Tuesday, November 27, 2007

Bush's Tax Cutting "Success"

To those of us on the right who believe in limited government and a strong foreign policy based strictly on America's national self-interest, President Bush has been a great disappointment, to say the least. But their is one achievement we can be pleased with...his income tax rate cuts. An article in the Nov./Dec. 2007 issue of The American (published by the American Enterprise Institute) written by Stephen Moore examining the modest Bush tax cuts puts the lie to the Left's never-ending claim that the "rich" don't pay their "fair share" of the tax burden.

As the chart in the article shows, the top 1% of income earners paid 37% of the federal government's total income tax revenues, while the top 25% paid 85%. The bottom 50% paid 3% of total taxes. The percentage of taxes paid by the highest earners has risen despite the fall in their tax rates.

In addition, federal income tax revenues have risen substantially. According to Moore, "The Congressional Budget Office reports that, since the 2003 tax cuts, federal revenues have grown by $745 billion—the largest real increase in history over such a short time period. Individual and corporate income tax receipts have jumped by 30 percent in the two years since the tax cuts."

Thus, the tax cuts worked just as the "Supply-siders" advertised- they increased the share of taxes paid by the highest earners (i.e., the most productive citizens) while also increasing substantially the tax take of the government.

But is this a successful tax cutting program? That depends on how you look at it. To some on the Right, these figures represent success because they led to the growth in tax revenues, "proving" that tax cuts "work". (The Left should be ecstatic about the government's tax take, but they are too blinded by their hatred of the successful and the productive.)

Now, don't get me wrong. I love tax cuts...any tax cut. I've never met a tax cut I didn't love. The more of our earnings we get to keep, the better. And, as Moore points out, "It’s also one of the simplest concepts in economics: lowering the tax rate on production, work, investment, and risk-taking will spur more of these activities and will often produce more tax revenue rather than less."

What bothers me is the constant drumbeat of the tax cutters in claiming increased government tax revenues as one justification for the cuts. This is playing right into the Left's world-view that the people work not for themselves but for the government. Our side should take heed of Milton Friedman's advice that "if you cut taxes and the government's revenues rose, you haven't cut taxes enough".

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