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President Reagan and Prime Minister Thatcher in the Oval Office, 1988.

Courtesy Ronald Reagan Library

President Reagan and Prime Minister Thatcher in the Oval Office, 1988.


Margaret Thatcher, Reaganomics, and Our Taxes


Tuesday, April 16, 2013
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The sun finally appeared in London this morning as the city prepares for Baroness Margaret Thatcher’s funeral on Wednesday. Today, London is a bustling economic center within the European Union with low inflation, high employment, and a strong monetary system in place, a stark contrast from its 70s past as it barely survived the darkest economic period in modern British history. In the 1970s the UK was known as the sick man of Europe with an inflation rate of 13% against the United States’ 4% and Germany’s 5%. Today, it thrives as the realization of much of the Iron Lady’s dreams for her country.

Baroness Thatcher’s foremost achievement, as many of her opponents will readily admit, was to reverse Britain’s direction of economic decline. A supply-side economy believer, Thatcher’s 1983 government won a landslide victory insisting that it could no longer be an entitlement and welfare provider; these would be left to the open markets.

Igor Sill

Her accomplishments were many, though at a significant cultural cost to Britain’s love of its Labor party. When Thatcher left office in 1990, the UK was left with a more open, thriving, and entrepreneurially driven society. The living standard for all Brits rose, taxes were lowered, threat of labor strikes greatly reduced, and the UK experienced productivity and GDP increases. Foreign investors flocked into the UK, and specifically the City of London, to invest in privatization with the booming economy providing greater overall opportunities.

The UK quickly shifted from a Socialist-themed country dominated by policies designed to increase demand, to one that emphasized supply-side economics. Central to this shift, taxes were cut, especially for those in the higher income bracket. As Baroness Thatcher saw it, “The problem with Socialism is that eventually you run out of other people’s money.”

Interestingly, many here in the UK seem to loathe her rather than love her, as evidenced by the Wizard of Oz’s “Ding, Dong, the Wicked Witch Is Dead” tune rising to #1 on the charts. It would seem that Thatcher is respected but not necessarily liked by UK’s Labor Union countrymen.

So, with this as a backdrop, I draw many parallels to our own U.S. economy and its snail-like recovery pace, and certain aspects of Ronald Reagan’s supply-side economic recovery program, i.e., Reaganomics.

When Reagan came into office in 1981, our inflation rate had risen to 13.5% and our economy, like the UK’s, was in a dismal state. He inherited the worst economy in modern American history, in fact, since the Great Depression of the 1930s. As 1988 ended along with Reagan’s administration, our inflation rate had dropped to 4.1%, yet many Americans, like the Brits, appeared to support the socialist “welfare state concept. Over the years, Reaganomics may have lost its relevance – but that does not mean it is not relevant today.

Despite 5 years of massive fiscal stimulus in the U.S. and the Fed’s ongoing money-printing, our economy remains weak with unemployment being the major economic culprit along with the rising deficit; and with government spending, chiefly for entitlement programs, at an all time high and the pending need for federal tax increases.

The acclaimed Stanford University economist Milton Friedman notes that “When the quantity of money increases at a decidedly faster rate than output over any extended period, the result is inflation. The more rapidly the quantity of money increases, the higher the inflation.”

Why have Obama’s economic policies failed to put us on a solid path to recovery? Fundamentally, the issues are intertwined with our federal tax system and excessive government spending. The US Treasury’s IRS tax code is 68,000 pages and currently geared to diminish the size of your paycheck. At the root is America’s tax code, an outdated archaic mess, having grown to become an unwieldy and ineffective bureaucratic institution. The code is needlessly complex because of deductions, credits, exceptions, endless loopholes and providing special treatment for a few. The tax code contributes to our government’s massive size as a result of this burden of administering its complexity and its ongoing revisions and enforcement. It’s no wonder that folks are up in arms, both our citizenry and legislators.

Resolving the tax-code issue would actually have a very positive affect on the deficit by lowering the Treasury’s operating overhead significantly, eliminating the massive special interest credits/expense and increasing the revenue inflow. President Reagan recognized the need and validity of this approach back in 1981 when he proposed the Economic Recovery Tax Act (ERTA), the Reagan tax cuts, a 25% across-the-board decrease in personal marginal tax rates. Even with the then-massive cold war military expense buildup, and the dilution of the Act as it cleared Congress, the Reagan tax cuts showed that reducing excessive tax rates stimulates economic growth, reduces tax-evasion and tax-avoidance schemes, and can actually increase tax revenues from the rich. Unfortunately some of Reagan’s policies resulted in a few “earmark” tax loopholes which were incorporated into the tax code that favored special corporate interests, giving them more accounting wiggle and less oversight. Following Enron and Worldcom’s financial disasters, those loopholes were corrected.

