Tax cuts and tax revenue

I think that it is pretty amazing that conservatives are still pushing the craziness that is the idea that tax cuts create more tax revenue. It is amazing that many Americans have jumped on this train. It is exactly like my telling you that you can eat all of the ice cream that you want and not gain any weight. It is that crazy.

Let’s look at this slowly. If I cut taxes, that will reflectively increase tax revenue? So in theory if you keep cutting taxes to zero that would maximize tax revenue? Really? That doesn’t make any sense.

Let’s look at the Bureau for Economic Analysis’ data. Conservatives hold up Reagan as the great tax cutter. So let’s look at tax revenues from his great tax cut.

Wow. It looks as if revenues decreased after Reagan’s great tax cut and never returned to their previous level. I’m just saying… this idea that you can cut taxes and increase revenue may happen at some time in the future, somewhere in the universe. It just hasn’t happened in the US during the last 40 years.

  • Jeff

    No no Doc.  We need more tax cuts for those job creators, who aren’t creating jobs despite 10 years of cuts.

  • It is funny that conservatives still try to sell Americans on this garbage. We did the tax cut thing under Bush and it didn’t do anything. Americans should be laughing Romney out of the room. 

  • Jeff Stager

    I notice you have not cited a source for your graph. Was this your own doing? I’ve seen statistics about the exact  same period of time that shows the exact opposite outcome. Statistics can be used and twisted for any ideological purpose. But you CAN point to Reagan’s tenure and see how he inherited a much worse economy (interest rates, unemployment) and had it turned around in his first two two years in office, which started the greatest era of economic expansion in our country’s history.I think you will have plenty of people who will agree with your ideology – but I’d be willing to bet that none of them own and run a business. They will be teachers, union workers, welfare recipients and government employees (along with pure partisans).Even John F Kennedy knew he had to lower taxes to get the economy stimulated. He did – and it worked! It’s too bad the Democrats of today have become so partisan and hateful to the point where they will argue, illogically, for raising taxes in a time of economic duress. Any college student who has taken macroeconomics understands the effect of higher taxes on economic growth.Even our President has said he shouldn’t raise taxes in this economy. Well, if that’s true Mr. President, why not try lowering them? And while you’re at it, how about we drastically lower spending since we are borrowing 40 cents for every dollar we spend?

  • Jeff –
     
    Thanks for stopping by. I appreciate it.
     
    several months ago, you talked about how you don’t like to be partisan and how you like to be fair. Before you typed your response, did you look up any data?
     
    Reagan – greatest era of economic expansion. Really? What criteria are you using? I find this interesting. Let’s look at this. Greatest economic expansion? I guess, we are talking about economic expansion you’re talking about gross domestic product (GDP). As you know, the best way to compare GDP would be to look at it over the population. (I.e. GDP per capita). Now, because you’re talking about presidents, you’re probably talking about real GDP per capita per year. So, if we average the years together, we should clearly be able to see that Reagan comes out on top. here is one of those graphs – http://www.visualizingeconomics.com/wp-content/uploads/RealGDPperCapita-650×450.png yet, somehow, John F. Kennedy/Lyndon Baines Johnson seems to have an annualized growth rate of 3.48%. Bill Clinton seems to have an annualized growth rate of 2.49%. Ronald Reagan seems to have an annualized growth rate of 2.45%. (More explanation of real GDP –http://faculty.hacc.edu/jhuang/econdata/htm/rgdp_pc/rgdp_pc.htm)
     
    Maybe, you weren’t really talking about real GDP. Maybe, instead, you’re talking about what people put in their pockets. Real net worth. Maybe you’re saying that the real net worth under Ronald Reagan was better than any other president. Again, it would be fair to look at absolute real net worth. Instead we should look at real net worth per capita per year (fixed to 2008 dollars). The biggest increase in net worth per capita was under Bill Clinton and approximate 4% per year. At 3.8% per year is JFK/LBJ. Ronald Reagan comes in, again, at third with an increase of 2.8% per year.
     
    Finally, I’d like to know what you would do with this conundrum. This is the conundrum that Jimmy Carter inherited as president. Unemployment was high. As a matter fact it was 7.6% in February of 1977 which was the first month he was in office. Inflation was also high. How do you fix that? (When Ronald Reagan took office, the unemployment rate was 7.4%. After four years, the unemployment rate which it peaked at over 10% during 1983 was back down to 7.3% in February of 1985, the beginning of his second term.)
     
    I don’t need to tell you that president Obama has cut taxes for the middle class. You know this. I don’t need to tell you that president Obama has cut taxes for small business. You know this also.
     
    I appreciate your time.

  • I’m sorry, I didn’t address with that graph came from. He came from this article (http://krugman.blogs.nytimes.com/2010/07/15/carter-reagan-revenue/) by Paul Krugman.