The Evidence Is Clear, Tax Cuts Work

Authored by Daniel Lacalle via The Epoch Times,

It happened again. Tax receipts soared in the United States after the recent tax cuts.

Although it will take a while for the full effect of the 2017 tax reform to kick in, U.S. state and local government tax revenue climbed to $350.2 billion in the first quarter of 2018, a rise of 5.8 percent compared with the same time period in 2017. Individual income tax collections had big gains for a second-straight quarter with a 12.8 percent increase to $107.4 billion in 2018’s first quarter.

But the evidence of the positive impact on growth, jobs, and wages of lower corporate taxes has been published in many studies over time. The example of more than 200 cases in 21 countries shows that tax cuts and expenditure reductions are much more effective in boosting growth and prosperity than increasing government spending.

Multiple studies conclude that in more than 170 cases, the impact of tax cuts has been much more positive for growth.

In Denial

However, some commentators continue to deny the positive impact of tax cuts using the argument that deficits rise.

The fallacy that 'deficits rise' has nothing to do with tax cuts, but with increases in government spending on top of the tax cuts.

The deficit excuse is very simple. It says taxes should not be cut because governments will spend all revenues, even if these increase, and more. But this excuse is wrong.

The mistake of pointing at deficits as proof that tax cuts don’t work is debunked by looking at the proposals of the same economists that argue against tax cuts. Economist Paul Krugman is one example. He argued against tax cuts in his New York Times article “Time to Borrow” after the Obama administration increased debt by $10 trillion. These demand-side economists defend deficit spending, yet consider tax cuts as negative … because deficits may increase. Only Keynesian economists manage to pull off such mindbending logic.

Deficits need not rise or exist at all if governments spend in line with revenue growth. And the evidence points to rising revenues from lower taxes and higher growth.

Deficit Spending

While analyzing the deficits of the G-20 economies during the past 15 years, we found that more than 80 percent come from higher spending. Even in the 2008–2010 crisis, European government deficits were explained more by the “stimulus” plans and government spending increases than any loss of revenues.

Spain, for example, lost 40 billion euros of tax revenues from the bursting of the real estate bubble but deficits rose by 300 billion euros, driven by stimulus and automatic “stabilizers.” The European Union spent almost 1.5 percent of its GDP on stimuli and increased taxes, sending deficits and debt to GDP to all-time highs.  The United States increased taxes by $1.5 trillion under the Obama administration but the average deficit was 5 percent of GDP. The final tally was a $10 trillion increase in national debt.

During the Obama administration and the massive expansionary monetary policies of three rounds of quantitative easing (QE) and ultra-low interest rates, economic growth on average was only 1.4 percent and 2.1 percent if we exclude the crash year of 2009. That compares to an average of 3.5 percent during the Reagan administration, 3.9 percent during Clinton’s, and 2.1 percent during Bush Jr.’s.

Positive Effects

The evidence of the positive effects of tax cuts on jobs and growth is clear.

The 2018 “Economic Report of the President” shows that tax cuts generated more federal revenues even after adjusting for inflation and population growth.

President John F. Kennedy’s major tax cut, which included chopping the top marginal rate to 70 percent from 91 percent, became law in early 1964. The economy grew at an average 5.5 percent, and unemployment fell to 3.8 percent. In turn, the annual deficit shrank to $1 billion from $7 billion as individual income-tax receipts nearly doubled.

President Ronald Reagan cut the top personal rate from 70 percent all the way down to 28 percent. Between 1982, when the first round of Reagan’s across-the-board tax cuts went into effect, and 1990, when President George H.W. Bush broke his no-new-taxes pledge, individual tax receipts jumped 57 percent to $467 billion.

And even President Bill Clinton’s budget surpluses didn’t materialize until after the president in 1997 signed a GOP tax bill that cut the capital-gains rate to 20 percent from 28 percent. Tax receipts from capital gains soared as capital investment more than tripled. Between 1996 and 2000, “the increase in capital gains revenues accounted for a little over 20 percent of the total increase in federal revenues,” former Treasury official Bruce Bartlett said. For the first time, individual tax receipts hit $1 trillion.

After President George W. Bush in 2003 signed the largest tax cut since Reagan—including dropping the top marginal rate to 35 percent from 39.6 percent—government receipts from individual income taxes rose from $794 billion to a peak of $1.2 trillion in 2007, when the mortgage crisis began—a jump of 47 percent.

Stronger economic growth expanded the tax base and brought in so much revenue that Bush more than halved the deficit over that period.

