As many economists have pointed out, every major tax cut since the early 1900s has been followed by substantial increases in federal revenue due to economic growth, as anyone can confirm by looking up federal revenue data. And when the government has not gone on a spending spree after tax cuts, the deficit has either been cut or the budget has even been balanced, and when the government has done the opposite, we have had larger deficits--so tax cuts have never "caused" deficits.
Bush Tax Cuts
Bush's 2003 tax cuts generated a massive increase in federal tax revenue and were followed by 52 consecutive months of economic growth. From 2004 to 2007, federal tax revenue increased by $780 billion, the largest four-year increase in American history. Total federal revenue from 2003 to 2007:
2003 -- $1.78 trillion
2004 -- $1.88 trillion
2005 -- $2.15 trillion
2006 -- $2.40 trillion
2007 -- $2.56 trillion
Total federal revenue for 2008 dropped slightly, down to $2.52 trillion, because of the recession that started that year, but revenue was still substantially higher than it was in 2003 or 2004. During the same period, income tax revenue rose dramatically, going from $925 billion in 2003 to $1.53 trillion in 2007. As with other types of federal revenue, income tax revenue dropped slightly in 2008, down to $1.45 trillion, due to the recession.
The deficit only rose after the Bush tax cuts because Congress went on a wild spending spree; the huge increase in spending outstripped the big boost in revenue. If Congress had restrained spending hikes to slightly above the rate of inflation, we would have balanced the budget and continued paying down the debt.
Clinton Tax Cuts
In 1997 President Bill Clinton signed a tax cut bill that, among other things, created a new $500 child tax credit, raised the income limit for deductible IRAs, nearly doubled the estate tax exemption, and slashed the capital gains tax rate by a whopping 28%. The reduction in the capital gains tax was especially helpful. In 1995, just over $8 billion in venture capital was invested. By 1998, the first full year in which the lower capital gains rates were in effect, venture capital activity reached almost $28 billion, more than a three-fold increase over 1995 levels, and it doubled again in 1999. At the same time, total federal revenue rose every year after the 1997 tax cuts.
Note that total federal revenue grew at a slightly faster rate in the three years after the 1997 tax cuts than it did in the three years before them. From 1994 to 1996, total federal revenue grew by $200 billion, from $1.26 trillion to $1.45 trillion, an increase of 16%. From 1998 to 2000, total federal revenue grew by $300 billion, from $1.72 trillion to $2.02 trillion, an increase of 17%.
Moreover, although the economy was doing respectably well in the four years before the 1997 tax cuts, it did considerably better after the tax cuts. For example, from 1993 to 1996, the economy grew at an annual rate of 3.2%, but the annual growth rate jumped to 4.2% after the tax cuts (both rates are adjusted for inflation). In the four years before the tax cuts, the rate of real wage growth was only 0.8%, but it rose to 6.5% after the tax cuts.
Clinton and Congress imposed some fiscal discipline and federal spending was held to modest increases, and as a result we balanced the budget and began paying down the debt in Clinton's last year. Again, tax cuts never cause deficits: reckless federal spending causes deficits.
Reagan Tax Cuts
Let's look at what happened to federal income tax revenue under Reagan from 1983 to 1989, bearing in mind that Reagan slashed income tax rates across the board:
1983 -- $326 billion
1984 -- $355 billion
1985 -- $396 billion
1986 -- $412 billion
1987 -- $476 billion
1988 -- $496 billion
1989 -- $549 billion
Although Reagan agreed to some modest tax hikes following his tax cuts, the net effect was that tax rates were still greatly lower in his last year than they were in his first year. In other words, he modestly scaled back some of his tax cuts, but he still cut taxes across the board by large percentages.
Sadly, the federal government went on an incredible spending spree that more than cancelled out the large revenue hike that followed the Reagan tax cuts, and as a result the deficit rose dramatically and the debt nearly tripled. Yet, the economy grew by leaps and bounds under Reagan. Too bad the government did not get its fiscal house in order at the same time.
