What happened to tax revenue when the Bush tax cuts were implemented? They went down. What happened to tax revenue when Clinton increased tax rates? They went up. While it is possible to raise tax rates and have tax revenues fall, it doesn’t have to happen that way. Sometimes when you raise tax rates tax revenue actually increases.
The effect of a tax increase isn’t simple at all. People respond to changes in their taxes; it has been proven over and over again that increasing taxes doesn’t necessarily increase revenue, in fact, it’s usually just the opposite.
To quote from a recent Human Events article
humanevents.com/article.php?id=47701
“During the last year a Republican budget controlled Congress (fiscal year 2007), the deficit stood at a minuscule $161 billion dollars. $161 billion! That’s at least five years into the tenure of those evil tax cuts. Moreover, as HUMAN EVENTS has previously reported, federal tax receipts actually went up while the tax cuts were accelerating. In other words, the United States Treasury received more money not less because of the Bush tax cuts that Democrats allege ruined America’s economy.
$1.88 trillion in 2004
$ 2.15 trillion in 2005
$ 2.4 trillion in 2006
$ 2.6 trillion in 2007
The last figure was actually the highest dollar amount brought into the Treasury Department… ever.”
I’m sure you think the math is simple.
(Tax rate) * (size of economy) = (revenue)
The problem is we now have over 200 years of history compiled for close to 200 countries, and increasing the tax rate changes the size of the economy.
Consider that in California, they tripled the tax on new car license plates. This should triple revenue, correct? The problem is that people started buying one-year-used cars or went out of state to buy cars instead. Further, the new car lots closed, and they too were paying taxes.
The result is not a matter of debate – it is a matter of fact. The increase in tax caused a decrease in revenue by more than half. It got worse than that when the unemployed car salesmen signed up for unemployment.
We have hundreds of countries, for hundreds of years, giving us tens of thousands of examples that it is not as simple as changing the tax rate. The complexities end up causing the revenues via tax rate graph to be a CURVE.
For what it is worth, the highest revenue seems to be at a 14% rate of taxation. That would mean we need to lower tax rates.
Think of it this way – if a dollar changes hands 5 times more on a 33% decrease in taxes, you will end up with (5) * (2/3rds of old tax rate) = 3 1/3rd times the revenue.
Russia did this, changing to an 18% curve form a 72% maximum tax rate. Revenue tripled.
The math is not simple. Most folks’ thinking is the problem (sorry not trying to take a cheap shot, but enough people who don’t think of the complexities have helped get us into this situation – look at 1983 tax rate reduction leading to an increase in revenue… it’s too bad congress overspent it).
We have a spending problem in this country. That’s all there is.
Much of the answer in raising tax revenue lies in introducing increases incrementally, so that they can be easily integrated into the economy without too much suffering. This stagnation is what is so noxious.
So, what is the meaning of TEMPORARY Bush tax cuts – 2001-3?
Such a tax cut was to grow the economy and create jobs.
How are we doing after 11 years?
Peace, Carlan
that would help.