James Pethokoukis

Politics and policy from inside Washington

Obama stimulus vs. Reagan tax cuts

June 15, 2009

Paul Krugman worries that phony inflation fears will lure policymakers into withdrawing fiscal and monetary stimulus too soon. In the process, he takes a shot at Reaganomics:

And Republicans, providing a bit of comic relief, are saying that the stimulus has failed, because the enabling legislation was passed four months ago — wow, four whole months! — yet unemployment is still rising. This suggests an interesting comparison with the economic record of Ronald Reagan, whose 1981 tax cut was followed by no less than 16 months of rising unemployment.

Me: But as pointed out in the wonderful book “The End of Prosperity” (authored by my pals Art Laffer and Stephen Moore),  the way the Reagan tax cuts were structured meant that familes only got a meager 1.25 percent tax cut in 1981 and 10 percent in 1982. When the Reagan cuts really kicked in 1983, so did the economy.

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