JFK Tax Cuts
JFK’s tax cuts, which included a gigantic tax cut for the rich, were passed in the summer of 1964. From 1965 to 1968, total federal revenue rose by an impressive 30%, from $117 billion to $153. Some argue that 1968 should be omitted from such calculations, since a tax increase was passed that year. However, the 1968 tax increase (The Revenue and Expenditure Control Act) was not passed until June of that year, so for at least half of 1968 the JFK tax rates were still in effect. In any event, if we omit 1968, we still get a very impressive revenue growth rate: From 1965 to 1967, total federal revenue rose by 27%, from $113 to $149 billion Moreover, if we compare revenue growth from 1961-1964 to 1965-1967, we find that revenue rose more rapidly in the latter period: From 1961 to 1964 revenue grew by 12% ($101 billion to $113 billion), but from 1965 to 1967 revenue grew by 27% ($117 billion to $149 billion): So the rate of revenue growth more than doubled after the tax cuts were passed.
Looking at revenue growth in relation to inflation from JFK's first year to the last year his tax rates were in effect, i.e., 1961 to 1968. we see the following: From 1961 to 1968, total federal revenue rose from $101 billion in 1961 to $153 billion in 1968, an increase of 52%, for an average growth rate of 6.5% per year. Total inflation for that period was only 19.13%, an average of only 2.4% per year. From 1961 to 1967, total federal revenue rose from $101 billion to $149 billion, an increase of 48%, for an average growth rate of 6% per year. Total inflation for those years was only 13.76%, an average of only 1.96% per year.
Harding-Coolidge (Mellon) Tax Cuts
Economist Dr. Veronique de Rugy, in an article titled "1920s Income Tax Cuts Sparked Economic Growth and Raised Federal Revenues":
Bush Tax Cuts
Bush's 2003 tax cuts generated a massive increase in federal tax revenue and were followed by 52 consecutive months of economic growth. From 2004 to 2007, federal tax revenue increased by $780 billion, the largest four-year increase in American history. Total federal revenue from 2003 to 2007:
2003 -- $1.78 trillion
2004 -- $1.88 trillion
2005 -- $2.15 trillion
2006 -- $2.40 trillion
2007 -- $2.56 trillion
Total federal revenue for 2008 dropped slightly, down to $2.52 trillion, because of the recession that started that year, but revenue was still substantially higher than it was in 2003 or 2004. During the same period, income tax revenue rose dramatically, going from $925 billion in 2003 to $1.53 trillion in 2007. As with other types of federal revenue, income tax revenue dropped slightly in 2008, down to $1.45 trillion, due to the recession.
The deficit only rose after the Bush tax cuts because Congress went on a wild spending spree; the huge increase in spending outstripped the big boost in revenue. If Congress had restrained spending hikes to slightly above the rate of inflation, we would have balanced the budget and continued paying down the debt.
Clinton Tax Cuts
In 1997 President Bill Clinton signed a tax cut bill that, among other things, created a new $500 child tax credit, raised the income limit for deductible IRAs, nearly doubled the estate tax exemption, and slashed the capital gains tax rate by a whopping 28%. The reduction in the capital gains tax was especially helpful. In 1995, just over $8 billion in venture capital was invested. By 1998, the first full year in which the lower capital gains rates were in effect, venture capital activity reached almost $28 billion, more than a three-fold increase over 1995 levels, and it doubled again in 1999. At the same time, total federal revenue rose every year after the 1997 tax cuts.
Note that total federal revenue grew at a slightly faster rate in the three years after the 1997 tax cuts than it did in the three years before them. From 1994 to 1996, total federal revenue grew by $200 billion, from $1.26 trillion to $1.45 trillion, an increase of 16%. From 1998 to 2000, total federal revenue grew by $300 billion, from $1.72 trillion to $2.02 trillion, an increase of 17%.
Moreover, although the economy was doing respectably well in the four years before the 1997 tax cuts, it did considerably better after the tax cuts. For example, from 1993 to 1996, the economy grew at an annual rate of 3.2%, but the annual growth rate jumped to 4.2% after the tax cuts (both rates are adjusted for inflation). In the four years before the tax cuts, the rate of real wage growth was only 0.8%, but it rose to 6.5% after the tax cuts.
Clinton and Congress imposed some fiscal discipline and federal spending was held to modest increases, and as a result we balanced the budget and began paying down the debt in Clinton's last year. Again, tax cuts never cause deficits: reckless federal spending causes deficits.