There are plenty more examples globally. Professor Juan Manuel Lopez-Zafra from CUNEF in Madrid points to a few:

  • Russia introduced a 13 percent flat tax in 2001. Revenues rose 25 percent in 2002, and a further 24 percent and 15 percent in 2003 and 2004 respectively. Revenues rose 80 percent in three years. Russia is a country where government deficit spending is limited and the excuse of deficits does not mask the revenue improvement.

  • In 2012, Hungary implemented a 16 percent flat tax. Tax revenues soared 7.6 percent despite a decline in GDP of 1.6 percent. In its 2016 report, the OECD showed that the key to Hungary’s recovery was its tax system.

  • Ireland cut taxes to corporates to 12.5 percent from 50 percent and reduced the value-added tax, and tax revenues soared 67 percent. Between 2010 and 2017, Ireland’s tax revenues increased 21 percent and thanks to an attractive tax policy, Ireland is one of the few Eurozone countries that left the crisis with growth, lower unemployment and cutting deficits. Because spending did not soar.

  • Spain finally decided to cut taxes in 2015 and in 2016 and tax revenues grew 4.3 percent, more than nominal GDP, a level of increase that accelerated in 2017. Unfortunately, governments took the opportunity to increase expenditure, so deficits remained.

  • UK corporation tax receipts surged to a record high in 2017, up 21 percent rise from 2016 and an all-time high, despite the main rate falling from 30 percent in 2008 to 19 percent. The United Kingdom cut the corporate tax rate and did not lose any revenue. It paid for itself.

  • Corporate tax and marginal income tax have been reduced in the Nordic countries since the 2000s, and revenues have increased well above nominal GDP.

The evidence is clear. Tax cuts boost jobs, growth, and, in most cases, revenues. Those who choose to ignore it tend to do so because of a misguided view that governments need to spend more and that private individuals and companies make too much money.

But there is no public sector without a thriving private sector. Taxes cannot be a burden for growth and job creation because governments decide they want to spend more.

Deficits are no excuse for tax cuts. Deficits need to be addressed by curbing spending. Tax cuts are a necessary tool to keep an ever-expanding bureaucratic system from destroying the economy.

Giving back citizens and job creators part of their own money so consumption and productive investment continue to improve is not just economic logic—it is the right thing to do.

Comments

peopledontwanttruth natronic Wed, 07/11/2018 - 13:14 Permalink

This is way to early to tell.  

This was people saying composite decking was better than treated lumber.  It was to early to tell.  Now after years of twisted decking, black mold growing on the composite.  The jurors are in.  Wood lasts for centuries.  Composite until the ink was dry on the sales contract.  

 

Time will tell but this doesn’t sound right.  You can’t take in less taxes and have more to spend.  Another counting error 

In reply to by natronic

Free This Stan522 Wed, 07/11/2018 - 19:04 Permalink

What a "Great Society"

Yep, spending is the PROBLEM here. Until it is CUT, not cutting the growth in spending like they do now, all we have is the status quo!

Cutoff the Welfare Queens and ghetto trash, and kick the illegals out too!

Then cut the bloviated gov't - deep state.

That's just a start - END the FED!

In reply to by Stan522

Mittens is a god Free This Wed, 07/11/2018 - 19:32 Permalink

As long as the welfare Queens are Trumps , waltons, Kochs and large corporations your fine with that what you mean is cut of poor people and specially black people and women. you're fine with me subsidizing your fire and police protection with my tax dollars despite my never needing any of that  crap. Blatant Socialism, but sit on your ivory tower calling me the communist while you suck on the big tit of government.

In reply to by Free This

Free This Mittens is a god Wed, 07/11/2018 - 20:04 Permalink

LOL, listen up donkey, even you might understand this...

For those with disabilities we support, all others can fuck off and get a job. You screw faced piece of shit. You wouldn't know a hard days work, just redistribute my money, and yes you are a fucking communist. Take your bleeding heart and jump off a peer, your kind are stinking up the joint.

I got no problem with millionaires or the like, they built their fortunes and worked hard for it. I don't like welfare queens sponging off of us and flipping us the bird like you do. How many poor people have given you a job? ZERO. Oh and fuck the illegals too, deport them from whence they came and get in line and do it legally.

Keep on braying donkey I could give a rip what you say. Now go jump on a pointy spike with your bull shit misrepresentations of me. You lying sack of shit. Now go up vote yourself and puff your chest out and think you got me, I could care less.

Oh, you will be so happy about hearing this, you might even eat your own bloody tampon. I am going dark, no more communications period. Have a party, eat shit and die - see you on the field of glory bitch. You won't want to meet up with me when shit kicks off, guaran-fucking-teed.

