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The Tax-Cut Myth
By John Stossel
The federal government keeps growing, as I pointed out last week, but the Bush administration has cut tax rates a few times since 2001. How can that be? The answer is simple: deficit spending.
Some Republicans argue that deficits don't matter; that if you cut taxes, everything else takes care of itself. But that's a myth. Yes, the tax cuts stimulated the economy and increased tax revenues. It happens because, as the Laffer Curve illustrates , lower rates mean higher rewards for productive activities. People undertake investments and work that higher tax rates had discouraged. They are also less likely to invest time and energy in using accountants and tax lawyers to find ways to avoid taxes.
That's all good, but there's a downside to cutting tax rates without cutting spending. Deficit spending disguises the real burden of government. As a result, we get more than we'd want -- and that's not good. Government makes up the deficit either by borrowing, which removes productive resources from private hands and must be repaid by future taxes, or by creating money out of thin air -- inflation -- which steals purchasing power from us by devaluing our money.
In other words, tax cuts without spending cuts are an illusion. The burden of government has not really been lightened. As the late Milton Friedman constantly pointed out, that burden is better measured by the level of spending, not the level of taxes. Shame on the Bush administration for trying to pull a fast one on the American public.
President Bush brags that the deficit is coming down -- and it is. It's expected to be "only" $244 billion by the time the current fiscal year ends. And the Office of Management and Budget projects a surplus in 2012. But that's largely because your FICA taxes currently exceed Social Security and Medicare payments. That will change in 2017 and 2019, respectively, when the baby-boomers retire en masse. After that, the Social Security and Medicare budgets begin to go south. Sharply. Avoiding devastating deficits then will take a Houdini.
Let's give President Bush some credit for the falling deficit. Because of his tax cuts, tax revenue -- our hard-earned money -- is pouring into the government's coffers, Government spending is keeping ahead of that torrent, but at an ever-slower rate. Hence the shrinking deficit. But this is not necessarily a good thing.
Bush boasted last year, "This economy is growing, federal taxes are rising, and we're cutting the federal deficit faster than we expected. Some in Washington say we had to choose between cutting taxes and cutting the deficit. Today's numbers show that that was a false choice. The economic growth fueled by tax relief has helped send our tax revenues soaring."
But I don't want tax revenues to soar. That's money you and I could be spending for things we want. I want revenue and spending and government overall to shrink. So I'm not celebrating with the president. The deficit is shrinking because the government takes more and more out of the productive private sector each year.
If revenues are pouring in, why don't the politicians return it to the taxpayers instead of spending it? Because politicians love to spend money. They get reelected not by how much they save but by how much they shower on interest groups.
This was foreseen by anti-federalist writer Melancton Smith in 1787: "[A]ll governments find a use for as much money as they can raise."
Things haven't changed much in 220 years.
COPYRIGHT 2007 BY JFS PRODUCTIONS, INC.
Oh yea, tax cuts do not work
record tax revenues flowing into Washington
Umm, did you read the article? It states clearly that tax cuts bring in revenue. Please read and understand the article before you respond.
and tax cuts cause economic growth and more then pay for themselfs
themselfs
WASHINGTON - The federal deficit fell to a four-year low in the budget year that just ended, a result President George W. Bush pointed to Wednesday in claiming Republicans are better stewards of the economy than are Democrats.
The administration said the deficit dropped to $247.7 billion welcome news for Republicans struggling to keep control of Congress. Bush boasted he had made good on a 2004 campaign promise to cut the deficit in half over five years.
These budget numbers are proof that pro-growth economic policies work, Bush said.
http://www.msnbc.msn.com/id/15220076/
Oh yea, tax cuts do not work
record tax revenues flowing into Washington
eight straight weeks of gains on Wall Street - and anopther record close this past Friday
Unemployment at 4.5%
Inflation in check
Low interest rates
Moderate economic growth
IF this is what it means by tax cuts do not work - GIVE ME MORE!!!!!!!!!!!!!
What do YOU get out of the "tax cut" RSR?
I got a one time gift on which I had to pay taxes at the end of the year.