As to the misguided notion that 99% of Americans support 1% of the rich in tax payments, the truth can be found by Googling “Who pays federal income tax?” A link to the National Taxpayers Union displays the actual stats: The top 1% of the wealthiest income earners pay 38% of U.S. tax revenues, the top 5% pay 59%, the top 10% pay 70%, the top 25% pay 86%, the top 50% pay 97.3% and the bottom 50% pay 2.7% of all federal tax revenues. The largest share of the tax burden is shouldered by top 5% of the wealthiest Americans who are paying well over half of the federal income tax revenues, while the poor pay virtually nothing in federal income taxes.

If you take a further investigative look it becomes clear that once federal spending is taken into consideration, those “1% of wealthiest Americans” are paying vastly more into government and consuming virtually nothing, while the bottom 50% receive the largest amounts of that spending and paying virtually no federal tax. Those are the facts.

We absolutely need tax reform that is fair, simplified, flat, and easy to understand and administer. I calculate that the realistic flat tax number is 15%. We need to collect such a flat tax from all U.S. citizens above the poverty line, eliminating income taxes for those below the poverty line, drastically reducing entitlements, and lowering the corporate tax rate so that the U.S. can regain its competitiveness in the global markets while reducing our unemployment. The most effective and fastest method of stimulating the economy is through investing in the creation of small businesses and support of innovation. A flat-tax system goes a long way in making this happen.

And, of course, we need more employed taxpayers on the payroll. Excessively high tax rates are actually counterproductive and result in de-incentivizing capital investments (key to employment growth), which in turn suppresses governmental tax revenues. Simply put, tax cuts are absolutely key to job creation. Job creation and low unemployment are key to consumer confidence. All of which are key to economic recovery. Tax increases, ala Obamacare, will continue to severely depress the economy and further erode Obama’s dismal recovery attempts. Obamacare’s cost is estimated to be $1.1 trillion dollars over the next 10 years.

If the Obama administration’s objective is to support full employment, there are far better policies to accomplish this over our current unemployment benefits insurance. The majority of economists concur that unemployment benefits generate additional unemployment, pure and simple. Stepped decrease and termination of unemployment benefits after a given point is the catalyst to helping people help themselves in securing jobs. A prosperous economy is fundamentally all about job creation, productivity, and consumer confidence. We need to grow our economy from the middle class up, not suppress it.

The Obama administration’s focus should be on initiating new tax cuts and certainly not passage of tax increases. Policies geared to boosting mortgage interest deductions, cutting governmental spending, and deploying additional stimulus spending so as to create jobs and get us on a path to a 3+% economic growth rate would be strongly recommended. “Only by reducing the growth of government can we increase the growth of the economy.” (President Ronald Reagan).

We currently spend on foreign military activities more than the actual net income of all U.S. corporations combined. Let’s continue to invest heavily in our country’s security, our educational system, social security, shoring up our borders, and deporting illegal aliens involved in criminal activities, while withdrawing our military occupation of other countries.

Some 24 years ago, U.S. President Ronald Reagan delivered his presidential farewell speech to the nation. It’s worth rereading his words related to our economy as they are so incredibly relevant and applicable today. When it came to government taxes and spending, Ronald Reagan’s clear and simple principles were translated into an economic upswing in the business cycle, which helped restore confidence and generated economic expansion that lasted from 1982 all through 1999, a huge and lasting improvement over the dark economic days of the 70s. By adopting Reagan’s tax and economic principles we can begin to enjoy a more prosperous era of sustained growth, much as President Ronald Reagan intended but, of course, without the costs of any new foreign intrusions.

Igor Sill is a venture capitalist, angel investor, and investment advisor. He works in San Francisco, owns a residence in Santa Barbara, and is in London for the Thatcher services.

Comments

Independent Discussion Guidelines

When Mr Sill writes, " The largest share of the tax burden is shouldered by top 5% of the wealthiest Americans who are paying well over half of the federal income tax" I say well and good. This is called a progressive tax system, and it means this 5% has been making a ton of money; I'm happy for them and that they can contribute so much.
Observing David Cameron's government taking down the NHS and reducing welfare payments and down-sizing his government...look how the UK economy is reeling, too. Shameful.

