Main Street

Cutting taxes does not increase revenue

This tax day, one of the big Republican talking points is that cutting taxes raises revenue. The theory is that if businesses and the wealthy pay less in taxes, they have more to spend on creating jobs.

The trouble with this is that it’s not true.

But even conservative economists have cast doubt on this claim.

“Federal revenue is lower today than it would have been without the tax cuts. There’s really no dispute among economists about that,” said Alan D. Viard, a former White House economist under George W. Bush, in a 2006 Washington Post article.

Robert Carroll, deputy assistant Treasury secretary for tax analysis, also said that no one in the administration believes tax cuts created a surge in revenue. “As a matter of principle, we do not think tax cuts pay for themselves,” Carroll said.

Bruce Bartlett, a Reagan economist who became a strong critic of the Bush administration’s policies, used data from the Office of Management and Budget in a blog post last year to illustrate how “the Bush tax cuts reduced revenue rather significantly.”

Ronald Reagan, in fact, demonstrated how untrue it is that cutting taxes raises revenue:

Reagan enacted a major tax cut his first year in office and government revenue dropped off precipitously. Despite the conservative myth that tax cuts somehow increase revenue, the government went deeper into debt and Reagan had to raise taxes just a year after he enacted his tax cut. Despite ten more tax hikes on everything from gasoline to corporate income, Reagan was never able to get the deficit under control.

(See also here and here.)

Reagan—Ronald Reagan, the icon of today’s Republican party!—realized that cutting taxes decreased revenues and increased the debt. And he responded by raising taxes. He raised them in regressive ways that didn’t fix the mess he had made, but in comparison to politicians like Paul Ryan and John Boehner, whose response to creating a mess is to see if they can’t turn it into a disaster, he was practically a moderate.

Tags: budget, economy, taxes