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Tax Cuts: Deeper Wounds or Scar Revision?

In medical terms, a scalpel is a surgical instrument for cutting that can be wielded destructively to inflict deep and damaging wounds, or can be used constructively to remove scars, strictures and diseased tissue for the benefit of the patient’s health and well-being. In 1961, President Kennedy’s advisors clamored for higher taxes to finance a big-government agenda. But JFK was persuaded instead, in communications with West German Chancellor Erhard, to avoid a high taxes model, such as that which had stunted economic growth in England and other NATO countries. In arguing against his advisors and liberals in his own party, President Kennedy stated:

 

“Our true choice is not between tax reduction…and avoidance of large federal deficits…It is increasingly clear that…an economy hampered by restrictive tax rates will never produce enough revenue to balance the budget—just as it will never produce enough jobs or enough profits.”

 

The Kennedy tax cuts, and later tax cuts under Presidents Reagan and Bush-43 all spurred an extended period of economic and job growth and expansion, increased federal tax revenues, and decreased tax-sheltering and avoidance, increasing the actual tax payments and the proportion of taxes paid by the wealthy. Walter Heller, a Keynesian economist, and one of JFK’s advisors who had opposed the Kennedy tax cuts, admitted in testimony before the Congressional Joint Economic Committee in 1977 that the tax cut paid “…for itself in increased revenues…[because] it did seem to have a tremendous stimulative effect.”

 

President Clinton’s Council of Economic Advisers praised the Reagan Tax Cuts; “It is undeniable that the sharp reduction in taxes in the early 1980s was a strong impetus to economic growth.” The Bush Tax Cuts were criticized inaccurately for being “Tax Cuts for the Rich”, but were, in fact, also an across-the-board tax cut affecting equally the rich and the not-so-rich. Ben S. Bernanke, then Chairman, Council of Economic Advisors, noted that the Bush Tax Cuts had undoubtedly contributed to economic growth, which in turn bolstered tax receipts. In the April 16, 2008 Democratic Presidential Debate, Candidate Obama acknowledged that while raising taxes might decrease revenue, he would still insist on tax hikes for “purposes of fairness” (i.e. redistribution of wealth).

 

 Liberal critics of tax cutting have used static models, with faulty premises and questionable statistics, to arrive at tax revenue estimates they claim prove that cutting taxes reduces tax revenues. Using this model, if the average family’s marginal tax rate is reduced, and its income and all other factors remain fixed, the tax it pays and the government collects, is reduced. Extrapolated to the entire economy, where it is assumed all other factors remain fixed, total tax revenue estimates are clearly reduced.

 

However, all other factors don’t remain fixed in real life, and this static view of taxes fails to account for growth in the economy producing increased business profits, expansion and job creation, increases in personal income, and a reduction in efforts to avoid paying taxes; all of which increase revenue. All estimates aside, actual IRS data show that cutting taxes does produce increased revenue, almost all of which is from the rich. It should be noted that the converse of this is also true: high taxes stifle economic and job growth, decrease federal tax revenues, and increase tax-sheltering and avoidance, leading to a reduction in actual tax payments and the proportion of taxes paid by the wealthy.

 

The Obamacrats have taxed and spent their way into Stimulus oblivion, and the economy, unemployment and deficits are only worse. We have a choice. Do we go with Obama for more of the same, hoping for a different result? Or do we choose to cut taxes across-the-board and enjoy economic growth, job creation, increased revenue and lower deficits?

 

References

 

Schweikart L and Allen M. A Patriot’s History of the United States, Sentinel, New York, NY, 2004. The Age of Upheaval, 1960-74, Tax Cuts and Growth, p.675.

 

http://www.house.gov/jec/fiscal/tx-grwth/reagtxct/reagtxct.htm

 

http://online.wsj.com/article/NA_WSJ_PUB:SB124217336075913063.html

 

http://www.heritage.org/Research/Reports/2002/12/Tax-Cuts-Increase-Federal-Revenues

 

http://www.taxfoundation.org/news/show/323.html

 

http://www.nytimes.com/2005/07/13/business/13deficit.html?pagewanted=print

 

http://www.youtube.com/watch?v=WpSDBu35K-8

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