DrDan (anonymous profile)
April 16, 2013 at 9:04 a.m. (Suggest removal)

Some practices are best left to the privacy of one's bedroom.

pk (anonymous profile)
April 16, 2013 at 9:46 a.m. (Suggest removal)

Two of the worst people to ever ruin their own countries, all in one picture. Good riddance to them both.

Ken_Volok (anonymous profile)
April 16, 2013 at 12:40 p.m. (Suggest removal)

And how come that old witch rates a memorium but a local artistic treasure and all around beloved individual, Jonathan Winters passes away and there's nothing.
Thatcher wasn't fit to sweep the floor after a Winters show.

Ken_Volok (anonymous profile)
April 16, 2013 at 12:48 p.m. (Suggest removal)

What prompted that bizarre comparison Ken? I think you should take it easy on those bong hits.

Botany (anonymous profile)
April 16, 2013 at 12:57 p.m. (Suggest removal)

Bizarre comparison Botany? Between two internationally known personalities who've both passed away you think is bizarre? I think you need to keep your own poison in check.

Ken_Volok (anonymous profile)
April 16, 2013 at 1:06 p.m. (Suggest removal)

Perhaps you don't realize Botany that Winters was a local resident, Thatcher thankfully not.

Ken_Volok (anonymous profile)
April 16, 2013 at 1:07 p.m. (Suggest removal)

His need to reference her as "Baroness Thatcher" likely shows where his head is at, and it's clearly not on his shoulders.

Isn't "venture capitalist" another name for, ehh, never mind.

zappa (anonymous profile)
April 16, 2013 at 1:10 p.m. (Suggest removal)

Baroness heh.. it's interesting how many American Tories register GOP.

Ken_Volok (anonymous profile)
April 16, 2013 at 1:14 p.m. (Suggest removal)

I could also compare Abraham Lincoln with PT Barnum, but what's the point? Even if they were born or died about the same time. Even if one of them lived in Santa Barbara, what use is the comparison?

Botany (anonymous profile)
April 16, 2013 at 1:17 p.m. (Suggest removal)

The comparison arises from the lack of coverage in same publication, jeez do I have to spell everything out?

Ken_Volok (anonymous profile)
April 16, 2013 at 1:30 p.m. (Suggest removal)

OK, not covering Winters death might be a valid criticism, but criticizing the coverage of Thatcher's death because of it is just, out there.

Botany (anonymous profile)
April 16, 2013 at 1:53 p.m. (Suggest removal)

Where did I criticize the memorialization of Thatcher? I didn't even lead the charge of truth here(did you know street parties broke out all over England at the news? )
All I did was state astonishment that she seems to have taken some precedence over an individual who actually did bring good to the world and lived right here in our community and was very much a part of many community member's lives on a personal level.

Thatcher's biggest accomplishment was the resurgence of breast feeding in England, but that's only after she made milk a scarce commodity.

Ken_Volok (anonymous profile)
April 16, 2013 at 2:03 p.m. (Suggest removal)

Thatcher was a true British hero.

Botany (anonymous profile)
April 16, 2013 at 3:15 p.m. (Suggest removal)

Mrs. Thatcher wreaked havoc in the UK, and while patriotic, her policies were not beneficial to most in the UK at that time. She is ancestor to Cameron's shameful cuts. And how about her meetings with dictator Pinochet in 1994? And the ridiculous Falklands War? A good article is 'The Woman Who Wrecked Great Britain' [website is http://www.salon.com/2013/04/09/the_w...

DrDan (anonymous profile)
April 16, 2013 at 3:31 p.m. (Suggest removal)

Botz, it feels like you're the guy hammering the bong hits...what a comparison between PT Barnum and good old Lincoln!

DrDan (anonymous profile)
April 16, 2013 at 3:34 p.m. (Suggest removal)

Stop foreign intervention, bring the money back here, lower our taxes, increase our services, and earn respect around the world...no, I KNEW that was too simple.

billclausen (anonymous profile)
April 16, 2013 at 7:27 p.m. (Suggest removal)

The ridiculous Falklands war? Like maybe you would have given Hawaii to the Japanese in WW2?