Reagan Tax Cuts
Let's look at what happened to federal income tax revenue under Reagan from 1983 to 1989, bearing in mind that Reagan slashed income tax rates across the board:
1983 -- $326 billion
1984 -- $355 billion
1985 -- $396 billion
1986 -- $412 billion
1987 -- $476 billion
1988 -- $496 billion
1989 -- $549 billion
Although Reagan agreed to some modest tax hikes following his tax cuts, the net effect was that tax rates were still greatly lower in his last year than they were in his first year. In other words, he modestly scaled back some of his tax cuts, but he still cut taxes across the board by large percentages.
Sadly, the federal government went on an incredible spending spree that more than cancelled out the large revenue hike that followed the Reagan tax cuts, and as a result the deficit rose dramatically and the debt nearly tripled. Yet, the economy grew by leaps and bounds under Reagan. Too bad the government did not get its fiscal house in order at the same time.
JFK Tax Cuts
JFK’s tax cuts, which included a gigantic tax cut for the rich, were passed in the summer of 1964. From 1965 to 1968, total federal revenue rose by an impressive 30%, from $117 billion to $153. Some argue that 1968 should be omitted from such calculations, since a tax increase was passed that year. However, the 1968 tax increase (The Revenue and Expenditure Control Act) was not passed until June of that year, so for at least half of 1968 the JFK tax rates were still in effect. In any event, if we omit 1968, we still get a very impressive revenue growth rate: From 1965 to 1967, total federal revenue rose by 27%, from $113 to $149 billion Moreover, if we compare revenue growth from 1961-1964 to 1965-1967, we find that revenue rose more rapidly in the latter period: From 1961 to 1964 revenue grew by 12% ($101 billion to $113 billion), but from 1965 to 1967 revenue grew by 27% ($117 billion to $149 billion): So the rate of revenue growth more than doubled after the tax cuts were passed.
Looking at revenue growth in relation to inflation from JFK's first year to the last year his tax rates were in effect, i.e., 1961 to 1968. we see the following: From 1961 to 1968, total federal revenue rose from $101 billion in 1961 to $153 billion in 1968, an increase of 52%, for an average growth rate of 6.5% per year. Total inflation for that period was only 19.13%, an average of only 2.4% per year. From 1961 to 1967, total federal revenue rose from $101 billion to $149 billion, an increase of 48%, for an average growth rate of 6% per year. Total inflation for those years was only 13.76%, an average of only 1.96% per year.
Harding-Coolidge (Mellon) Tax Cuts
Economist Dr. Veronique de Rugy, in an article titled "1920s Income Tax Cuts Sparked Economic Growth and Raised Federal Revenues":
Changes in marginal income tax rates cause individuals and businesses to change their behavior. As tax rates rise, taxpayers reduce taxable income by working less, retiring earlier, scaling back plans to start or expand businesses, moving activities to the underground economy, restructuring companies, and spending more time and money on accountants to minimize taxes. Tax rate cuts reduce such distortions and cause the tax base to expand as tax avoidance falls and the economy grows. A review of tax data for high-income earners in the 1920s shows that as top tax rates were cut, tax revenues and the share of taxes paid by high-income taxpayers soared. . . .
When the federal income tax was enacted in 1913, the top rate was just 7 percent. By the end of World War I, rates had been greatly increased at all income levels, with the top rate jacked up to 77 percent (for income over $1 million). After five years of very high tax rates, rates were cut sharply under the Revenue Acts of 1921, 1924, and 1926. The combined top marginal normal and surtax rate fell from 73 percent to 58 percent in 1922, and then to 50 percent in 1923 (income over $200,000). In 1924, the top tax rate fell to 46 percent (income over $500,000). The top rate was just 25 percent (income over $100,000) from 1925 to 1928, and then fell to 24 percent in 1929.
Secretary Mellon knew that high tax rates caused the tax base to contract and that lower rates would boost economic growth. In 1924, Mellon noted: "The history of taxation shows that taxes which are inherently excessive are not paid. The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business." He received strong support from President Coolidge, who argued that "the wise and correct course to follow in taxation and all other economic legislation is not to destroy those who have already secured success but to create conditions under which every one will have a better chance to be successful."
