May 3, 1978

Congressman Kemp May Be On To Something

Congressman Jack Kemp may be on to something.

He is stumping the country these days trying to win grass roots support for his bill to cut tax rates one third.

His fellow congressmen are starting to pay attention, for Kemp invariably gets a standing ovation for his proposal.  Out in California where a full-fledged tax payer revolt is underway, Kemp is regarded as a fiscal messiah.

The Hamburg, New York, representative was in Canton last week as a featured speaker of the annual Stark County McKinley Banquet.  I took advantage of a press conference to check out Kemp's reasoning.  It is impressive.

Kemp starts out with an economic fundamental: "If you tax something, you get less of it.  If you subsidize something, you get more of it."

"In America today we are taxing work, growth, investment, saving and production," he declares.  "At the same time we subsidize non-work, consumption, welfare and debt.  Is it any wonder that we are getting less and less of the former and more and more of the latter?"

Kemp says the real problem with the American economy today is that incentive is being taxed away.

Taxes at all levels now constitute more than 44 percent of our national income.  This, coupled with steeply graduated tax rates, strangles the U.S. private enterprise system's ability to create jobs and generate higher real incomes.

"In the face of this situation, what have Congress and the Administration done?"  Kemp asks in exasperation.  "They have proposed massive tax increases for Social Security, energy and welfare reform.

"Inflation, meanwhile, increases everyone's taxes daily as people are pushed up into higher tax brackets thereby discouraging incentives for both workers and investors."

The result, says Kemp, is that federal income taxes increase 15 percent for every 10 percent increase in nominal incomes.  This raises individual income taxes more than $6 billion a year solely due to inflation.

"If this situation is left unchecked, it will increase the real tax burden on each American by more than 30 percent in just the next four years," Kemp states.

In order to increase the after-tax income of all Americans and restore incentive to the economy, Kemp has joined with Senator Bill Roth to introduce the Tax Reduction Act of 1977.  It is designed to accomplish three critical goals:

• Reduce all individual income tax rates by 33 percent.
• Reduce the corporate tax rate by three percentage points.
• Increase the corporate surtax exemption to $100 thousand - to help small business get expansion capital.

Kemp contends this will create an immediate growth of economic output, employment and investment.

"It will expand the nation's tax base, thereby increasing tax revenues for all levels of government," states Kemp.  "The corresponding reduction in government expenditures for welfare and unemployment compensation will prevent any increase in the budget deficit."

Kemp hastens to point out that the result he predicts with a cut in the tax rate is precisely what happened the last time tax rates were reduced during the mid-1960s by President Kennedy.

The key to growth stimulation is a cut in tax RATES, in contrast to a one-time cut in taxes.

Kemp says President Jimmy Carter's proposal to cut taxes would only continue to redistribute wealth - increasing taxes for the working middle class while subsidizing the non-working or low-productivity electorate.

Though a Republican, Kemp doesn't try to conceal his enthusiasm for a Kennedy-type rate cut.  He claims that the Kennedy bill was modeled after one he had already introduced.

Whatever.  Kemp emphasizes that the last across-the-board tax cut produced spectacular results:

• Real investment growth was the highest in modern history.
• Inflation was the lowest in modern history.
• Real industrial output growth was the greatest in any period.
• Real disposable income grew the fastest.

"We are less concerned with the exact percentage of the rate reductions than we are that a permanent cut in tax rates be implemented as soon as possible," said Kemp.  "It's not only economically sound, but politically bipartisan."

"The best way to encourage incentives for work and a free enterprise economy is to allow the American people to retain a better share of their hard-earned pay checks," he declares.

Kemp's proposal for a cut in tax rates seems a little daring in the face of a probable federal deficit of $60 billion.  Conservative economic wisdom would recommend a tax increase in order to balance the budget.

Yet, we have found that the government spenders regard new tax revenues as backing for new experiments rather than for reducing debt.

Under the circumstances a cut in tax rates - which would put more money into private hands while denying it to a spend-thrift Congress - seems to be the most practical assault on sky-rocketing inflation.

Right on, Jack Kemp.

Author: Lindsey Williams