When trying to educate someone about the importance of low marginal tax rates, what’s the most-convincing visual?

• A supply-and-demand graph?
• A philoso-raptor meme?
• A cartoon with two doors?
• A Dan Mitchell hypothetical?

I’m partial to the image I created, of course, but let’s look at a real-world example that is very compelling.

In an article about Tory tax policy for the U.K.-based Telegraph, Charlotte Gifford included a graph showing that a family with two children can have more disposable income with an income of £99,000 rather than an income of £144,000.

In other words, there’s a de facto 100 percent tax rate on the additional £45,000.

At the risk of understatement, there’s not much incentive to earn more income if the government imposes a de facto 100 percent tax rate.

That’s the kind of policy you expect to see in France, not the United Kingdom.

So why is it happening? Ms. Gifford explains.

High-earning parents are better off only working four days a week as bizarre tax rules mean it no longer pays to work. …One of the biggest distortions in the tax system occurs once a parent earns more than £100,000. …One reader told The Telegraph they were considering shortening their working week from five days to four after realising they would keep more of their pay by earning £92,000 as opposed to £115,000. Reducing the working week makes perfect financial sense for many parents earning £100,000 or more. By working fewer days they would not only dodge the tax trap but also cut their childcare costs, which currently average at £285 per week full-time, or £13,695 a year.

If you want details, the de facto 100 percent-plus tax rate is the combined result of three factors.

1. A statutory tax rate of 40 percent.
2. The government’s clawback of the value of the personal allowance, pushing the effective marginal tax rate up to 60 percent. As stated in the article, “Once someone’s salary hits £100,000 they lose the personal allowance at a rate of £1 for every £2 until it disappears at £125,140.”
3. The loss of a government handout. As Ms. Gifford wrote, “…once a parent earns more than £100,000…they lose their entitlement to free childcare… This creates a perverse incentive for parents earning £99,000 to turn down a pay rise so they can hold on to the government benefit.”

The moral of the story is that people respond to incentives.

When the government makes it less attractive for people to be more productive and earn more income, they respond by…drum roll, please…being less productive and not earning more income.

Which means less taxable income for the government (hello, Laffer Curve).

That’s the simple lesson of supply-side economics.

P.S. American readers should know that there are also examples of implicit 100 percent-plus effective marginal tax rates in the United States.

P.P.S. The United Kingdom has bad tax policy because it has bad spending policy.

P.P.P.S. To avoid these problems, nations should have flat taxes and limited government.

Three days ago, I explained that modest spending restraint could solve America’s fiscal problems.

In today’s column, let’s expand on that topic. We’ll start with this clip from a recent interview.

Based on a study I authored for the Club for Growth Foundation, I’ve dedicated this week to a series about Reaganomics.

• Part I was about Reagan’s track record on spending and lessons for today.
• Part II was about Reagan’s track record on taxes and lessons for today.
• Part III was about Reagan’s track record on red tape and lessons for today.
• Part IV was about Reagan’s track record on inflation and lessons for today.

The main takeaway from those columns is that Reagan’s policies were very successful.

Which probably helps to explain why polling datashows that Reagan is still very popular with voters(you can see my favorite poll result here).

In a bizarre twist, however, there are some Republicans who think Reagan’s free-market principles are outdated.

These people call themselves national conservatives, though I think of them as reincarnated Rockefeller Republicans (what else would you call people who favor awful policies such as industrial policy and tax increases?).

Today’s column explains why they are wrong.

…many of Reagan’s reforms have been eroded over the past 30-plus years, and the United States is once again facing major economic challenges. Is it time for Reaganomics 2.0? Some argue that America faces different problems that require different solutions. They assert that pushing for the same policies is “Zombie Reaganism.”Many of those critics are avowed leftists, so their antipathy is not surprising. But there are also some self-described conservatives who use the same term to express hostility. …To assess the merits of modern-day small-government conservatism, this paper will briefly explain the problems Reagan faced and the solutions he pursued, followed by an examination of today’s problems and the degree to which similar policies could and should apply. In short, America faces remarkably similar challenges to those that confronted President Reagan. …Policymakers who wish to boost middle-class incomes would be wise to emulate President Reagan.

For what it’s worth, I think some of the national conservatives are not statists. Instead, they merely think they should reject Reaganism for non-economic reasons.

So I included a section about being in favor of limited government regardless of views on other topics.

They assume support for Reagan-style small government conservatism:

• implies support for other policies adopted during the Reagan years, such as immigration amnesty.
• comes at the expense of conservative social policy.
• means no concern for the value of a defense industrial base.
• means being in favor of a “neoconservative” nation-building agenda.
• is somehow inconsistent with communitarian values.

This paper does not address those issues, other than to state that the desirability of Reagan’s four-pillar agenda does not depend on those other topics.

The bottom line is that everyone should be united by a desire for greater prosperity. And that explicitly implies being in favor of free markets and limited government.

P.S. The only hyphenated conservatism I like is small-government conservatism. In previous columns, I’ve pointed out the shortcomings of compassionate conservatism, kinder-and-gentler conservatism, common-good capitalism, and reform conservatism.

P.P.S. At the risk of understatement, Reagan was a not a small-government conservative in his younger days. Like a fine wine, however, he improved with age, migrating to the top-right of my Venn diagram.

Good fiscal policy means low tax rates and spending restraint.

And that’s a big reason why I’m a fan of Reaganomics.

Unlike other modern presidents (including other Republicans), Reagan successfully reduced the tax burden while also limiting the burden of government spending.

President Biden wants to take the opposite approach.

A few days ago, Dan Balz of the Washington Post provided some “news analysis” about Biden’s fiscal agenda. Some of what he wrote was accurate, noting that the president wants to increase spending by an additional $6 trillion over the next 10 years.

Balz is wrong, wildly wrong.

You don’t have to take my word for it. Here’s a chart, taken from an October 2020 report by the Congressional Budget Office. As you can see, people in the lowest income quintile have been the biggest winners,, with their average tax rate dropping from about 10 percent to about 2 percent..

Here’s a chart showing marginal tax rates from a January 2019 CBO report. As you can see, Reagan lowered marginal tax rates for everyone, but Balz’s assertion that the rich got the lion’s share of the benefits is hard to justify considering that people in the bottom quintile now have negative marginal tax rates.

Balz’s mistakes on tax policy are significant.

But his biggest error (or worst dishonesty) occurred when he wrote about a “decades-long squeeze” on domestic spending and asserted that “spending on social safety-net programs has been reduced.”

A quick visit to the Office of Management and Budget’s Historical Tables is all that’s needed to debunk this nonsense. Here’s a chart, based on Table 8.2, showing the inflation-adjusted growth of entitlements and domestic discretionary programs.

Call me crazy, but I’m seeing a rapid increase in domestic spending after Reagan left office.

P.S. There’s a pattern of lazy/dishonest fiscal reporting at the Washington Post.

P.P.S. I also can’t resist noting that Balz wrote how Biden wants to “invest” in social welfare programs, as if there’s some sort of positive return from creating more dependency. Reminds me of this Chuck Asay cartoon from the Obama years.