Remember those crazy conservatives in the 1980s who said tax cuts wouldn't exacerbate inflation?

Question

HAHAHAHAHAHA!!!!!! CPI was in the double digits then.

It's 2.5% now......

Oh, wait a minute, you mean by allowing the economy to reinvest its own earnings, we no longer depended nearly as much on the Fed to fuel growth, thus freeing the Fed to focus exclusively on inflation, resulting in inflation being cut to under 3%???

You mean they were RIGHT????

Sky, so.... you're denying that inflation hit double digits or that inflation is 2.5% now?

I'm really wondering where you get YOUR history....

- Tax RATE cuts, when tax rates are already too high, have historically produced INCREASED tax REVENUES.

- Gold has come back down from its high - - - since the Fed continued to tighten beyond where the market expected it to.

Kevorkian, yes, it was monetary policy but for 50 years monetary policy had two masters, growth/employment and inflation, and because the tax cuts enabled the economy to produce its own growth/employment, that ENABLED the Fed to serve only the one master, inflation.

Overt - in the New Deal era, tax rates were so high that the ecoomy could not reinvest much of its own earnings - the firms and individuals that generated the highest earnings (created the most wealth) had it taken away at the highest rates, which went up to 90% (reduced to 70% by the 1970s but still incredibly high). The Fed at the time served two contradictory masters/mandates - inflation-control and a source of fuel for growth.

The tax cuts allowed the economy to reinvest more of its own earnings, thus allowing it to grow organically - naturally.

As a result, the Fed was released of one of the two conflicting mandates - we didn't need the Fed to fuel growth, it could just focus on inflation.

The Fed-induced recession of the early 1980s would have been another Depression - or politically would not have been possible to implement - if not for the Reagan tax cuts.

Alek the CBPP is a far-left political hack organization, they are not economists.

Tax cuts allow the economy to reinvest its own earnings, thus to grow organically. When it does, the Fed faces no political pressure to fuel growth artificially through monetary mischief, and is free to focus solely on inflation.

Answer 1

I agree with you and see the only guy to respond attacked you because his brain is too small to spit facts. Inflation is way more than 2.5% though. if we would cut spending our dollar would strenghten too. We need that. QUIT SPENDING OUR MONEY HIPPIES.

Answer 2

Are you serious with this crap? I ask that legitimately. I can't believe you are trying to say tax cuts stopped inflation...

I was not alive in the early 80's when Reagan enacted his cuts (or I was very young), so I can't comment specifically on the discourse of the time. What I can tell you is that the CPI being in double digits was because of completely different reason than anything tax cut's might have solved. Not only did Reagan almost erase any cuts he made with later increases, it was Paul Vockler that saved this country from the inflation spiral we were in.

The Fed focuses on inflation now because through it everything else comes into line. Go read some newer economic theory and stop relying on stuff that was written 100 years ago. Times are different, time to update.

Finally, cut the supply-side crap. If you want to see what tax cuts do to an economy, go read this:
http://www.cbpp.org/3-8-06tax.htm

Answer 3

So, what caused the double digit inflation of the 1970s, and why did tax cuts help the situation?
An understanding of the root cause of the 1970s inflation is important in understanding why the tax cuts helped stop it. Actually, the tax cuts didn't stop the inflationary cycle. They just helped in shortening the inflationary cycle.
The 1970s inflation rate was caused by runaway government spending in the 1960s. During the 1960s, we were still on the gold strandard. The government, however, circulated much more money than the gold reserve supported to pay for a war, an expensive space program, and a new welfare system.
In 1971, a run on the federal gold reserves was started by foreign countries, in particular France. One by one, countries were lining up and emptying Fort Knox. The only solution was to take the dollar off the gold standard and base its value on the assets of the federal reserve banking system.
The assets of the federal reserve are based on the production of industry. It took almost 15 years for American industry to create the value needed to support the number of dollars in circulation. This is why tax cuts help stem inflation. Inflation is always caused by government deficit spending. Whenever the government circulates money it did not collect in taxes it dilutes the value of the dollar. The solution is to have industry create more value.

Answer 4

Inflation is caused by the Federal Reserve. Because tax cuts without spending cuts mean that the government has to replace the revenue elsewhere, the government has to print more money, thus increasing the Inflation Tax.

CPI has nothing to do with the real rate of inflation. The real rate of inflation is the rate of more money printed by the Counterfeiter of Last Resort.

If you want to get rid of the Inflation Tax, you must return to sound money, gold and silver. The only candidate who has pledged to eliminate the Inflation Tax is Ron Paul, who intends to cut the IRS Tax as well, and still balance the budget (obviously, through spending cuts and selling government assets).

Answer 5

It really was monetary policy and external factors that ended the hyperinflation of the 70s. Though, you are right in that the Reagan-era tax reforms, and, for that matter, the more recent tax cuts, have not made inflation worse. In the 80s and 90s, that was because of real economic growth, today, the proliferation of low-price imports may also be a factor.

Answer 6

Where do you get your history from anyways?

The back of a Cracker Jack box?