There are moments in your life that stick in your memory forever. My grandfather remembered Pearl Harbor and the twin joys of VE Day and VJ Day. My father remembers the day that Grandpa came back from fighting in the Pacific. He also told me about anxiously listening to the radio during the tense days of the Cuban missile crisis, and learning of the assassination of John F. Kennedy and later his brother, Robert F. Kennedy.

I don’t know if things really are happening faster in my life, or merely that I have lived through these experiences rather than learning about them secondhand. In my lifetime, I remember where I was the moment I heard President Reagan was shot. I watched live footage of the Challenger exploding on CNN, and wept as the Columbia disintegrated on re-entry. I remember the burning at Waco, Texas and the bombing two years later in Oklahoma City. The Berlin Wall coming down was a joy to see, since I had traveled through Checkpoint Charlie only a few years before. The explosion of Mount St. Helens, and the explosive LA riots showed me the level of destruction nature and man can produce. And I remember where I was as I learned about the terrorist attack on September 11th, 2001. It has been three years since this tragic day.

Images from that day evoke many emotions for me: anger at those who did this, sadness for those who died, and compassion for those who watched their loved ones die. I originally picked the picture of the second plane flying into the World Trade Center for this post, but I changed my mind. The firemen who raised the flag at Ground Zero are an example of Americans working to make the United States better. To make this happen, those who support, plan, and execute acts of terror need to be hunted down and stopped. President Bush has served notice to the terrorists that their days are numbered, and warned the nations of the world that harboring terrorists will bring down American retribution. The Taliban regime in Afghanistan has fallen, Saddam Hussein’s regime in Iraq is no more, and the U.S. remains free of any major terrorist attack to this day.

Will the U.S. be attacked again? Most certainly. But for three years the terrorists have been kept on the run, hiding in caves to avoid American military might. Three-fourths of al Qaeda’s leadership and structure is gone, either dead or captured. But al Qaeda is not the only terrorist group out there, and the battle to keep America safe and free from those who want us dead will continue for years, if not decades.

It will take determination, and that is the strongest feeling that the images of the September 11th attack evoke in me.

 

Some other good places to go today:
* Captain Ed writes about his view of today. He sees many of the same life-changing history events.
* Charles of Little Green Footballs writes about September 11th.

There is a basic truth in life: you get more of what you subsidize, and less of what you punish. We have subsidized poverty by providing food stamps, WIC, and dozens of other programs to the poor in our decades-long war against poverty. The end result is more poor people. Granted, our poor are the richest poor in the world, but they are still here. On the other hand, if you punish people for an action, they will do it less often. This is the basic idea behind jail time and other just punishments for breaking the law. Taxes work in much the same way. The current progressive tax rates take an increasingly larger percentage of your money the more you earn. In effect, government punishes people for being successful. Is it no wonder that people work harder and make more money, and the economy soars, as the top tax rates are dropped? As the taxes are reduced, the government stops punishing those who produce.

Seems pretty common sense, doesn’t it? But you’d be surprised how many people fail to understand this. The state of Oregon has no sales tax, but Washington, its neighbor to the north, does. The Columbia River separates the city of Vancouver, Washington from the greater Portland area of Oregon. Businesses, especially large-item businesses, are not doing well in Vancouver. They operate at a handicap of over 9% because of sales tax. This means large goods are more expensive in Washington, and it is no wonder that people regularly cross the I-5 bridge into Portland to go shopping. The sales tax in Washington is a disincentive to shoppers. People living in Seattle, on the other hand, don’t have easy access to Portland. So if a family has budgeted $500 for purchases that month, they are only able to buy about $450 worth of actual goods. The extra $50 goes to the government, not to the businesses in the form of extra goods sold, or to the family as $50 worth of extra goods purchased for the home.

“But Captain! Government needs money to pay for the services they provide!” At this point, I’m not going to argue over the merit of any government programs. The merit (or lack thereof) of a government program doesn’t change the fact that taxing a good or service effectively discourages purchase of that good or service. Don’t believe me? Whenever the cost of gas goes up, people adjust their lifestyles accordingly. The last time gas broke the $2 per gallon mark, there were news stories about gas stations seeing a drop in sales (duh!), and people making plans to take vacations locally rather than driving long distances (duh!). These aren’t news stories; this is simply a common-sense reaction to rising prices. We saw exactly the same thing during the gas crisis of the late ’70s.

Let’s imagine a state with a flat income tax of 10%, and a nearby state with a flat income tax of 90%. Do you think people would move from the second state to the first just to keep more of their hard-earned money? You bet they would, faster than you could say “1040EZ!” Why? Because people want to keep more of their own money. So what happens when the entire nation adopts a flat tax of 90%? Some people will doubtless leave the country. But since not every American wants to leave the U.S., people will stop working so hard. Why should these hard-working people bust their butts every week just to see the government scrape 90 cents off every dollar they make? Oh, sure, some people will still make millions even with an income tax rate in the 90s, but a high tax rate does tend to suppress the natural incentive to work hard. Or if it doesn’t suppress the desire to work hard, it certainly inspires people to hide their money from the government as best they can through tax loopholes and shelters.

