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August 07, 2005


Tax cuts allow citizens to keep more of their money. The citizens can then invest or spend the money causing taxable activity to take place. The private market place will use money more productivley and efficiently than the government. Tax cuts can and do increase revenue to the government.
I agree that spending is out of control and Republicans are to blame for this.

Brendan, I am curious. What do you think would be an optimal or near optimal tax rate that would ensure maximum federal revenue? Maybe you don't care about how much revenue the feds receive, just that tax cuts don't increase revenue. If that is the case, I would still appreciate an answer to the above question.

If the recent increase in revenue did not come from economic activity that was produced by the tax cuts, what do you think produced the economic activity?

If the recent increase in revenue did not come from economic activity

There is NO RECENT INCREASE IN REVENUE. Can't you read? Sheesh!

Old-time supply-sider Bruce Bartlett agrees that tax cuts do not increase tax revenue.

> Some people believe that the inclusion of macroeconomic effects in revenue estimates is some kind of trick to make tax cuts appear costless. It is often alleged that Ronald Reagan played such a trick on the American people in 1981 by saying that the big tax cut that year would not reduce federal revenue. This is nonsense. The Reagan administration always said that the 1981 tax cut would lose large revenues, and its estimates were comparable to those made by independent analysts.

> Furthermore, supply-side economists who made private estimates of the revenue impact of the Reagan tax cut-estimates that did incorporate growth effects-also showed large revenue losses. For example, an estimate by economist Norman Ture of an early version of the Reagan plan showed large net revenue losses even 10 years after enactment. Economist Michael Evans came to similar conclusions.

> What supply-siders always said is that the Reagan tax cut would not lose as much revenue as conventional (static) estimates predict. Economist Lawrence Lindsey, then at Harvard, concluded that when all was said and done, the net revenue loss from the 1981 tax cut was about a third less than official estimates predicted. A CBO study found that it was about 25 percent less.

Re: "For the 500th time, President Bush's tax cuts have not increased federal tax revenue -- they've dramatically reduced it."

Please explain this from the NY Times:

"...tax revenues are running nearly 15 percent higher than in 2004, with corporate tax revenue soaring about 40 percent; increases come from stock market gains and business income of wealthy taxpayers, with 20 percent jump in quarterly payments on investment gains and business earnings..."



I will have to say that Henke's comment in the previous post seems to still apply even with your correction. What you might be able to say is that the tax cuts have in all likelihood decreased revenue. I, and most people, would agree. However, it is certainly possible I, and you, are wrong. Given that we have no way of knowing how deep or long of a recession we would have been in sans the tax cuts, revenues might have been lower. We do not know, though I doubt the case is strong.

As for your characterization of Supply Side economics, well it is just tendentious. The characterization that tax cuts always, or quickly, pay for themselves is not what they claimed. That was how the press reported and characterized it in the 80's and it has stuck. Like Al Gore having claimed to have invented the internet we are talking about a media created (maybe enabled would be a better word) definition.

What supply siders claim is not only not discredited, but a truism that almost all economists accept. That is that the higher tax rates rise the less revenue proportionately they raise. At the margin tax cuts do not lose as much revenue, and if the tax rates are high enough, actually raise significantly more revenue than the previously higher rates. This was not invented by supply siders, it is common sense (and one of Ronald Reagans heroes, JFK, used it as the centerpiece of his economic program) and numerous real world and easily controlled for, examples attest to this. What is in dispute, even amongst supply siders themselves, is the magnitude of such effects at various levels and types of taxation, how long it takes for the effects to be felt, and the relative value (since the effect on government revenues is not the only reason for a tax cut) of the economic benefits of the improved economic growth, higher after tax income and other factors versus the value of the services government might provide with the foregone revenues that might result from a tax cut. In addition of course the cost of servicing any increased debt must be taken into account.

These are all areas of legitimate debate, but the straw man that supply siders believe tax cuts necessarily raise revenues is not.

"The tax relief stimulated economic vitality and growth and it has helped increase revenues to the Treasury. The increased revenues and our spending restraint have led to good progress in reducing the federal deficit."

I must also note that this statement doesn't mean what you say it means. Let us take each piece apart.

"The tax relief stimulated economic vitality and growth"

Perfectly defensible. I even agree with it, but that is beside the point.

"it has helped increase revenues to the Treasury"

Helped increase revenues? I am not sure how increased economic growth cannot increase revenues. Maybe the first part of the statement is untrue, but if it is true, then the second is likely true as well. That something helps increase revenues to the treasury does not mean that revenues are higher than they would have been prior to the tax cuts. I have no doubt that Bush would like to have people interpret a perfectly reasonable (though possibly false) statement, which merely claims that his tax cuts have stimulated growth and that growth has increased revenues over earlier predictions (as in last year) to mean the less reasonable (though possibly true) statement that his tax cuts have been a net boon to the treasury since their enactment. Or to rephrase, growth increasing revenues is what he claims is helping. Has that not happened? Of course it has! Are his tax cuts the reason? Maybe, I think he gets to argue the point, even if imcompetently. Does any of this mean his tax cuts over the past few years have inreased revenue overall? NO! Obviously however, increased growth has helped increase revenues even if the tax rate reductions have reduced them. The helping and reducing factors are separate though related.

Is this a bit Clintonian? Maybe, of course the day I hear a politician point out their economic policies successes are to be looked at with a jaundiced eye, qualified in any meaningful way or making sure supporters or potential supporters do not exaggerate their merits will be a first. So I hate to single out George or Bill on this kind of thing. Especially when I just finished hitting myself over the head at the DNC (I think it was them) claiming that Bush had caused an epidemic in obesity amongst our young by cutting education spending. Cutting education spending! Next they'll be claiming he raised taxes on the wealthy, stiffed the oil industry and has asked the Sierra Club to formulate his environmental policies. Sheeesh!

It is true as Lance says, that JFK cut tax rates and revenue increases. What he doesn't point out is that the tax rate then was over 90% and the marginal revenue from the taxes at that rate was close to zero or negative. The tax rates today are nowhere near where they were in the 60s, so that analogy doesn't hold up.

And have you factored in all of the state tax revenue increases? That negate the need for federal dollars?

Just curious.

But I beleive when people have more money, they spend more money. And when they spend money, the first governmental body that will see any of it will be the state governments sucking up extra sales tax revenue.

Ahh, when an economy works the way it was intended, it's so nice.

Cut, cut, cut. And cut some more. Our federal government is out of control. They NEED the pressure of reduced revenue to REDUCE THEIR SPENDING. Nobody's going to stop spending when the bank account is overflowing - I can guarantee that. ESPECIALLY if we ever get a democrat in office. You think Bush spends like a democrat, Just wait and see what happens if Hillar gets in there.

I have often wondered that, and assuming that tax cuts do increase federal revenue, what is the trade off in terms the increase in federal revenue, vs. the decrease in federal descretionary spending due to the increased maintenance costs of our now almost $9 Trillion dollar deficit? It doesn't seem to me that tax cuts coupled with spending like a drunken sailor on a three hour pass is a particularly productive avenue to follow.

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