Tax Cuts Don't Boost Revenue

[dtotire]

This has been posted before, but it is worth repeating. Every Congressman should read it.

Tax Cuts Don't Boost Revenues
Thursday, Dec. 06, 2007 By JUSTIN FOX

If there's one thing that Republican politicians agree on, it's that slashing taxes brings the government more money. "You cut taxes, and the tax revenues increase," President Bush said in a speech last year. Keeping taxes low, Vice President Dick Cheney explained in a recent interview, "does produce more revenue for the Federal Government." Presidential candidate John McCain declared in March that "tax cuts ... as we all know, increase revenues." His rival Rudy Giuliani couldn't agree more. "I know that reducing taxes produces more revenues," he intones in a new TV ad.

..

If there's one thing that economists agree on, it's that these claims are false. We're not talking just ivory-tower lefties. Virtually every economics Ph.D. who has worked in a prominent role in the Bush Administration acknowledges that the tax cuts enacted during the past six years have not paid for themselves--and were never intended to. Harvard professor Greg Mankiw, chairman of Bush's Council of Economic Advisers from 2003 to 2005, even devotes a section of his best-selling economics textbook to debunking the claim that tax cuts increase revenues.


The yawning chasm between Republican rhetoric on taxes and even informed conservative opinion is maddening to those of wonkish bent. Pointing it out has become an opinion-column staple. But none of these screeds seem to have altered the political debate. So rather than write yet another, I decided to find out what Arthur Laffer thought.


Laffer is a bona fide economist with a doctorate from Stanford. He's also largely responsible for the Republican belief that tax cuts pay for themselves. Now 67, Laffer runs economic-consulting and money-management firms in Nashville. About the best I could get out of him on the question of whether the Bush tax cuts have paid for themselves was "I don't know." But that's only part of the story.


It's a saga that began in a bar near the White House on a December afternoon in 1974. Huddled at a meeting arranged by Wall Street Journal editorial writer Jude Wanniski were Cheney, then the deputy chief of staff to Republican President Gerald Ford, and Laffer, who was teaching at the University of Chicago's business school after a stint in the Nixon White House. In trying to explain to Cheney why a tax hike mooted by the President might not be such a great idea, Laffer drew a chart on a napkin that showed government revenues increasing as the tax rate moved up from 0% but then turning around and heading back toward zero as it neared 100%.



The idea that high tax rates brought diminishing returns was not controversial or even new--Laffer traces it to 14th century Muslim philosopher Ibn Khaldun. But few economists in the 1970s even considered that real-world tax rates could be on the wrong side of the Laffer Curve. Laffer thought they might be, and Wanniski argued on the Journal's editorial page and elsewhere that they almost certainly were. The claim became a key plank of Ronald Reagan's successful 1980 campaign for President.
And how did things work out? Laffer is convinced that the reduction of the top tax rate from 70% to 28% during the Reagan years paid for itself--in part by encouraging the rich to stop finagling--and the evidence mostly backs him up. "You find these enormous responses in the upper brackets," Laffer says. "These guys fire their lawyers and accountants and actually pay their taxes. Yay! Isn't that what we want them to do?"


But Reagan's tax cuts for the nonrich were big money losers, and it took the fiscal discipline of Bill Clinton to mop up the resulting red ink. Laffer gushes with praise for Clinton, but he's also a fan of Clinton's successor. "What Clinton did was, he gave Bush the fiscal flexibility to do what was right," Laffer says. In the face of the recession and terrorist attacks of 2001, Bush "needed to stimulate the economy and spend for defense, and Clinton gave him the ability to do that."

In other words, the Bush tax cuts were meant to create big deficits. But Laffer's O.K. with that. "The Laffer Curve should not be the reason you raise or lower taxes," he says. Perhaps not, but it does make for great campaign promises.


http://www.time.com/time/magazine/article/0,9171,1692027,00.html
http://www.time.com/time/magazine/article/0,9171,1692027,00.html

[mediaman007]

1. However, Laffer doesn't address the rest of the tax situation.

Income taxes bring in about half of the revenue. The people getting stiffed for the rest of the budget are the people paying social security taxes. Please note that income above 90,000 or so is not taxed. So who is getting shafted? I don't think we need to feel sorry for the rich guys, they are getting their tax cuts on both ends. The middle wage earners are paying the freight.

[TexasLawyer]

2. Inflation-- the hidden tax

Also persistent deficits caused by taxes that are grossly insufficient to run the country, expensive wars purchased on credit, and other acts of economic profligacy drive down the value of the dollar.

If you've followed the dollar lately, you see it's been dropping like a rock. We're a country that cannot balance its books, and the rest of the world is beginning to see the U.S. as the corrupt banana republic that it is rapidly becoming.

http://www.gather.com/viewArticle.jsp?articleId=281474977070260

Inflation is the cruelest and most dishonest tax of all, as it falls hardest on the poor and middle-class and those on fixed incomes, and its true nature is never discussed by politicians* or the corporate media.

<snip>

[Kansas Wyatt]

3. I demand the rich reconcile for all tax cuts since Reagan.

Retroactively tax them for all tax cut years since Reagan. Time for the rich to pull themselves up by the bootstraps and take personal responsibility for what they have been doing to this country.

I do not give a shit about what anyone thinks, because after all, they are 'so talented, hard working, intelligent, etc. etc.' that it shouldn't be that hard for them to remain rich, so let them put their money where their mouths are.
:popcorn:

[unblock]

4. income tax rates are a narrow view. the EXPECTATION of higher taxes is actually huge

as soon as it looks like a republican will become president and cut taxes, revenues drop as people delay taking gains and incurring income until the lower rates they expect become effective.

what really gets revenue going is when people expect rates to go up. then people realize their gains like crazy in advance of the new, higher rates.


more fundamentally, though, people do what they can to survive. the average joe does his job no matter what the tax rates are. if anything, labor income is a "geffen good" in the sense that the average joe will work MORE if his take home pay is less -- he's got bills to pay, after all.

it's the RICH people who can easily time their income and gains who are affected by tax rates and such. but mostly, they're just playing games with money and how they categorize and claim it.


in any event, there's always been something wacky about republicans boasting about RAISING revenue by cutting taxes. if they were true to their phliosophy, they'd be appalled at the idea of raising revenue that should be kept in the private economy!