SubscribeHow does collecting 23% produce the same revenue as collecting 40%?From the April 1996 Congress Joint Economic Committe:
High marginal tax rates discourage work effort, saving, and investment, and promote tax avoidance and tax evasion. A reduction in high marginal tax rates would boost long term economic growth, and reduce the attractiveness of tax shelters and other forms of tax avoidance. The economic benefits of ERTA were summarized by President Clinton's Council of Economic Advisers in 1994: "It is undeniable that the sharp reduction in taxes in the early 1980s was a strong impetus to economic growth." Unfortunately, the Council could not bring itself to acknowledge the counterproductive effects high marginal tax rates can have upon taxpayer behavior and tax avoidance activities.
The share of the income tax burden borne by the top 10 percent of taxpayers increased from 48.0 percent in 1981 to 57.2 percent in 1988. Meanwhile, the share of income taxes paid by the bottom 50 percent of taxpayers dropped from 7.5 percent in 1981 to 5.7 percent in 1988
The 1993 Clinton tax increase appears to having the opposite effect on the willingness of wealthy taxpayers to expose income to taxation. According to IRS data, the income generated by the top one percent of income earners actually declined in 1993. This decline is especially significant since the retroactivity of the Clinton tax increase in that year limited the ability of taxpayers to deploy tax avoidance strategies, temporarily resulting in an increase in their tax burden. Moreover, according to the FY 1997 Clinton budget submission, individual income tax revenues as a share of GDP will be lower during the first four years of the Clinton tax increase, which include the effects of the 1990 tax increase, than under the last four years of the Reagan tax changes (FY 1986-89). Furthermore, according to a study published by the National Bureau for Economic Research,[2] the Clinton tax hike is failing to collect over 40 percent of the projected revenue increases.
The Reagan tax cuts, like similar measures enacted in the 1920s and 1960s, showed that reducing excessive tax rates stimulates growth, reduces tax avoidance, and can increase the amount and share of tax payments generated by the rich. High top tax rates can induce counterproductive behavior and suppress revenues, factors that are usually missed or understated in government static revenue analysis. Furthermore, the key assumption of static revenue analysis that economic growth is not affected by tax changes is disproved by the experience of previous tax reduction programs. There is little reason to expect static revenue analysis to evaluate the economic or distributional effects of current tax reform proposals much better than it evaluated the Reagan tax program 15 years ago.Analogous results were seen in the Republic of Ireland and the Netherlands.
Of course nothing that they wrote in that piece came to pass.Except the bits that, according to non-Republican sources (see where it says 'IRS data'), had already happened. And the bits that had happened when Kennedy reduced top tax rates. And when Harding and Coolidge did the same.
Whenever taxes are cut, spending increases and whenever taxes are raised, spending decreases.Am I misunderstanding or are you failing to distinguish between public and private spending? When the Government increases taxes, I spend less of my money because I have less of my money; meanwhile, the Government spends more of my money because it has more of my money. I can't remember what happens when the Government decreases taxes because it's a long time since it happened, but reason suggests that I'd spend more; it is, after all, money that I've worked for.
They frequently decide to just spend more than they tax by creating public debt.Well, public debt is effectively the same as tax, because tax revenue will be used both to repay the debt and to service the loan. The advantage is that it will be a future Government that gets to raise taxes to pay for the current Government's irresponsiblilty.
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posted by Burger-Eating Invasion Monkey at 5:47 PM on February 26, 2007