Just what is a “tax cut” or a “tax increase”? If we lower the income tax rate, as President G. W. Bush did, it is advertised as a “tax cut”. Looking at the actual results however reveal that it indeed was a “tax increase.”
Revenues to the Federal Government in 2001, when Bush took office, were about 1.99 trillion. In 2008, when he left office, they were about 2.52 trillion, a gain of 27 percent.
Adjusting for inflation during this period still produces a gain of 4 percent. In my book if revenue goes up, this is a “tax increase.”
A similar calculation (with similar results) can be made for the Reagan income tax rate cuts.
Now let’s look at the spending side of the equation. Under Bush the spending went up 31 percent adjusting for inflation.
This is nearly eight times the revenue increase. When this happens year after year, you amass a substantial deficit.
If Harkins decided to raise his movie ticket prices to $100 per ticket would he make more or less money? Less, obviously, because he’d sell next to zero tickets. High tax rates produce similar results. People, especially the rich, will not expose their money to high tax situations, exactly where the exposure should be placed to grow the economy. If tax rates are too high, reducing them results in more economic activity and higher total tax revenue.
But uncontrolled spending can swamp revenue increases.
Moral: Don’t blame tax rate reductions for our current deficit problem.