SUCK MY DICK COMMUNIST = DEMOCRAT!

In reply to by Mittens is a god

Mittens is a god Free This Thu, 07/12/2018 - 05:28 Permalink

In classic fashion you have no valid counter to my arguments only Ad hominem attacks, which have no validity. It looks to me as though you have been triggered when faced with an argument you are unable to counter. You fucking selective socialist! How long are tax payers going to have to support your Socialized Fire and Police??????????????????

 

HAHAHAHAHAHAHAHAHAHA

In reply to by Free This

Mittens is a god Free This Thu, 07/12/2018 - 05:28 Permalink

In classic fashion you have no valid counter to my arguments only Ad hominem attacks, which have no validity. It looks to me as though you have been triggered when faced with an argument you are unable to counter. You fucking selective socialist! How long are tax payers going to have to support your Socialized Fire and Police??????????????????

 

HAHAHAHAHAHAHAHAHAHA

In reply to by Free This

Mittens is a god Free This Thu, 07/12/2018 - 05:28 Permalink

In classic fashion you have no valid counter to my arguments only Ad hominem attacks, which have no validity. It looks to me as though you have been triggered when faced with an argument you are unable to counter. You fucking selective socialist! How long are tax payers going to have to support your Socialized Fire and Police??????????????????

 

HAHAHAHAHAHAHAHAHAHA

In reply to by Free This

Mittens is a god Free This Thu, 07/12/2018 - 05:28 Permalink

In classic fashion you have no valid counter to my arguments only Ad hominem attacks, which have no validity. It looks to me as though you have been triggered when faced with an argument you are unable to counter. You fucking selective socialist! How long are tax payers going to have to support your Socialized Fire and Police??????????????????

 

HAHAHAHAHAHAHAHAHAHA

In reply to by Free This

Mittens is a god Free This Thu, 07/12/2018 - 05:28 Permalink

In classic fashion you have no valid counter to my arguments only Ad hominem attacks, which have no validity. It looks to me as though you have been triggered when faced with an argument you are unable to counter. You fucking selective socialist! How long are tax payers going to have to support your Socialized Fire and Police??????????????????

 

HAHAHAHAHAHAHAHAHAHA

In reply to by Free This

Mittens is a god Free This Thu, 07/12/2018 - 05:28 Permalink

In classic fashion you have no valid counter to my arguments only Ad hominem attacks, which have no validity. It looks to me as though you have been triggered when faced with an argument you are unable to counter. You fucking selective socialist! How long are tax payers going to have to support your Socialized Fire and Police??????????????????

 

HAHAHAHAHAHAHAHAHAHA

In reply to by Free This

Got The Wrong No Mittens is a god Thu, 07/12/2018 - 10:42 Permalink

Talk about being triggered.

You fire off Ad hominem attacks, which have no validity, while you bash someone else for firing off Ad hominem attacks that have no validity. I bet you wear a mask and hide in the streets with Antifa or Black Lives Matter, just like you hide behind your computer and play, Mittens is a Moron. I bet the only thing being stretched by a black cock is your ass.

Somewhere there is a bullet with your name on it. 

In reply to by Mittens is a god

Endgame Napoleon Stan522 Wed, 07/11/2018 - 17:10 Permalink

Why then is the SS trust fund no longer running surpluses? People pay more or less into that fund, according to their employment, so it should be more solvent when job growth is high.

One reason is that 5 million jobs were offshored to Asia & Mexico, where workers & employers are not taxed for SS.

Another reason is that, although illegal aliens collect lots of welfare and refundable child tax credits for US-born instant-citizen kids, illegal aliens get it by submitting evidence of (traceable) income that falls below the income limits for welfare. They are much more likely than citizens not to report.

If US citizens are getting the new jobs added to the economy each month, and if tax cuts are stimulating job growth, why is the SS trust fund no longer running surpluses?

Why are 101 million US citizens out of the labor force? Of the 78 million gig pieceworkers, how many are supporting themselves on gigs?

Self-employed gig workers must pay into the SS retirement system at 15.3%, whereas employees—like the dual-earner parents who got several thousand back in a non-refundable Trump tax cut—contribute only 7.65% to the SS trust fund up to the $128,400 SS-taxation cap. 

Dual-high-earner parents keep two jobs with benefits under one roof, paying SS tax at half the rate (7.65%) of an Uber driver with no spousal income who pays 15.3% for every $80 gig, but Trump (and Obama) both gave the non-self-employed dual-high-earner parents a significant tax break.