I did get a tax cut
If you pay taxes - you got a tax cut
The lowest bracket went from 15% to 10%
The top bracket, I believes went down about 3% points
Guess what - Dems want it all back
They passed a $400 bilion tax increase - so if you paid taxes before - you will pay alot more if their increase becomes law
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OVERVIEW
FY 2008 BUDGET
CONFERENCE AGREEMENT
May 16, 2007
A Fiscally Responsible Budget Plan
Provides New Direction for Country – The new Democratic Majority pledged that we would work together
to restore our economic health, reclaim our leadership position in the world, advance our national security,
and invest in the future. The FY 2008 Budget Conference Agreement takes important steps toward meeting
those goals. The Conference Agreement:
• returns the budget to balance – reaching a surplus of $41 billion in 2012 – without raising taxes;
• provides for middle-class tax relief;
• allocates funding for national priorities like children’s health care, education, and veterans’ medical
care;
• begins to reverse six years of fiscal mismanagement and harmful cuts in key areas; and
• sets us on a course to build the future we want for our children and grandchildren.
Begins to Clean Up Fiscal Mess We Inherited – Unfortunately, the nation’s budget outlook deteriorated
dramatically over the last six years under Republican policies. When President Bush took office in 2001, we
enjoyed a record $5.6 trillion ten-year projected surplus. That surplus has been squandered. Gross debt has
exploded – rising from $5.8 trillion in 2001 to an estimated $9 trillion by the end of this year. This debt is
accumulating at the worst possible time, just before the retirement of the baby boom generation. And most
of this debt has been purchased by foreign investors, making the U.S. more vulnerable to economic and
political pressure from abroad. The President’s budget would continue the fiscal approach that has brought
these large deficits and growing debt. In contrast, the Conference Agreement will put the nation back on a
sound fiscal path.
Restores Fiscal Responsibility – In addition to bringing the budget back into balance by 2012, under the
Conference Agreement, gross debt as a share of GDP will begin to fall after 2010. Spending as a share of
GDP will decline in every year after 2008. The plan also directs all committees to review their programs to
promote efficiency and eliminate unnecessary spending.
The Conference Agreement also includes crucial budget enforcement provisions. Most notably, as a
complement to the strong paygo, or pay-as-you-go, rule adopted earlier this year in the House, the plan
restores a strong paygo rule in the Senate. The paygo rule in the Senate requires that new mandatory
spending or new tax cuts be offset, or get 60 votes. Reinstating a strong paygo rule represents a crucial step
in restoring fiscal discipline.
The Conference Agreement includes no new mandatory spending that is not offset. Unlike the Republican
Congress that racked up over $260 billion in deficit-financed mandatory spending programs over the past six
years, the Conference Agreement adheres to the principle that all new mandatory spending must be paid for.
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The plan also allows reconciliation to be used for deficit reduction only. Since 2001, the Republicancontrolled
Congress has abused reconciliation by using the procedure to pass tax cuts that have increased the
deficit by more than $1.7 trillion.
Defends Our Nation – The Conference Agreement provides robust funding for national defense and ensures
that resources are available to address the most critical threats facing our nation. It provides more homeland
security funding than the Bush administration. And it provides funding for the 9/11 Commission
recommendations.
A Balanced Budget Must Be Accompanied by Balanced Priorities – The Conference Agreement rejects
the President’s proposals to again cut critical domestic priorities. It provides needed resources in key areas
such as:
Kids’ Health - SCHIP
The Conference Agreement rejects the inadequate funding level proposed by the President for
children’s health care and instead provides up to $50 billion for expanding coverage and improving
children’s health through the State Children’s Health Insurance Program (SCHIP). There are an
estimated six million children eligible but not enrolled in either SCHIP or Medicaid. These
additional SCHIP funds will expand coverage to uninsured children and ensure states can maintain
current caseloads.
Education
The Conference Agreement rejects the President's proposed cuts in education and training and adds
significant new resources that could be used for the Individuals with Disabilities Education Act
(IDEA), No Child Left Behind Act, and Pell grants. For 2008 alone, it provides an increase in
discretionary funding for the education and training function of $9.5 billion (including $2 billion in
additional 2009 advance appropriations) above the President's request.
Veterans
The Conference Agreement provides critical resources to ensure that our nation's veterans get the
high quality health care they deserve. The Conference Agreement provides $43.1 billion for
discretionary veterans’ programs, including medical care, and is consistent with The Independent
Budget, a plan developed by four leading veterans groups, and the recommendation of the American
Legion. This funding level is $3.6 billion more than the President in 2008 and more than $30 billion
above the President over five years. For veterans’ medical care, it represents the largest increase
ever provided.