When taxes are high, lobbyists put greater pressure on the government to create special loopholes for their rich clients. But when tax rates are low, people don’t feel the need to hide their money as much. Why should they spend the time and money hiring tax lawyers and professionals to shelter their money when the rates are low? Each time the tax rates have dropped, the end result is an increase in government tax revenue.

This whole discussion of taxes can be confusing since people use the terms “tax cut” and “tax rate cut” interchangeably. In most of this comment I have been talking about a tax rate cut. This is what President Reagan did when he proposed dropping the top rate from 70% down to the 20s. When a tax rate is lowered, the actual amount of taxes received by the government goes up. This seems counterintuitive, but it has worked every time it has been tried. When the government lowers tax rates, this repressive weight is lifted, and the people are rewarded better for their work. Since people can keep more of what they make, they will be more inclined to work harder and increase their incomes. The government may be taking a smaller percentage of the economic pie, but since the overall pie has grown, the government’s slice is bigger than before. Additionally, the government will get more taxes from people who don’t mind paying a smaller percentage of their overall income. When the tax rates are low, you won’t hear radio ads like the one I heard this morning while driving to work. A tax preparation company claimed to reduce income tax as low as possible, and it signed off with the jingle, “When you care enough not to send your very best.” Can you imagine a world where it wouldn’t be necessary to hire people to do your taxes, and there were not entire industries centered around trying to pay the government as little as legally possible? Imagine what could be done if all these efforts could be harnessed to create something useful!

I find it ironic that the United States has a progressive tax similar to that recommended in the Communist Manifesto, and the former Soviet Union has adopted Steve Forbes’ flat tax.

A few weeks back, someone made a comment that boggled my wife. For convenience’s sake, let’s just call this speaker Ann. Ann and my wife were driving around town when they passed a tax preparation business. A guy in front was holding up a sign that read, “Honk for Tax Cuts.” Quite a few people were. This prompted Ann to comment, “Oh, yeah, that’s really smart. How is our economy ever going to get back on its feet if you take your tax cuts?

Ann is not alone in the idea that tax cuts are bad for the economy. While speaking to George Stephanopoulos on World News Tonight, Peter Jennings said of then Treasury Secretary-designate John Snow, “He is said to be in favor of further tax cuts but against deficits. Doesn’t one lead to the other?” No, Peter. Adjusting tax rates adjusts the income the government receives from taxes. Deficits are a result of spending. If I spend more than I earn, it doesn’t matter how much I earn; I am still spending too much. This is exactly what happened during the Reagan administration. About four months later, Matt Lauer said, “A lot of people say, ‘Why are you cutting taxes now when you’re increasing the deficit.’ Shouldn’t this be a time when you’re increasing taxes?” Matt, rasing taxes would only make sense if you honestly believed that it would increase the money the government brings in. But does it?

The Heritage Foundation has a clear write-up of just how the government and the rich are affected by tax rate cuts. Previous to our current administration, there have been three periods of large cuts in the federal tax rates. These happened during the 1920s, 1960s and 1980s.

In the 1920s, the top tax rate went from 70% to less than 25%. During this time, personal income tax revenues paid to the federal government rose 61%. Then-Treasury Secretary Andrew Mellon summed it up this way:

The history of taxation shows that taxes which are inherently excessive are not paid. The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business and invest it in tax-exempt securities or to 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 its share of the tax burden; and capital is being diverted into channels which yield neither revenue to the Government nor profit to the people.

During the Depression, President Hoover increased tax rates, and President Roosevelt raised the top tax rate to more than 90%! It’s no wonder that the Roosevelt administration had no beneficial effect on the national economy. If it hadn’t been for World War II and its increased productivity, this nation would have suffered even longer from the massive hike in taxes. President Kennedy asked for a reduction in these rates, and the top rate went from 90% down to 70%. During the next seven years, the economy grew and federal tax revenues grew 62%. President Kennedy said of this tax cut:

Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits… In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now.

About 20 years later, President Reagan proposed dropping the top income tax rate from 70% down to near 20%. Contrary to what many revisionist historians say, taxes brought in by the government climbed an amazing 99% during the 1980s. The deficit grew during the 1980s not because the government failed to bring in taxes; rather it grew because the government proceeded to spend even more than it brought in. If you fail to live within your means, doubling your salary will not help if you continue to spend more than what you bring in. Then-U.S. Representative Jack Kemp spoke of the Reagan tax cuts:

At some point, additional taxes so discourage the activity being taxed, such as working or investing, that they yield less revenue rather than more. There are, after all, two rates that yield the same amount of revenue: high tax rates on low production, or low rates on high production.

So here we are, over a decade after the Reagan administration, and the people still have not realized that tax rate cuts are beneficial to both the government in the form of more tax revenue, and to the people in the form of a stronger economy. After the devastating attacks of September 11th, 2001, and the resulting losses in the airline industry and economic confidence, the tax cuts proposed by President Bush have started to have a good result for the nation. In the last six months of 2003, real GDP grew at an annual rate of 6.1%, the fastest 6-month growth rate in nearly 20 years. Isn’t it interesting that if we subtract 20 years from 2003, we get 1983? To compare the growth brought by this tax cut, we have to go back to the last major tax cut.

So you see, Ann, tax cuts will get our nation back on its feet faster than any other government program. And it has worked every time it has been tried. On the other hand, at no point in history has any nation taxed itself into prosperity.