With the current political rhetoric about the budget process, scare tactics, and sound byte politics, I thought I'd check into the by-line, "Tax cuts add to the deficit" which is so often bantered about by certain Congresspeople and Senators. If this statement is true, then one would logically expect to see a drop in Federal Tax Receipts during those years that we had "tax cut" presidents such as JFK, Ronald Reagan and Bush Jr. If it is truly a revenue issue, and not a spending issue, then we should see this conspicuous drop in revenues. So, I went to the Office of Management and Budget and looked up gross federal tax receipts by year since 1934. From 1934 to present (with a slight drop in revenues in 2009 - due to the credit market crash and deep recession), how many years have we had a drop in federal revenues during the total term of any president, Democrat, Republican? The answer - zero. So, the current policital rhetoric is an unfounded and unsubstantiated falsehood, and is only being used to promote certain political ends (and killing our country to boot). Check it out for yourself. Source: Office of Management and Budget, Budget of the US Government FY 2011 http://www.whitehouse.gov/omb/budget/Historicals

mk: First off, just so we are starting in the same place, my assumption is that we all know that tax cuts are red ink when enacted, but the idea is that giving tax $ back to the population via tax cuts results in revenue that more than offsets the reduced revenue via taxation. Thus, a lower rate can sometimes result in more revenue than a higher one.

It took a bit of searching around, but that is an excellent resource. I find it hard to test the claim (and this is probably why people argue it so much), because for receipts they have absolute $, and they have % of GDP, but my guess is that adjusting for inflation might also need to be looked at. That said, my gut reaction is that as far as income taxes go, a correlation with receipts might be difficult to make. This is an interesting chart of US income taxes, 1913-2010. (http://en.wikipedia.org/wiki/Income_tax_in_the_United_States...)

Still, I don't wholly buy the initial premise. Just as important as tax receipts, IMO you need to look at the deficit/surplus. If the government is deficit spending, then tax revenue will increase too. For example, if the government buys 3 aircraft carriers by selling Treasury bonds to China, then those companies that built the carriers will report higher earnings and pay more taxes that year. (That could cover the gap due to the drop in their rate.) So for example, during the GWB years, although rates dropped, government spending increased, and contractors were paying taxes on profit made by loans from China (and others). It muddies the waters for sure. You could hide loss revenue due to tax cuts by deficit spending.

IMHO not all taxes, (or tax cuts) are created equal. Of course we want the government to provide some services (especially those that we want run at cost or at a loss), and we want them to step aside when profit motivation and market demand produces a satisfactory result. Taxes spent when the market does not provide the best solution seem to me to be good ones, and taxes that are spent to provide what the market could seem to me to be ones that should be cut.

Of course, we are in a deficit situation, so this is so much more complicated.

Endlessly interesting topic, btw. The link is great.

posted 4614 days ago