Reaganomics. With the recent decision to make the 2017 Tax Cuts and Jobs Act provisions permanent, the conversation around tax policy and economic growth has taken center stage. But before we debate whether this is a good move, let’s first clarify what’s actually happening — and what history might teach us.
The new proposal doesn’t introduce fresh tax cuts. Instead, it extends provisions from the 2017 tax legislation. These include a slightly higher standard deduction (which reduces taxable income), and new deductions for overtime pay and tips — helpful changes for many working-class Americans. The aim is to maintain a tax structure that encourages investment, spending, and ultimately, economic growth.
Sound familiar? That’s because it mirrors the strategy employed during the Reagan administration in the 1980s — a philosophy dubbed “Reaganomics.” The core idea was simple: cut taxes to stimulate investment and productivity, which in turn would boost the economy and, theoretically, increase tax revenue through higher overall growth.
Understanding the Policies
Reagan’s policies were bold: he slashed individual income tax rates by 25% over three years. The results were significant. Real GDP surged by 26% during his tenure — a stark contrast to the more modest 2–4% typical of other periods. Investment climbed, wages rose (especially in lower-income brackets), and the U.S. experienced a notable economic expansion.
Critics often point out that Reagan’s policies led to deficits and benefited the wealthy disproportionately. But supporters argue that the economic boom, job creation, and increased wages in many sectors speak for themselves.
What’s the Alternative?
To understand the opposite approach, we can look to several European countries — including France — that attempted to hike taxes on the wealthy in recent decades. The outcome? Capital flight. Wealthy individuals moved their money (and sometimes themselves) to more tax-friendly nations, like Monaco. As a result, the expected tax revenue never materialized, and these tax hikes were often quietly rolled back. Worse yet, these nations saw economic stagnation and even a dip in GDP.
Of course, Monaco is an outlier — a small, unique economy with no income tax and the world’s highest GDP per capita. Its model isn’t scalable to a country the size of the U.S. But it does remind us of a key principle: when taxes become too burdensome, people and capital have a way of finding the exits.
Does that mean tax cuts are always the answer? Not necessarily. But when evaluating the impact of tax policy, it helps to take a long view. History shows us that tax reductions — especially when targeted toward work, savings, and investment — can spark real growth. And that’s worth thinking about.
In the end, the debate isn’t just about taxes. It’s about what kind of economy we want to build — one that punishes success, or one that encourages it. Sometimes, good old-fashioned common sense tells us: keep what’s working, and let people keep more of what they earn.
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Image by Steve Buissinne from Pixabay
