Tax Cuts Don't Boost Revenues?

Question

If there's one thing that economists agree on, it's that these claims are false. We're not talking just ivory-tower lefties. Virtually every economics Ph.D. who has worked in a prominent role in the Bush Administration acknowledges that the tax cuts enacted during the past six years have not paid for themselves--and were never intended to. Harvard professor Greg Mankiw, chairman of Bush's Council of Economic Advisers from 2003 to 2005, even devotes a section of his best-selling economics textbook to debunking the claim that tax cuts increase revenues.

http://www.time.com/time/magazine/article/0,9171,1692027,00.html

Answer 1

The Trickle down effect does not work in the real world.

Say your on the Forbes 500 list... So you make about a billion a year... Is some tax savings really going to make you boost your productivity?

I'm a small business owner, My taxes actually went up under the Bush. I did not write the check to the IRS but I did write bigger ones to my county and state in the way of property taxes because they had to make up for the funding they lost from Federal funding.

Also the amount of money I had to withhold from my employees monthly paycheck also went up.

But the $100.00 really went to good use!?!?!? HA. Can any one else remember what they did with it?

Answer 2

This topic is the subject of much debate - you will get answers swearing tax cuts raise revenues and others swearing they do not. The answer is - they can but do not always. Imagine if the tax rate was zero. The government would recieve no revenue. Now imagine the tax rate was 100%. Again the government would recieve no revenue as people would either not work or hide the proceeds from the government (this is not literally true - pure communist states do produce somethings) Yet in between 0 and 100% the government does make revenue from taxes. So logically the relationship between tax rates and taxes must be a curve that slopes upward to a maximum and then slopes downwards. NOBODY denies this. The issue comes with estimating where on that curve we are at any time. Supply side conservatives tend to argue we are generally past the maximum point (hence tax cuts will increase revenues) while Keynsian liberals believe we are still approaching it (and so tax cuts will reduce revenue). Despite your response to Mortimer he is not strictly wrong. The Clinton expansion was related to two things - better fiscal control (attributable both to Clinton and congress) and to the sudden emergence of a new industry through technological advancement. The result was, as Mortimer pointed out, more money being spent both from a consumer point of view and also through investment. The problem Bush has faced in recent years is that America is grossly overcapitalized. We have more means for production than we do demand for that production. So why would tax cuts to the rich see increased growth - nobody is going to invest in an already overcapitalized economy. So much of the investment money went into offshore investment (which brings back profits but does not employ Americans) or speculative investment. This is why despite the reasonable levels of growth, the majority of Americans have not benefited from this expansion as they did the Clinton expansion (where median incomes rose and poverty fell as opposed to this expansion). This is behind Obama wanting to drive tax cuts to the lower end. This will lead to consumption driven growth that should fill the excess capacity of the US economy. He is obviously still driving for a balanced budget and so will increase taxes at the top end.

Answer 3

You are both right and wrong at the same time.
Government taxation is always harmful to an economy. Taxes shrink the economy. Let me give you an example.
Take you own personal finances. Let's suppose you get a tax cut that equates to $10 a week more in your pocket. And, every working person gets the same cut. That would amount to about $3 billion a week staying in the private sector. And, $3 billion less a week being spent by the government (that's the important part, the government must spend that much less.)
Private sector spending creates more jobs, and thus more income tax revenue. Government spending always, always, always, takes jobs away from the economy, and thus creates less income tax revenue.
Let me give you another example of what I am talking about here.
It cost about $1.4 million for the government to buy 1 cruise missile. Excluding any R&D cost involved in a cruise missile, how many people do you think it would take to built this missile and how long would it take if all the parts are already in front of them? My guess would be 2 people could build a missile in 2 or 3 days.
Let's take the same $1.4 million and build 6 new homes that will sell for about $233K each. With all the material in one spot and given the same 2 or 3 days it took to build the bomb, how many people would be needed to build these homes in 2 or 3 days. The answer to that would be hundreds.
In this example, the building of that bomb eliminated hundreds of jobs from the private sector and decreased income tax revenue.
in addition, once this $1.4 million bomb is finished, it has no value. It is designed to blow up and disappear. It is the same as burning the money.
The houses, on the other hand, will need furnishings, appliances, landscaping, lawn movers, curtains, towels, dishes, etc., etc. the building of the houses created the need for more products and more jobs. The houses also create a tax base for communities to educate the young.

I could go on forever on the benefits of private sector spending over government spending, but that's not the basis of your question.
In a simple terms, a reduction in taxes will always boost the economy, but two things are needed: 1. the government must cut its spending in the short term until increased tax revenues come in and 2. the tax cut must be directed at the consumer in the country or the middle class. They are the people who spend money, not the upper 1%.

As I said at the beginning, you are both right and wrong.

Answer 4

I agree. However, people need to grasp the concept of what a deficit is. If the what you take in is less than what you send out you have a deficit. If what you take in is higher than what you send out, you have a surplus. No matter how much revenu you take in, it cannot lower the deficit if you keep increasing spending.

Tax cuts always increase revenues. Claims that they do not cover the difference is not true. If you cut taxes you increase revenue MORE than if you do not cut taxes.

Perfect example: State of New Jersey. We had thriving custom yacht building businesses in New Jersey. Then we decided to add a 15% luxury tax to those yachts. Well, should have been a big boost to the tax revenue, right? Wrong. The business dried up, the businesses moved away or went out of business and stopped paying property taxes. The employees lost their high paying jobs and stopped paying income tax to New Jersey. The suppliers lost business and no loner shipped to New Jersey so we lost tax money on that. The result of a 15% tax increase? A net loss.

State and Federal Governments are out of control. They need to follow the same best practices businesses use to get the most bang out of every buck. However, few politicians have the moxie to actually attempt to: Audit everything, eliminate waste and redundancy, implement plans to reduce costs etc. All the stuff successful businesses do. No matter who the President is or which party controlls Congress you cannot keep operating with six or more programs provideing the same services. It is simply to ineficient.

Merry Christmas!

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Answer 5

Apparently not because many economists do know that tax cuts CAN boost revenues. CAN is the key word, because it is not automatic that tax cuts lead to increased revenues, but I'll tell you what: if that would-have-been tax money gets invested, it most certainly CAN lead to increased revenues.

I don't think Bush's tax cuts were meant to start paying back instantly. The point is to increase the base amount of revenue so we have more money making power. IF it pays off, then in the next 10-20 years America will be doing better than it would have had it left taxes where they are or increased them.

Answer 6

The answer is voluntary taxes to offset the tax cuts. Let guys like Warren Buffet voluntarily pay an extra billion a year...and who knows what can happen? Those that think that tax cuts don't stimulate economic growth didn't live the Reagan years. But stimulated growth aside, why would anyone be in favor of larger government and more federal fingers in their pocketbooks??

Answer 7

It should now be obvious to the blind that "trickle down" economics is a total scam. It's sad that Republican candidates for President repeated this discredited mantra at the most recent debate. When will the people be told the truth?

Answer 8

Basically a tax cut is like a shot of adrenaline. It will speed things up in the short term but could do long term damage.

Answer 9

Tax cuts do stimulate the economy, but, not enough to pay for the difference in lost revenue to the fed, thus, the budget deficits Republicans are so fond of.

Answer 10

It might be argued that lowering them from 90% to 70% like JFK could raise revenue but unthinking Republicans will say it ALWAYS works. Using their logic, we should lower tax rates to zero and we'd bring in endless revenue. (I'm not sure how that works but that's the benefit of using faith and not logic. You just say it and it becomes true.)