Why do republicans insist a tax cut always produces more tax revenues?

Question

It seems that so many Republicans assume that a tax cut always leads to increased tax revenues, but doesn't the laffer curve, the very basis for this belief, show that tax cuts after a certain point will actually decrease tax revenues?

The best analogy I can think of is selling apples? If I sell them for 50 cents and sell 100 a day, then I am making $50. But if I lower my price to 40 cents, and this causes me to sell 150 apples, then I am now making $60, indeed an increase. But lets say I still call for a decrease in price to 30 cents, only now I only sell 160 apples. Now I am only making $48, and the drop has caused me to LOSE money. This is common in business and finding the price that generates the biggest revenues is key.

So why not focus on the best tax rate as oppose to always on just blanked tax cuts?

Please do not let the question give rise to the Democrat party for which in my view has even less credibility among the taxation debate. While I think there are a lot of issues in the Republican belief system of economics, they are at least interested in growing the economy, as oppose to Democrats who wish to constantly tax it. Calling anyone "idiots" however for views on taxation seems a little immature though.

gayconse: you just accept your view on blind faith? "because they do" is about as intelligent as the convictions of a 2nd grader. With all do respect, you can do better.

I am surprised at a couple answers. I am not suggesting at all that tax cuts never produce increased revenues, as obviously in some situations they do...just not all. If the workings of this concept do not make sense, then perhaps you are not the answerer I am seeking for this question.

Answer 1

Less taxes mean more money pumped into the economy and personal savings. Less taxes mean more money invested in business creating jobs. The additional revenue from the creation of jobs means that individual income taxes don't need to be raised on those already working. The Sec. of the Treasury just gave his report that the government is raking it in hand over fist.
Additional: JFK was of the same belief. " A rising tide floats all boats" His comment about cutting taxes.

Answer 2

So far I don't think our country has even come close to the point where it would fail to increase revenues by cutting taxes. So when the Republicans have called for tax cuts and insisted that we would still increase revenue they have been right. The tiered tax system almost places a series of caps on how much people can earn, without having more taken from them. The higher those caps are the higher people willing to reach when it comes to making money. I would preffer a greatly simplified tax structure.

Not all Republicans think that their should be no floor to cutting taxes. Instead of cutting taxes to oblivion, some look at cutting specific taxes, such as Mitt Romney suggesting that we stop taxing people's savings. There are also suggestions for a flat tax, which Steve Forbes campaigned on in 2000. I assume with a Flat Tax we would have to find the best tax rate in order to be succesfull.

Answer 3

Frankly, to tell you the truth, I don't give a hoot about tax revenue. To me, Taxes are BS, particularly the Income Tax. It goes against everything in the Constitution... up until the 16th Amendment, at least. The Government is too big, hence it's need to take our hard earned money. The problem is that the Tax Code in the United States is 60,000 pages long. Who in their right mind is going to read, let alone understand it?
The Constitution of the United States grants Congress with 18 specific enumerated powers. I am not going to go through them here, just look at Article I Section 8-9. To fulfill those requirements it doesn't need Trillions of Dollars from OUR POCKETS.
Taxes adversely affect business. That's a huge concern, because if a business has to pay higher taxes, they are going to have to adjust in payroll, other expenses, or prices. So any way you look at it, income taxes are paid by the consumers/workers.
Govenrment Income, in my opinion is the biggest scam in the history of the world.
Personally I favor overhauling the whole system and implementing H.R. 25: the FairTax.

Answer 4

Because history has proved this to be true. Look at the revenues coming in now. If you punish someone for making money what incentive is there to make more, none. If they are allowed to invest and build and flourish , by nature, they will want more. So it is a reward system. The tax'em people punish achievers, thus motivating them to stop achieving. This is as simple as I can make it.

To go with your last line, before the IRS was incorporated (yes it is a company) the tax system was a flat tax. Right now if we went with a flat tax of 1% with no deductions no exceptions the tax income would be greater than it is right now. But taxing is power and those in power will not yield power. Why? Because they know what is best for us. Sarcasm intended.

Answer 5

well regardless of what some of these clones are saying you are right that there is diminishing returns after a certain point.

It would be best to focus on an optimal rate. What interferes with that are things like lobbyists, pork barrel spending etc..

In a government model regarding taxes, the theory is of course that if you lower taxes on a heavily taxed society ( businesses and individuals ) that they will have more disposal income that will be used to buy more products and services, hire more people.. whatever and that spending will generate more revenue.

Just as a brief example of the 80s. Reagan proposed tax cuts and congress worried about the debt. He was convincing about cuts stimulating the economy. But it was dependant on Congress limiting their spending to a budget.
Congress promised to keep their spending in line, but they of course broke the promise and spent a bunch of money that wasnt in the budget.

That left us of course in a deficit and then pressure to raise taxes was repeatedly put on Bush sr to go along with a tax raise by congress.

So its more complicated than the apple example but I appreciate your point.

Answer 6

I think the theory is that if you lower taxes, then people have more income to spend, therefor business and the economy will improve, increasing wages. Once wages increase, income revenues increase. Sometimes it works and sometimes it doesn't.

The problem is you must also cut spending, otherwise you create a deficit. In addition, you must make sure the cuts go to the right people. The wealthy don't need tax cuts, they have loopholes. It's the middle class that needs the cuts.

Answer 7

Here's how it works. Suppose you lower my taxes 1 dollar. I have an extra dollar to spend. I spend the dollar to buy bread. Did the dollar vanish? No. The Grocer has it. He pays it to the stock clerk. he buys a CD. The CD company pays it's supplier. the supplier pays his salesman. at each level the government collects taxes. It so happens that for every dollar increase in the money supply, there is a 6 dollar increase in the gross domestic product. If you figure an average 19% tax rate, 6 x 19= 114. so by lowering taxes $1.00 the government took in $1.14

That's how the government rakes in more money by lowering taxes. At a 17% tax rate the government takes in $1.02. Below 17% the government will take in less money by lowering taxes.

Answer 8

So what is the problem of cutting taxes (or at least not raising them) AND cutting spending. Seems to me if a president really wanted to ease the national debt a combination of BOTH would be the logical solution. But using your argument since the intentions of the current president and congress is to let tax cuts expire (raise taxes) and not cut spending, how is that going to do anything but cause further higher debt.

Answer 9

President Reagan passed a tangible, across the board tax cut that resulted in a tangible boost in income for the lower and middle class. This in turn caused a demand-fueled market expansion, increased tax base, etc. Taxes can't be cut enough now to cause this effect again. Bush's petty tax cuts do nothing to help the economy. They only make the rich richer.

Answer 10

The republican economic model has never made sense to me. I dont think they actually think cuts will raise revenue. Conservatives favor smaller governments and cutting the overall budget through tax cuts is one way to achieve this.


Yea i dont understand it either, government is important in organizing nation wide efforts and shouldnt be reduced to a little pile of nothing. Im not an economist but i hope this helps.