe new life into the stagnant US economy. His focus was on growth incentives; he proposed reducing marginal tax rates for all taxpayers, cutting the lowest earners' taxes from 20% to 14%, and the highest earners' taxes from 91% to 65%. His tax code also closed a series of loopholes and tax exceptions. These measures worked, and the U.S economy grew by roughly 5% every year, for almost eight years.

Radio broadcaster and CNBC senior contributor Larry Kudlow credits JFK as the initial force behind Reaganomics, and believes Democrats today should take heed and embrace tax cuts over tax hikes. Kudlow doesn’t believe in taxing your way to prosperity, and it’s the thread throughout his new book JFK and the Reagan Revolution: A Secret History of American Prosperity, which he’s co-authored with Brian Domitrovic. The book aims to correct the historical record, which Kudlow and Domitrovic feel omits the truth about Kennedy’s economic persuasion, which came about under advice from his Republican Treasury Douglas Dillon.

Are Kudlow and Domitrovic on the money with their thesis? Some people are strongly opposed, such as broadcaster, entrepreneur and bestselling author Thom Hartman, who says that "there's just one major, glaring problem with Kudlow's analysis: It's not true." Read here for a counterargument to Kudlow’s view.

Despite his chat with Big Think kicking off on the misguided notion that "we all start at the same beginning, the starting line is the same," hear Kudlow out and consider whether there's validity to his argument for tax cuts – does a rising tide really lift all boats? Or would its success hinge on the simultaneous closing of tax loopholes and exceptions, true to Kennedy's 1962 plan?

Kudlow and Domitrovic's book is Reagan Revolution: A Secret History of American Prosperity.

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Kosovo land swap could end conflict - or restart war

Best case: redrawing borders leads to peace, prosperity and EU membership. But there's also a worst case

Image: SRF
Strange Maps
  • The Yugoslav Wars started in 1991, but never really ended
  • Kosovo and Serbia are still enemies, and they're getting worse
  • A proposed land swap could create peace - or reignite the conflict

The death of Old Yugoslavia

Image: public domain

United Yugoslavia on a CIA map from 1990.

Wars are harder to finish than to start. Take for instance the Yugoslav Wars, which raged through most of the 1990s.

The first shot was fired at 2.30 pm on June 27th, 1991, when an officer in the Yugoslav People's Army took aim at Slovenian separatists. When the YPA retreated on July 7th, Slovenia was the first of Yugoslavia's republics to have won its independence.

After the wars

Image: Ijanderson977, CC BY-SA 3.0 / Wikimedia Commons

Map of former Yugoslavia in 2008, when Kosovo declared its independence. The geopolitical situation remains the same today.

The Ten-Day War cost less than 100 casualties. The other wars – in Croatia, Bosnia and Kosovo (1) – lasted much longer and were a lot bloodier. By early 1999, when NATO had forced Serbia to concede defeat in Kosovo, close to 140,000 people had been killed and four million civilians displaced.

So when was the last shot fired? Perhaps it never was: it's debatable whether the Yugoslav Wars are actually over. That's because Kosovo is a special case. Although inhabited by an overwhelming ethnic-Albanian majority, Kosovo is of extreme historical and symbolic significance for Serbians. More importantly, from a legalistic point of view: Kosovo was never a separate republic within Yugoslavia but rather a (nominally) autonomous province within Serbia.

Kosovo divides the world

Image: public domain

In red: states that have recognised the independence of Kosovo (most EU member states – with the notable exceptions of Spain, Greece, Romania and Slovakia; and the U.S., Japan, Turkey and Egypt, among many others). In blue: states that continue to recognise Serbia's sovereignty over Kosovo (most notably Russia and China, but also other major countries such as India, Brazil, Mexico, South Africa and Iran).

The government of Serbia has made its peace and established diplomatic relations with all other former Yugoslav countries, but not with Kosovo. In Serbian eyes, Kosovo's declaration of independence in 2008 was a unilateral and therefore legally invalid change of state borders. Belgrade officially still considers Kosovo a 'renegade province', and it has a lot of international support for that position (2). Not just from its historical protector Russia, but also from other states that face separatist movements (e.g. Spain and India).

Despite their current conflict, Kosovo and Serbia have the same long-term objective: membership of the European Union. Ironically, that wish could lead to Yugoslav reunification some years down the road – within the EU. Slovenia and Croatia have already joined, and all other ex-Yugoslav states would like to follow their example. Macedonia, Montenegro and Serbia have already submitted an official application. The EU considers Bosnia and Kosovo 'potential candidates'.

Kosovo is the main stumbling block on Serbia's road to EU membership. Even after the end of hostilities, skirmishes continued between the ethnically Albanian majority and the ethnically Serbian minority within Kosovo, and vice versa in Serbian territories directly adjacent. Tensions are dormant at best. A renewed outbreak of armed conflict is not unthinkable.

Land for peace?

Image: BBC

Mitrovica isn't the only area majority-Serb area in Kosovo, but the others are enclaved and fear being abandoned in a land swap.

In fact, relations between Kosovo and Serbia have deteriorated spectacularly in the past few months. At the end of November, Kosovo was refused membership of Interpol, mainly on the insistence of Serbia. In retaliation, Kosovo imposed a 100% tariff on all imports from Serbia. After which Serbia's prime minister Ana Brnabic refused to exclude her country's "option" to intervene militarily in Kosovo. Upon which Kosovo's government decided to start setting up its own army – despite its prohibition to do so as one of the conditions of its continued NATO-protected independence.

The protracted death of Yugoslavia will be over only when this simmering conflict is finally resolved. The best way to do that, politicians on both sides have suggested, is for the borders reflect the ethnic makeup of the frontier between Kosovo and Serbia.

The biggest and most obvious pieces of the puzzle are the Serbian-majority district of Mitrovica in northern Kosovo, and the Albanian-majority Presevo Valley, in southwestern Serbia. That land swap was suggested previous summer by no less than Hashim Thaci and Aleksandar Vucic, presidents of Kosovo and Serbia respectively. Best-case scenario: that would eliminate the main obstacle to mutual recognition, joint EU membership and future prosperity.

If others can do it...

Image: Ruland Kolen

Belgium and the Netherlands recently adjusted out their common border to conform to the straightened Meuse River.

Sceptics - and more than a few locals - warn that there also is a worst-case scenario: the swap could rekindle animosities and restart the war. A deal along those lines would almost certainly exclude six Serbian-majority municipalities enclaved deep within Kosovo. While Serbian Mitrovica, which borders Serbia proper, is home to some 40,000 inhabitants, those enclaves represent a further 80,000 ethnic Serbs – who fear being totally abandoned in a land swap, and eventually forced out of their homes.

Western powers, which sponsored Kosovo's independence, are divided over the plan. U.S. officials back the idea, as do some within the EU. But the Germans are against – they are concerned about the plan's potential to fire up regional tensions rather than eliminate them.

Borders are the Holy Grail of modern nationhood. Countries consider their borders inviolate and unchanging. Nevertheless, land swaps are not unheard of. Quite recently, Belgium and the Netherlands exchanged territories so their joint border would again match up with the straightened course of the River Meuse (3). But those bits of land were tiny and uninhabited. And as the past has amply shown, borders pack a lot more baggage in the Balkans.

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