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Lower Taxes Increase Government Revenue 
14th-Jul-2006 10:21 am
Lower taxes increase government revenue

Why do so many ignorant pundits and poorly informed economists deny this?

The latest evidence that low taxes are good for the economy is the announcement by the U.S. Treasury Department that U.S. government revenues will be $274 billion higher than anticipated this year and are expected to be $243 billion higher the next year. Despite all the nay saying and hand wringing on the part of American Democrats, the Bush tax cuts have stimulated the economy to the extent that new jobs have been created through increased investment resulting in a corresponding increase in government revenues.

The Dems, of course, see the glass as half full, protesting that only "the rich" are benefiting from the tax cuts. Be that as it may, the increase in government revenues is in large part due to "the rich" paying a lot more in taxes because of their increased investments. But it isn’t only "the rich" who benefit. Those with more moderate means are also benefiting in terms of new jobs being more readily available. And, while the poor may not be reaping the rewards of investment income, they also pay the least in taxes.

This phenomenon occurred both in 1962, when John F. Kennedy (Senator Edward Kennedy’s smarter brother) instituted the biggest tax cut in American history and again in 1986 when Ronald Reagan cut income and investment taxes to the bone. It’s now reoccurring under Bush 43.

And reputable economists recognize this. What happens under supply side economics? Government revenues increase. The economy increases, as people seek out more revenue, since it comes at a lower cost.

Further Update:See the note by Don Luskin on the results of properly done tax cutting. Also, see this link on the reason that anyone worth his salt will be interested in creating economic wealth through cutting taxes. And a further analysis from the Wall Street Journal ($) referring to this study from the Treasury Department (PDF) on the fact that tax policy leads to changes in behavior of citizens, which is the basic point behind the Laffer curve.

14th-Jul-2006 09:57 pm (UTC)
Anonymous Coward
Unfortunately, economic science tends to be heavily ideological in nature, and attracts the notice of people who are even more ideological, so it's perhaps not surprising given those circumstances that one set of individuals will deny findings that may support the outlook of another group.

I myself have no idea of how well supply-side economics works *on the whole* in the American context (being a Canadian myself); I would dare to say that it would have fairly positive results in the USA, due to the still persistently liberal point-of-view of American citizens which does lend itself well to radical entrepreneurship. However, I would still assess the overall economic policy of the Bush Administration as needlessly radical and certainly risky; the combination of rapid tax cuts, dirigiste social and energy policies, and bizarrely complex political projects (i.e. perscription medicate) - not to mention current overseas adventures - makes me cringe in anticipation of disaster: it may not happen, but it still makes me want to wear a helmet.

But, it's good that the American economy (probably) won't crash within the next year. :-D
14th-Jul-2006 09:58 pm (UTC)
Hmmm, should have signed-in before posting that; 'apologies!
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