Posts Tagged ‘laffer curve’

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Do Tax Cuts Increase Revenue?

July 28th, 2010

On Sunday Treasury Secretary Tim Geithner made the case for letting Bush-era tax cuts for the wealthiest Americans expire later this year. He dismissed concerns that the move could push a teetering economy back into recession and argued that it would demonstrate America’s commitment to addressing its trillion-dollar budget deficit.

Republicans have countered with predictable fearmongering. In a USA Today op-ed, on July 22, Utah Republican Senator Orrin Hatch, wrote that letting the tax cuts expire could potentially “trigger another recession, the last thing out-of-work Americans need…Dr. Christina Romer, chair of the president’s Council of Economic Advisers, found…that there’s ‘a powerful negative effect of tax increases on investment.’ Her analysis showed that $1 in tax cuts results in a $3 increase in GDP, demonstrating why lower taxes are key to investment and an economic recovery.” (OK, Sentator Hatch, then you should be thrilled that Obama gave tax cuts to 95% of Americans…where’s your op-ed about that?)

So we have Treasury Secretary Geithner saying raising taxes back to Clinton-era level is a good thing, but the senior member of the Senate Finance Committee (Hatch) saying it will be devastating to the economy. This illustrates the fundamental differences between Republicans and Democrats is their view of taxes. Democrats believe in progressive taxation–that is, taxing the rich at a higher percentage because a flat tax would take a larger percentage of income from those with lower income; and the past 30 years tells us that it is the Democrats who are the fiscal conservatives when it comes to managing the deficit. On the other side of the aisle, Republicans believe that reducing taxes for high-income earners is better for the economy because it will “trickle down” to the lower income workers in the form of jobs; and they believe that lowering taxes for the rich increases government tax revenues. Repeat: Republicans believe that taking less money from the rich will give the government more money. Yes, they believe this like an article of faith. And they repeat it ad nauseum.

Examples:

President George W. Bush: “You cut taxes, and the tax revenues increase” (2006)

Vice President Dick Cheney: Keeping taxes low, “does produce more revenue for the Federal Government.” (2007)

Senator John McCain:  “Tax cuts … as we all know, increase revenues.” (2007)

Rudy Giuliani: “I know that reducing taxes produces more revenues.” (2007)

Rep. Lynn Westmoreland, Georgia-R: “This Congress must recognize that tax cuts spur economic growth.” (2005)

Carly Fiorina, U.S. Senate Candidate: Let me propose something that may seem crazy to you. You don’t need to pay for tax cuts. They pay for themselves. (2010)

If this concept holds true then the Bush tax cuts should have brought in more revenue and helped decrease the budget deficit. They did the opposite. » Read more: Do Tax Cuts Increase Revenue?