Friday, February 02, 2007

Tax Cuts = More Revenue

The Economist is probably my favorite magazine, and they examine the criticism of a liberal blogger that doesn't understand the economic impact of tax cuts:

His incredulity is not surprising, but it is wrong. The historical average for tax revenues as a percentage of GDP for the last 45 years—roughly, the span of the modern taxation era—is 18.2%; in 2006, the government collected 18.4% of GDP as tax revenues. Even if you throw out the Bush budgets of 2002-2006, the average rises only a tenth of a percent, meaning that America is still above its historical average.

They also look at the real impact of the budget deficit as a percentage of GDP, how it is not far off its historical levels, and how growing revenues will eventually offset it.

Tax-raisers (as opposed to tax-cutters) imagine that taxes and economic performance exist independent of each other. They believe that had Bush left taxes as they were that our tax receipts would be even higher, or that the economy would have continued to roll along. There is a great deal of evidence to the contrary, such as the massive increase in capital gains receipts, which says that lower taxes spurs more activity of every kind.


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