The Laffer Curve and its Roots

John F. Kennedy, Income Taxes and the Federal Deficit

By Dennis Jones
Thursday, October 22, 2009

As of late October 2009, cumulative job losses since the Great Recession began total nearly 8 million and unemployment is hovering just under 10%. Many states are even higher; California is slightly over 12%. There is anecdotal evidence that suggests that this quarter will show continued weakness in economic activity that, in turn, will crater the Retail Industry’s earnings since the fourth quarter includes the holiday season and is so crucial to their success.

This evidence comes from import volume at the Los Angeles and Long Beach ports dropping to the lowest point in nine years coupled with poor prospects for seasonal hiring for the holiday period. Many current economic predictions don’t show substantial improvement until late 2011. At the same time, we are facing the highest federal deficit in history with frightening projections of federal debt and the deficit going out to 2019. There isn’t much mention anywhere about reducing income taxes, either at the federal or the state level, against a backdrop like this.However, past history has shown that tax reductions employed to stimulate the economy have been the catalyst propelling the country out of recession.

The Three Most Significant Income Tax Reductions in the US
There were three significant periods in US History where income taxes were reduced to forge an economic recovery:

The Harding income tax cuts that were initiated in1921 and continued by President Coolidge,
The JFK income tax reductions of the mid-1960’s and,
The Reagan income tax cuts of the 1980’s.

In 1921 President Harding convinced congress to pass income tax reductions wrapped in a package that he called “A Return to Normalcyâ€