Botany (anonymous profile)
April 16, 2013 at 7:56 p.m. (Suggest removal)

Many criticized Thatcher's policies. Thatcher's response is better than any that I could make.

http://www.youtube.com/watch?v=BnOGaQ...

Botany (anonymous profile)
April 16, 2013 at 8:17 p.m. (Suggest removal)

I wonder what Freud would say.

Ken_Volok (anonymous profile)
April 16, 2013 at 9:21 p.m. (Suggest removal)

I wonder what JUNG would say?!
ahh, Botz, you really need to read up on your history, my boy: comparing the 1982 Falklands War (how far is that from UK, how many people really live there? check it out) with Hawaii in late 1941...geeze! You really are on some strong stuff.
About 1000 people died in the 1982 travesty (mostly Argentinian sailors), but Japan was overrunning much of the Far East including Singapore, Malaya, the Philippines, Guam, Wake (I missed some areas) AND had been carrying on an imperialistic war in China for some years (ever hear of the Rape of Nanking? hundreds of thousands of death just there in that city alone). The Falklands is a flea whereas World War II is an enormous elephant; your comparison is silly as also many of your thoughtless comments. Take mo to check Google on Falklands War, it would take 2 minutes.

DrDan (anonymous profile)
April 17, 2013 at 5 a.m. (Suggest removal)

So after Argentina invaded and took over the islands, you think Thatcher's correct response would have been to say "OK, you can have them"? She would not have lasted long as the British leader if she had done that, but maybe that's what you were hoping for.

Botany (anonymous profile)
April 17, 2013 at 7:03 a.m. (Suggest removal)

http://www.newyorker.com/online/blogs...

Conclusion:

The Conservative-Liberal coalition’s recipe for turning things around amounts to more Thatcherism—more cuts in government spending, particularly welfare benefits; more privatization; more deregulation. So far, it has failed dismally; the limits to Thatcherism are more apparent than ever.

pk (anonymous profile)
April 17, 2013 at 7:59 a.m. (Suggest removal)

If you look at the news, it's the other way around. It's the BRIC countries that are the most successful. The European social democracies are imploding under their own weight.

Botany (anonymous profile)
April 17, 2013 at 10:20 a.m. (Suggest removal)

No Germany, Botany, the biggest economy in Europe.

DrDan (anonymous profile)
April 17, 2013 at 11 a.m. (Suggest removal)

I was quite attentive to England during Thatcher's regime, she was NOT as popular nor successful as the propaganda has led some to believe.
The only reason she's given any acknowledgement is because she was the first woman PM, sound familiar?

Ken_Volok (anonymous profile)
April 17, 2013 at 2:13 p.m. (Suggest removal)

and as Golda Meir is lauded as the first woman PM of Israel and while a marvelous person, she was as violent and aggressive as some other Israeli PMs.

DrDan (anonymous profile)
April 17, 2013 at 2:17 p.m. (Suggest removal)

Thatcherism wasn't a boondoggle and a horror...IF YOU WERE A BANKER. That is, the 1% in UK loved her policies since they enhanced their money, for the rest... just too bad.
As one writer in Salon.com wrote, "She intentionally immiserated millions of English, Scottish, Welsh and Irish people in order to carry out a liberalization of the British economy that benefited the wealthy at the expense of nearly everyone else. Decades after she left office, the country hasn’t recovered."
And David Cameron is a sort of direct descendant, ooh, and look how the British middle and lower classes "love" him. Botany, you devotion to Mrs. Thatcher shows your class bias toward...ah, landlords like yourself.

DrDan (anonymous profile)
April 17, 2013 at 2:35 p.m. (Suggest removal)

Yeah I was going to point out that she was great if you were big corporation or a bank, country of origin irrelevant.

Ken_Volok (anonymous profile)
April 17, 2013 at 3:03 p.m. (Suggest removal)

Did you ever look at Britain before Thatcher? It was a failing economy completely controlled by labor unions. Thatcher brought Brittain back to life.

Botany (anonymous profile)
April 17, 2013 at 3:24 p.m. (Suggest removal)

Botany, she may have improved certain aspects of Britain's economy but it was to the detriment and suffering of hundreds of thousands of people who lived in the UK at the time.

She single-handedly forced thousands of people out of their jobs and into poverty and started to systematically dismantle the options available to them at the same time. Labor unions aside, even.

She also really did a number in Scotland and Wales. It's actually and interesting read/research if you're ever up for it, but she was really not great for the UK - unless you were already exceedingly wealthy or needed grants for an already huge corporation in oil or steel.