It is often assumed that broad cuts in income tax rates only benefit the rich and thrust a larger share of the tax burden on the poor. But detailed Internal Revenue Service data show that the across-the-board rate cuts of the early 1920s-including large cuts at the top end-resulted in greater tax payments and a larger tax share paid by those with high incomes. . . . As the marginal tax rate on those high-income earners was cut sharply from 60 percent or more (to a maximum of 73 percent) to just 25 percent, taxes paid by that group soared from roughly $300 million to $700 million per year. The share of overall income taxes paid by the group rose from about one-third in the early 1920s to almost two-thirds by the late 1920s. (Note that inflation was virtually zero between 1922 and 1930, thus the tax amounts shown for that period are essentially real changes).
The tax cuts allowed the U.S. economy to grow rapidly during the mid- and late-1920s. Between 1922 and 1929, real gross national product grew at an annual average rate of 4.7 percent and the unemployment rate fell from 6.7 percent to 3.2 percent. The Mellon tax cuts restored incentives to work, save, and invest, and discouraged the use of tax shelters.
The rising tide of strong economic growth lifted all boats. At the top end, total income grew as a result of many more people becoming prosperous, rather than a fixed number of high earners getting greatly richer. For example, between 1922 and 1928, the average income reported on tax returns of those earning more than $100,000 increased 15 percent, but the number of taxpayers in that group almost quadrupled. During the same period, the number of taxpayers earning between $10,000 and $100,000 increased 84 percent, while the number reporting income of less than $10,000 fell. (1920s Income Tax Cuts Sparked Economic Growth and Raised Federal Revenues)
For more info, see:
The Facts About Tax Cuts, Revenue, and Growth
Despite What Lefties Say, Tax Cuts Don't "Cost" Anything | RealClearMarkets
When the federal income tax was enacted in 1913, the top rate was just 7 percent. By the end of World War I, rates had been greatly increased at all income levels, with the top rate jacked up to 77 percent (for income over $1 million). After five years of very high tax rates, rates were cut sharply under the Revenue Acts of 1921, 1924, and 1926. The combined top marginal normal and surtax rate fell from 73 percent to 58 percent in 1922, and then to 50 percent in 1923 (income over $200,000). In 1924, the top tax rate fell to 46 percent (income over $500,000). The top rate was just 25 percent (income over $100,000) from 1925 to 1928, and then fell to 24 percent in 1929.
Secretary Mellon knew that high tax rates caused the tax base to contract and that lower rates would boost economic growth. In 1924, Mellon noted: "The history of taxation shows that taxes which are inherently excessive are not paid. The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business." He received strong support from President Coolidge, who argued that "the wise and correct course to follow in taxation and all other economic legislation is not to destroy those who have already secured success but to create conditions under which every one will have a better chance to be successful."
It is often assumed that broad cuts in income tax rates only benefit the rich and thrust a larger share of the tax burden on the poor. But detailed Internal Revenue Service data show that the across-the-board rate cuts of the early 1920s-including large cuts at the top end-resulted in greater tax payments and a larger tax share paid by those with high incomes. . . . As the marginal tax rate on those high-income earners was cut sharply from 60 percent or more (to a maximum of 73 percent) to just 25 percent, taxes paid by that group soared from roughly $300 million to $700 million per year. The share of overall income taxes paid by the group rose from about one-third in the early 1920s to almost two-thirds by the late 1920s. (Note that inflation was virtually zero between 1922 and 1930, thus the tax amounts shown for that period are essentially real changes).
The tax cuts allowed the U.S. economy to grow rapidly during the mid- and late-1920s. Between 1922 and 1929, real gross national product grew at an annual average rate of 4.7 percent and the unemployment rate fell from 6.7 percent to 3.2 percent. The Mellon tax cuts restored incentives to work, save, and invest, and discouraged the use of tax shelters.
The rising tide of strong economic growth lifted all boats. At the top end, total income grew as a result of many more people becoming prosperous, rather than a fixed number of high earners getting greatly richer. For example, between 1922 and 1928, the average income reported on tax returns of those earning more than $100,000 increased 15 percent, but the number of taxpayers in that group almost quadrupled. During the same period, the number of taxpayers earning between $10,000 and $100,000 increased 84 percent, while the number reporting income of less than $10,000 fell. (1920s Income Tax Cuts Sparked Economic Growth and Raised Federal Revenues)
For more info, see:
The Facts About Tax Cuts, Revenue, and Growth
Despite What Lefties Say, Tax Cuts Don't "Cost" Anything | RealClearMarkets
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