The marginal tax rate, which is the maximum rate on high income earners, has a significant impact upon the Gross National Product [GNP] The GNP is defined as the total monetary value of all final goods and services produced in a country during one year. The figure does not include high level investments or production in raw materials such as steel, copper, coal, oil exploration, or other products that go into the manufacturing process.

            The National Center for Policy Analysis reported in a study that from 1950 to 1995 found that a 21% of GDP tax rate was optimal for generating economic growth in the range to 4.6% per year; however, the actual rate in 1950 was 24.2% yielding an increase of 1.2% less than optimal. This meant that by 1995 in stead of a 13.48 billion GDP, it was only $6.67 billion which relates to a lost revenue base of approximately 50% less than optimal. If the tax rate were not so high workers would have produced $107.000 per capita in 1995 instead of a paltry $54,000.

            Contrary to what progressives wanted, the JFK administration lowered the marginal tax rate from 90% to 70%. Investment began to grow at a faster rate, while deficits were reduced, but by the end of the progressive Carter administration the economy was into stagflation, which is defined as rising prices, rising unemployment with a lack of growth in consumer demand and business activity.

            President Reagan began to cut taxes. His Economic Recovery Tax Act of 1981 cut taxes at every level by 25%. The Joint Economic Committee of Congress issued a report saying that “Opponents used static revenue projections to argue that ERTA would be a giveaway to the rich because their tax payments would fall.” In fact, as a result production began to increase and real median family income grew by $4000 during the Reagan administration. Congress had historical proof from the 1920’s and 1960’s that a reduction of the marginal tax added revenue and the über-rich paid even more of the share of taxes. The CBO is sensitive to demands of the party in power and in 1982 the Democrat controlled CBO ignored the evidence and continued to report that the tax rate reduction did not generate more tax revenue from the high income taxpayers; however. President Clinton’s Council of Economic Advisers in 1994 told a different story. “"It is undeniable that the sharp reduction in taxes in the early 1980s was a strong impetus to economic growth."

            Underreporting income by businesses and individuals in 2001 accounted for nearly $345 billion loss of tax revenue. Of that amount, $194 billion are individual tax cheats. Flat Tax advocates have a convincing argument that their plan will boost economic growth and reduce political corruption. Most of the former Soviet Union countries have adopted a flat tax in the range of 13% to 24%. There are currently about 24 foreign countries that have adopted the Flat Tax.

            It is a bit naïve to say that the Flat Tax will benefit high income tax payers. The present tax code provides tax avoiding loopholes for the rich that are not available to wage earners. Only 35% of all individual taxpayers itemize their deductions. The returns itemizing deductions tend to report over $100,000 per year.

            Fiscal conservatives favor a 14% Flat Tax, which means income will be taxed only once, when it is earned. Liberals and progressives believe that it is best to tax high income to support social programs. The evidence is convincing that under a Flat Tax, high income taxpayers will pay even a larger share of the tax burden. So why then are members of Congress opposed to the Flat Tax. If the popular conception is that Republicans represent the rich, one would expect the republicans to be opposed to the Flat Tax, yet the conservatives in the party favor it, which should dispel the popular misconception that conservative republicans favor only the rich.

            While the popular perception is that George W. Bush created or contributed to the present economic disaster, it is true that he was no fiscal conservative, but I fail to see how liberal spenders have any room to criticize him for that. The facts tell a different story. The Bush tax cuts lowered the marginal rate to 35% and capital gains rate to 15% resulted in an increase in tax revenue to the Federal Government of 5.5% in 2004 and 14.5% in 2005. That’s the best record in 25 years going back to President Carter.

            Fiscal conservatives should oppose allowing the Bush tax cuts to expire in 2010 to encourage economic growth. Support a Flat Tax. Estimates are that such a tax will add $56 billion more in net government tax revenue than will the current tax code. The next four years of outrageous spending of money that the Federal Government does not have, will not likely stimulate the economy. It did not do so in 1933 through the early 40’s, and it is not likely to stimulate this deindustrialized fast food economy.