Native1 (anonymous profile)
April 17, 2013 at 3:47 p.m. (Suggest removal)

" ... our economy remains weak with unemployment being the major economic culprit along with the rising deficit ..."
-- Igor Sill

The major culprits are the over-leveraged investment banks that caused the recession in the first place! Unemployment is only a symptom of the problem.

How quickly have we forgotten the loose regulations that allowed banks to grow into huge investment banks that leveraged the savings families across the nation to trade in derivatives?

Remember the national factory created by mortgage lenders to feed the secondary securities market at the expense of naive home buyers? Remember all those toxic Credit Debt Obligations that were sold to pension funds and other intitutional investors with superficial ratings from greedy watchdogs like Standard & Poors and Moodys?

And how about those Credit Default Swaps that were traded with sky high leverage and amounted to legalized betting? And when calls were made and institutions had to liquidate their stock holdings, remember how that caused the stock market to dive and mainstreet investors and retirees saw their portfolio values cut in half?

And remember how the banks started to hoard their cash to keep their capital reserves up after taking their beatings, but then companies couldn't get loans anymore and the short-term credit markets froze? Then the layoffs started happening and folks couldn't pay the mortgages that had already been sold as part of a multi-tranched CDO to a teacher's pension in Idaho?

Yep, it's all those unemployed non-tax paying folk who are demanding their entitlements - darned liberal hippie Occupy Wall Streeters - that are bringing this econony down.

I'm happy Igor Sill is wealthy enough to boast about being an "angel investor". Somebody has to take a punch from the taxman for the rest of us.

EastBeach (anonymous profile)
April 18, 2013 at 2:03 a.m. (Suggest removal)

Bring back the Glass-Steagall Act!

DrDan (anonymous profile)
April 18, 2013 at 3:34 a.m. (Suggest removal)

And as of the new issue nothing on Jonathan Winters who was both local and loved.

Ken_Volok (anonymous profile)
April 18, 2013 at 12:44 p.m. (Suggest removal)

mike (web content manager)
April 18, 2013 at 12:53 p.m. (Suggest removal)

But more importantly, what does Carol Ruiz think about the lack of coverage on Jonathan Winters?

Botany (anonymous profile)
April 18, 2013 at 12:55 p.m. (Suggest removal)

She loves the comic but hates the comedy.

Ken_Volok (anonymous profile)
April 18, 2013 at 1:02 p.m. (Suggest removal)

Mr. Sill is undoubtedly a great guy, and likely a real "angel investor" -- still, it will be fun to search for American bankers and investor who hide their money offshore and pay little or no taxes, while garnering public adulation for their angelic support of some very good charities (e.g. DRI). The amount is judged at over $32 trillion worldwide. See the International Consortium for Investigative Journalism site for this: many American names to follow!
http://www.ibtimes.com/international-...

DrDan (anonymous profile)
April 18, 2013 at 1:58 p.m. (Suggest removal)

I've worked in tech startups and in our world, an Angel Investor is an investor who's working on his own or with a small group of individuals. They usually invest smaller sums of money that the big venture capital firms on Sand Hill Road or their institutional partners. Small, of course, is a relative term :)

That link will be interesting weekend reading, DD.

EastBeach (anonymous profile)
April 18, 2013 at 11:43 p.m. (Suggest removal)

duh, thanks EB, and now I know what an "angel investor" is, although there's always that issue with the relative term "small"...

DrDan (anonymous profile)
April 20, 2013 at 7:23 a.m. (Suggest removal)

This is like the last gasp of the Spider Woman from Mars and her corrupt ideology.

Ken_Volok (anonymous profile)
April 22, 2013 at 3:33 p.m. (Suggest removal)

Johnny Rotten's tribute to Margaret Thatcher:

http://www.nbc.com/saturday-night-liv...

Sweet iron lady
I want to kiss your iron fist
Your crusty Argentinians
You killed a few they won't be missed
Let's go for a drive
When I'm with you I feel alive
When we're done we can privatize
our nation's industries

EastBeach (anonymous profile)
April 22, 2013 at 10 p.m. (Suggest removal)

The best effect Thatcher had on England was reinvigorating it's punk scene after the 1970s burst, lemonade from lemons.

Ken_Volok (anonymous profile)
April 22, 2013 at 11:29 p.m. (Suggest removal)

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