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The Bush Hangover

What got us into this mess...and what can get us out.

Sep 24, 2012, Vol. 18, No. 02 • By PETER J. WALLISON
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Romney can compare Obama’s post-recession record of spending with the effect of tax cuts under three presidents—Bush, Kennedy, and Reagan—by citing the growth in jobs that came from the Kennedy tax cuts in 1964 and, more particularly, the Reagan growth policies from 1981 to 1989. The Kennedy tax cuts produced annual average economic growth of 4 percent during the Johnson administration, but the Reagan era is a particularly apt comparison for Romney. Reagan not only cut taxes as Romney proposes, but also sought to reduce regulation. This provides a sharp contrast with Obama, who pressed for enactment of the Dodd-Frank Act in 2010, with disastrous results for the economy.

Indeed, the 1981 Reagan program of 25 percent across the board tax cuts, intended to go into effect over the succeeding three years, is closest to Romney’s own 20 percent tax cut plan, but it also included a promise to reduce government regulation. After the government-worship that pervaded the Democratic convention, it is useful to recall that Reagan began his administration with this trenchant and arresting remark in his Inaugural Address: “In this present crisis, government is not the solution to our problem; government is the problem.” With this statement, he not only identified government spending and monetary policies as the sources of the grim Carter-era economy, but he also signaled to job creators that the government’s heavy regulatory hand would be lighter; it would not go away, but it would allow more latitude for investment and innovation.

Tax cuts are powerful economic stimulants, as the Kennedy, Reagan, and Bush experiences show, but reducing regulation provides the space in which a private sector—incentivized by tax cuts—can find room to pursue the innovation and risk-taking that ultimately creates jobs. Tax cuts alone will not get the country’s economy moving when it is tied down by the Dodd-Frank Act, the most restrictive regulatory straitjacket since the New Deal. The fact that Romney has proposed to repeal the Dodd-Frank Act once again puts him squarely in the Reagan mold and will be a key to his success as president.

In his convention speech and since, Obama has mocked Republican economics as offering tax cuts as a cure for everything—“Feel a cold coming on? Take two tax cuts, roll back some regulations, and call us in the morning,” he said to laughter at the Democratic convention. The joke, however, is on Obama. Tax cuts might not cure a cold, but Romney can show two tax cuts and rolling back some regulations would be a better remedy for what ails America than Obama’s prescription.

Peter J. Wallison is the Arthur F. Burns fellow in financial policy studies at the American Enterprise Institute.

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