Tag Archive for Supply-Side Economics

Do Tax Cuts Increase Revenues? No, Tax cuts do not Increase Revenue

Business Cycles: GDP and Revenues Correlating Tax Rates with Revenue
Reagan TaxCuts: The Facts
Bush Tax Cuts: The Facts
Historical Tax Rates
The Laffer Curve
In Conclusion
Further Reading
Limbaugh Tax cuts increase revenues

“The Bush tax cuts led to 50 consecutive months of job growth…It’s demonstrably proven that tax cuts increase revenues” – Rush Limbaugh

The argument that tax cuts create or increase revenue is an old myth that simply refuses to go away. The logic behind this argument is that cutting taxes will stimulate spending (since investors now are now encouraged through reduced tax rates) that will result in GDP growth.  This growth in GDP will result in increased tax revenues so significant that they will more than offset the drop in tax revenues that result from a lowered tax rate. The inverse to this is that increased taxes lower tax revenue by discouraging investment, which in turn lowers tax revenues so drastically, that they offset the added increase coming from the tax rate increase. One of the reasons Republicans and other self-ascribed fiscal conservatives are able to get away with this is, is the superficially plausible argument that the Reagan and/or Bush tax cuts grew the economy and created revenue.  To understand the fallacy of these arguments, it is necessary to understand economic growth during business cycles and over a long period of time, and how this affects tax revenues.

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