Protects Middle-Class Taxpayers – The Conference Agreement balances the budget without a tax increase.
Middle-Class Tax Cuts
The Conference Agreement supports middle-class tax relief, including extending marriage penalty
relief, the child tax credit, and the 10 percent bracket subject to the pay-as-you-go rule. It also
supports reform of the estate tax to protect small businesses and family farms. House provisions
include additional procedural protections to help ensure fiscal responsibility.
AMT Relief
The Conference Agreement prevents the spread of the Alternative Minimum Tax (AMT), so that it
does not impose higher taxes on middle-class families. It ensures that the number of taxpayers
subject to the AMT will not be allowed to increase in 2007 – protecting some 20 million middleclass
taxpayers from being subject to the tax.
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No Tax Increase
Over the five years of the Conference Agreement, revenues total $14.828 trillion, which is virtually
identical to the President’s level of $14.826 trillion, as estimated by his own administration. And
revenues are only 2.1 percent above the President’s level, as estimated by the Congressional Budget
Office. The modest additional revenues in the plan can be achieved by closing the tax gap, shutting
down abusive tax shelters, addressing offshore tax havens, and without raising taxes.
Closing the tax gap is not about raising taxes on anyone. It is simply collecting taxes that are already
due under current law. While we will never be able to close the tax gap entirely, it is clear that much
more can and should be done. To help close the tax gap, the Conference Agreement supports steps
to increase reporting and withholding requirements. It also fully funds the President’s budget
request for the IRS, including additional resources available through a discretionary cap adjustment
that directs $406 million to IRS enforcement activities.
Addresses Long-Term Fiscal Challenges – With the coming retirement of the baby boom generation, our
nation faces a significant long-term imbalance between revenues and spending. While the Conference
Agreement returns the budget to balance by 2012, this represents only a first step in the difficult path of
restoring our long-term economic security. The Conference Agreement recognizes that a comprehensive
effort, focused on the long-term fiscal imbalance, must be undertaken on a bipartisan basis. However, the
plan does include a number of measures to begin preparing for our long-term fiscal challenges.
Program Integrity Initiatives
The Conference Agreement institutes tough program integrity initiatives to crack down on wasteful
or fraudulent spending in the Social Security, Medicare, and Unemployment Insurance programs.
Specifically, it provides in Function 920 for discretionary cap adjustments for program integrity
initiatives in these areas, including $200 million more than the President’s budget in 2008 to go after
Medicare fraud – for a total of $383 million.
Health IT Reserve Fund
The Conference Agreement also includes a deficit-neutral Health IT reserve fund designed to
promote the use of advanced information technology to improve the quality and efficiency of health
care.
Comparative Effectiveness Reserve Fund
The Conference Agreement also includes a deficit-neutral reserve fund to jumpstart an initiative on
comparative effectiveness research. The purpose of such research would be to evaluate medical
technologies, devices, procedures, and pharmaceuticals for both effectiveness and value. This
information could lead to savings over the long-term by allowing providers to avoid treatments that
may be clinically ineffective and overly expensive, while at the same time improving health care
outcomes.
Long-Term Deficit Point of Order
The Conference Agreement also creates a Senate point of order against legislation that increases the
deficit over the long term – specifically in the four decades beyond the next ten years (2018-2027,
2028-2037, 2038-2047, and 2048-2057). The long-term point of order will apply against any net
deficit increases in excess of $5 billion (including changes in revenues and mandatory spending, but
excluding debt service) in any of the four ten-year periods.
Importance of Adopting Budget Resolution – Given that the federal government has operated without a
budget resolution in three of the last five years, it is even more important that Congress adopt a budget
resolution this year. The FY2008 Budget Conference Agreement provides a crucial blueprint to guide the
nation’s fiscal course. While no single resolution can solve all of our budget challenges, this budget
resolution represents an excellent effort to put the nation back on a sound fiscal path. The conferees strongly
endorse its adoption.
read this.....rsr, looks like your Rep was lying?
I really wish we were not in such an insane little time warp.
Tax Cut is like magic words to a good portion of Americans.
In the meantime we are selling our road and bridges to foreign entities so they can Charge us to use them.
Our infrastructure is crumbling.
Our kids are not getting the education we will need them to have to keep our economy strong.
Yet we have the highest percent of our population in prison.
I really wish we would pay for the things this country needs to stay strong and quit throwing good money after bad on things that help only a few.
