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A Big Anniversary for Deregulation and Economic Growth

We’re committed Reagan-era supply-siders here at IPI. We believe tax policy has a significant impact on economic growth, for better or for worse. Generally, tax cuts encourage economic growth and tax increases harm economic growth, although, of course, it matters a great deal what kinds of tax cuts or increases are being proposed.

So we agree with the standard supply-side narrative that the Reagan tax cuts were the key to the decade-long economic boom of the 1980s, as superbly described in Robert Bartley’s book “The Seven Fat Years,” which should be required reading for anyone interested in economic policy.

However, another major factor behind that historic economic expansion that is poorly appreciated, and which Bartley entirely omitted, is the greatest economic deregulation in U.S. history: the Airline Deregulation Act of 1978, the Motor Carrier Act of 1980, and the Staggers Rail Act of 1980, which became law 40 years ago today.

As the Wall Street Journal points out, it’s remarkable to look back and remember that Democrats were responsible for this era of deregulation, though it’s hard to imagine today’s Democrats ever buying into the idea that regulation can be harmful.

The Staggers Act brought freight rail back from bankruptcy to the point where, since 1980, freight railroads have invested over $780 billion in their transportation infrastructure. New investment resulting from deregulation has created jobs, made rail more efficient and safer, and has lowered rail rates 43 percent since 1981, adjusted for inflation. According to the Association of American Railroads, that has saved American consumers at least $10 billion.

This move away from top-down regulation toward market-based solutions allowed railroads to operate more like other businesses in determining their own pricing and in managing their assets. The result is that today, railroads are a key (if underappreciated) part of America’s infrastructure.

It's important to recognize the significance of rail deregulation at this time because there have recently been efforts in Congress to reimpose some regulation on freight rail, including mandating crew sizes in order to benefit labor unions. Re-regulating rail would be a step backward and a mistake.

Another reason why it matters is that Republicans have been so successful in cutting taxes since 1980 that there just aren’t that many federal taxes left to cut, and so the impact of further tax cuts to stimulate economic growth is limited.

Put simply, proponents of economic growth must begin looking beyond tax policy for more economic growth. Avoiding new regulation and pursuing new deregulatory efforts could be a fruitful part of a new economic growth agenda.