Reagan doing the old tax-cut rag
I wish I knew where Ronald Reagan stands on federal tax cutting. It is the most puzzling part of the campaign. In the 1978 midterm election the Republican leadership in Congress came out for the Kemp-Roth bill. This proposed a federal income tax cut of 10 percent a year for three years, or 30 percent. Taxes are so high, it was argued, that they are self-defeating: lower rates would bring in more money. In a press kit for reporters the Republican chairman, Bill Brock, said there was "the most complete agreement on an economic issue in modern Republican history."
The Kemp-Roth bill is attacked by many economists. Walter Heller (Wall Street Journal, July 12, 1978) derided it as a "free lunch" that would cost $114 billion. The tax cut theory is founded on "the Laffer curve." This was worked out by Arthur Laffer of the University of Southern California, and Jude Wanniski , economic consultant. Conservative economist Herbert Stein (Wall Street Journal, July 18, 1978) expressed skepticism over Kemp-Roth: "It may turn out that such a tax cut would raise the revenue, just as it may turn out that there is human life on Mars. But I would not invest much in a McDonald's franchise on that planet."
In an interview, Ronald Reagan said (The Christian Science monitor, April 4, 1980) "I happen to favor the Kemp-Roth tax bills. Four times in this century we have known such across-the-board tax cuts. And every time the response of the economy has been such that event the government wound up getting more money. . ."
Debate on the proposal is widespread. The London Economist (March 29, 1980) observed: "Mr. Reagan wants a 30 percent tax cut for individuals and business over three years. His Republican colleagues in Congress no longer favor this. . ."
What the Economist refers to is a modification of their claims by some early Kemp-Roth enthusiasts. They now frequently link proposed tax cuts with equivalent slashes in federal spending. At the same time it should be said that deepening recession has changed Washington's mood; there is now likely to be a pre-election scramble by both parties for tax cuts, and a hasty abandonment of a balance budget. That remains in the future, however, What isn't known is Mr. Reagan's detailed response to the federal fiscal problem.
Jude Wanniski purports to know Mr. Reagan's mind; he was interviewed this spring in the Village Voice by Alexander Cockburn and James Ridgeway. Mr. Wanniski, a one-time Wall Street Journal editorial writer, said: "In 1976 Reagan got into difficulties with his $90 billion spending-cut plan because people jumped on him for collapsing the social safety net. Now he understands that there's a way to move the economy to a higher level of efficiency and productivity without first throwing the widows and orphans out into the snow."
Mr. Wanniski thinks the key to the problem is the Laffer curve implemented through the Kemp-Roth bill. In the economic parlance this is now called "supply-side" economics.
"Does Reagan really believe in 'supply-side' economics?" He was asked.
"Yes. Reagan loves the stuff. John sears [former campaign manager] before he left, kept telling Kemp [Rep. Jack Kemp. (R) N.Y.] that he should spend more time on the campaign trail with Reagan because whenever he spent a day or two with Reagan, Reagan came alive. When Kemp leaves Reagan subsides. He is now at the point where he is getting better and better all the time."
Ideology aside, Mr. Reagan is a low-keyed, crinkly-faced, red-cheeked, attractive candidate who seems almost certain to be the Republican presidential candidate and very likely the next President. Reporters travelling with him still wait for the "major economic speech" which reporter Hedrick Smith (New York Times, May 10) said had been indicated since "last spring." Lou Cannon (Washington Post, May 10) said the speech had been "under consideration for so long that it has become something of a standing inside joke to some members of the candidate's staff."
It is queer how many columns are written on Mr. Reagan's standing in the primaries; how few on his economic views. At the Commonwealth Club, San Francisco, last week he reiterated his support for a three-year, 30 percent, across-the-board tax cut. He did not elaborate. The cut, he thought, would stimulate savings, investment, and productivity. Asked about criticism of the plan he replied, "A lot of economists are changing their minds."