Obama’s stimulus had an income tax cut for the dual-high-earner parents and a minuscule payroll tax cut for the rest of us, including self-employed gig workers. I hardly noticed mine.

Then we have the 42 million EBT-eligible citizens & noncitizens. These are all part-time workers since, to stay under the income limit for that program and other welfare programs, they must work part time. Just due to the dearth of taxable hours, welfare-eligible single moms are not contributing as much into the SS trust fund when working part time.

Besides Trump’s business tax cuts—which are good if businesses use the money for job creation—the difference between the Trump and Obama tax cuts is that Obama raised the refundable child tax credits, given to single moms and womb-productive immigrants in male-breadwinner households who do not pay income tax and whose grocery and rent bills are often covered by government.

Obama’s stimulus raised the refundable child tax credit for maximum womb productivity from today's $6,431 max to over $8,000. While it might have created some kids, it did not create jobs. 

Trump gave a non-refundable  child tax credit to the dual-earner parents and other parents with higher income that is taxed, but is in most cases salaried income, not income from taking risks to create jobs for others in business. 

 

In reply to by Stan522

JuliaS peopledontwanttruth Wed, 07/11/2018 - 13:36 Permalink

Tax cuts work only when accompanied by reduction in government spending. Since government spending never goes down, tax cuts are meaningless and result in short term productivity boost, followed by price inflation which pushes productivity back into the negative territory much worse than before.

As long as we do not fix MIC, entitlements, public sector pensions, shuffling taxes around won't do anything, other than provide a sense of euphoria.

We keep raising that debt ceiling while bragging about tax cuts. Pathetic!

In reply to by peopledontwanttruth

peopledontwanttruth Juggernaut x2 Wed, 07/11/2018 - 14:14 Permalink

There’s plenty going parabolic to consume these pennies we’ve received in tax cuts. 

 

That would be interesting to see the real figures on inflation (food, clothing and housing), more gubbermint spending per individual responsibility, property taxes rising, healthcare premiums and drugs (I know plenty of “TALK” about lowering these), cost of just gasoline and not to mention the tariffs that we will eat.  

I’d bet everything those figures crush our big tax cuts 

In reply to by Juggernaut x2

Endgame Napoleon JuliaS Wed, 07/11/2018 - 17:33 Permalink

When fewer taxpaying citizens are working full time, how do you fix those things? Since the year 2005, most of the truly new jobs—as opposed to the churn jobs that are constantly on the job boards—have been temporary jobs, pieceworker gigs or part-time jobs.

When people talk about entitlements, they usually just mean the contributory programs, not the 100%-free, non-contributory welfare programs and the hugely welfare payouts for womb productivity through the progressive tax code.

This is one of the key ways that The Swamp is keeping mass underemployment under wraps. It also enables cheap-labor employers to provide “voted best for moms jobs” for “the women we have working here (who) have somethin comin in,” mostly married moms with spousal income, divorced moms with child support that covers rent or single moms with monthly welfare that covers rent and groceries and refundable child tax credits. 

Ditto for the 98% immigrant-staffed jobs, with mostly employees who have “somethin’ comin’ in” due to US-born instant-citizen kids. In those cases, instead of single moms, it is male-breadwinner households, staying under the low-as-you-go income limits for free EBT groceries, subsidized housing, free electricity, monthly cash assistance and up to $6,431 in refundable child tax credits.

Non-womb-productive, single citizens and single moms with kids over 18 just have the low wages and rent that consumes more than half of monthly, earned-only income. Citizens are staying out of a rigged labor market where hard work does not pay. It has consequences beyond just fake employment figures.

In reply to by JuliaS

U4 eee aaa peopledontwanttruth Wed, 07/11/2018 - 17:54 Permalink

Tax cuts work because businesses and people, in general, spend money more efficiently than government. Business has an incentive to create profit and cut fat. The government has no incentive to do that. It will never go out of business and if it gets into trouble it just increases its take from taxpayers. If a business doesn't make a profit it goes out of business. It can't just raise prices. Competition keeps it efficient. The government has no competition for the most part. Yes, many businesses can move to other tax jurisdictions but things like gas stations or grocery stores cannot so they are captive to government

In reply to by peopledontwanttruth

Endgame Napoleon AGuy Wed, 07/11/2018 - 17:47 Permalink

The point with the tariffs is to shift some high-paying manufacturing jobs back here, or that is what Deplorables were hoping. But like you say, it could backfire, which is why Deplorables prefer for the focus to be on immigration. We DO NOT need more welfare-hoisted competition for the low-wage jobs. Wages NEVER, EVER rise in that rigged setup. 

In reply to by AGuy