The Tax Cut Myth

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The great conservative hoodwinks is "cutting taxes increases revenue." I say hoodwink because while federal revenues from increased economic activity resulting from tax cuts is verifiable, it has been decades since the amount of increased revenues generated, even closely equaled the amount of lost revenues from the tax cuts. Add this hoodwinks to an environment of increased spending, and you have an accurate picture of the economic future resulting from Pres. Bush's term with his Republican Congress. A nearly 50% increase in the national debt and almost double the interest on that debt in 5 years.

And it will continue at least another 3 years unless we voters send a resounding No More spend and borrow message to Republicans in 2006.

Following is a chart clearly showing the result of the President's tax cuts. Look at the tax increases heaped on our children's paychecks as a direct result of our tax cuts today. Chart is fromCBBP:

CBBP Deficit graph

Note that the economic stimulus is not generating tax revenues greater than the lost tax revenues from the tax cuts over the last 4 years. It is time for us to accept reality. Tax cuts do nothing to reduce deficits; they actually increase deficits. The chart and link above cover a 4 year period. Tax cuts in 2001 are not recovered in the 3 following years despite GDP growth in those years. Those are the facts. Republicans can argue an imaginary horizon line 50 years from now which will offer the weakest of all possible evidence that tax cuts 49 years before helped increase revenues, but, such an argument is meaningless due to the time span and infinite variables over that time span.

Republicans argue tax cuts generated revenues in excess of the tax cuts many times in the past, especially in the Reagan years. They are wrong again when one looks at the data.

The proof of this point is found in the following 'Tax cuts in recent history' and OMB figures (Whitehouse Office of Management and Budget) which are mostly excerpted from Huppi.com.)

Since World War II, federal tax receipts have fluctuated within a few points of 18 percent of the Gross Domestic Product. Because they have been so stable, tax collections have regularly grown with the economy. Almost always, the only drops in tax collections have been during recession years; otherwise, tax collections have expanded in the years that the rest of the economy expanded.

There are a few notable exceptions to the above rule: those periods following large tax cuts. After Reagan's income tax cuts took effect in 1982, real income tax collections took a long fall, despite the fact our economy continued to grow.

For the moment, let's ignore the fact that tax collections could have been expected to grow after 1981. Let's simply use 1981 as a baseline, multiplying it 8 times, and compare that to what was really collected over the next 8 years. (OMB figures below came from Huppi.com.)

Individual Income Tax Collections (millions) (1)

Year.....Current.....Constant (87 dollars)
-------------------------------------------
1981.....$285,917.....$367,692
1982.....297,744.....356,366
1983.....288,938.....332,033
1984.....298,415.....328,470
1985.....334,531.....354,677
1986.....348,959.....359,307
1987.....392,557.....392,557
1988.....401,181.....387,128
1989.....445,690.....411,533
-----------------------------
82-89 total: 2,922,691
1981 (times 8) -2,941,536
-----------------------------
Net 8-year loss -18,845


Republicans like to massage this data in a host of different ways like ratios to GDP growth to hide the facts: but the reality is always reflected by taking the year before tax cuts, multiplying that by the subsequent years of tax cut revenues, and comparing the total to what was actually received in revenues during those years. (And of course, adjusting for inflation).

Further, let's look at the same reality formula applied to Corporate taxes:

Corporate Income Taxes (millions)

Year.....Current.....Constant (87 dollars)
-------------------------------------------
1981.....$61,137.....$78,623
1982..... 49,207.....58,991
1983..... 37,022.....42,544
1984..... 56,893.....62,623
1985..... 61,331.....65,024
1986..... 63,143.....65,015
1987..... 83,926.....83,926
1988..... 94,508.....91,224
1989.....103,291..... 98,092
------------------------------
82-89 total: 567,439
1981 (times 8) -628,984
------------------------------
Net 8-year loss -69,545

Now add the net loss for combined individual and corporate income tax and you get a net loss of $88 billion.

Voodoo Economics didn't work then, and the factual data show they still don't work today. The only circumstance in which tax cuts could yield increased revenues in excess of the taxes cut, is if the GDP growth rate is very high, perhaps 5% or better and inflation is held in check of the majority of the tax cut years.

That is not a set of circumstances that existed then, though it was hoped for, and it is not the set of circumstances today. We don't even have the expectation of growth in excess of 5% in these days of globalized competition, debt, and now oil and medical costs pushing at inflation.

Looking at this relationship from the opposite set of circumstances, let's look at the 1990's when taxes were increased. According to the previous data, the Clinton's tax increases should have resulted in tax revenue growth. And they did in perfect consistency despite a minor recession:

Individual Income Taxes (millions)

Year.....Current.....Constant (87 dollars)
-------------------------------------------
1990.....$466,884.....$413,355
1991.....467,827.....397,677
1992.....475,964.....392,969
1993.....509,680.....411,032
1994.....543,055.....429,496
1995.....590,244.....458,300


Corporate Income Taxes (millions)

Year.....Current.....Constant (87 dollars)
--------------------------------------------
1990.....$93,507.....$82,786
1991..... 98,086 .....83,378
1992.....100,270.....82,786
1993.....117,520.....94,774
1994.....140,385.....111,029
1995.....157,004.....121,907

Notes: 1991 was a Recession Year 1993 Clinton Tax hike passes 1994 Clinton Tax hike takes effect "Original data from U.S. Office of Management and Budget, Historical Tables, Budget of the U.S. Government, FY 1996. Dollar conversions made from tables located there."

Thus, voters and the American public in general have been misled by Republican theory which falls apart in the face of actual real world data. Tax cuts do not increase tax revenues, and tax cuts cannot reduce deficits. In fact, the data shows they increase deficits. America's future depends upon a thriving economy. And that economy depends upon our children not being overburdened by sprialing tax deductions from their paychecks.

Yet, Republicans have and continue to set the stage for unprecedented tax increases for our children with their 'borrow and spend' practice in Congress and their fallacious adherence to a tax policy that shifts the burden from this generation to the next. Since, 2000, every working American has incurred an additional federal tax debt of over $16,000 because of Republican policies. That figure comes by dividing the number of workers in the work force into the increase of the national debt since the year 2000 (over 2 Trillion dollars).

We cannot continue selling out our children's earnings future while dodging our responsibility to pay for what we legislate today. We must pony up the taxes today to pay for what we spend today.More, actually, because the national debt is on track to become 10 Trillion dollars before the end of this decade and the interest on that debt will be somewhere in the neighborhood of 2.5 Billion dollars per day. If we do not begin generating revenue surpluses immediately to reduce that debt and interest, our children will face very difficult economic times and taxation that will make today's income taxes appear like a bargain.

The only way to put a halt to this rabid fiscal irresponsibility is to vote Republican incumbents out of office in 2006. I highly recommend voting the Democratic tax and spend incumbents out as well. We must give America a future worthy of our children and that won't happen if we keep electing the same people back into office.

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This page contains a single entry by David R. Remer published on September 21, 2005 10:00 AM.

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