Credit the Bush Tax Cuts

Posted March 31st, 2007 at 06:52 AM by B is for Business
in
Last summer I read a WSJ article and was reminded of it after reading some recent posts viewing the tax cuts as negative.  
 
 
Are the tax cuts a good thing?   More importantly, what is the ideal tax rate?    The Laffer Curve helps us understand the dynamics of the question.    If the tax rate is 0% or 100%, tax revenues are obviously going to be $0.    That’s the easy part to understand.    Trying to determine the optimal taxing rate is up for debate and there are some interesting facts that show that the tax breaks have been moved the curve in the proper direction.
 
Some Highlights:
 
  • the past 33 months the size of America's entire economy has increased by 20%--or, as National Review Online's Larry Kudlow put it, "In less than three years, the U.S. economic pie has expanded by $2.2 trillion, an output add-on that is roughly the same size as the total Chinese economy."
  • According to the government's establishment survey, in the 36 months since the tax cuts became law, 5.3 million new jobs have been added to the economy. According to its employment survey, 288,000 jobs were added in May and 387,000 in June. The unemployment rate dropped from 6.1% when the bills were signed to 5.4% at the end of 2004 and 4.6% today, and the rate has gone down for men, women, blacks and Hispanics.
  • Federal tax receipts increased by 15%-- $274 billion--last year and 13%-- $206 billion--in the first nine months of this fiscal year, which, as the Journal points out, means the nine-month increases for the past two years represent the highest growth rates in 25 years. Looking ahead to the end of this fiscal year, total inflation-adjusted government receipts will likely be 23% above 2003 when the Bush tax cuts were signed into law.
  • Reducing the capital gains tax rate from 20% to 15% increased capital gains tax receipts by 79% from 2000 to 2004. Cutting the dividend tax rate by more than half--from 39.6% to 15%--increased dividend tax receipts by 35% from 2002 to 2004. And corporate tax receipts have nearly tripled since 2003, reaching $250 billion for the past nine months, 26% higher than the same period last year.
On the flipside, we are continually reminded that wage and salary increases are not on the highlight reel and that the rich are getting richer.    Looking at the all the good news, I think the rich getting richer is an adequate tradeoff.   My salary has increased marginally like everyone else’s, but I don’t see how increasing taxes is the solution to that particular problem.  
 

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On March 31st, 2007 at 10:41 AM, Run4cvrlib said:
While as an employee or worker I am very interested in seeing wages increased companies must make more money to pay more wages. Companies also need money to invest to grow and add jobs so people can be promoted make more money. I am concerned that this is not being done maybe because government continues to over regulate costing businesses more to operate. Tax cuts have an accumulative effect when it comes to growth. When People/companies have more money they spend their money more wisely then government does. Companies with more money grow their businesses and building those businesses cause further growth in other businesses that serve them. Simple math what greater 70% of a billion dollars or 25% of a Trillion? Just so you know Kennedy was the first to start lowering tax rates to raise tax revenue.
 
 I know someone is going to bring up the Clinton years when there was no deficit. While there was a tax increase there was also a GOP congress and a Dem. President one held the line on spending after the other had raised taxes during a time of relative peace.
B is for Business's picture
On March 31st, 2007 at 11:46 AM, B is for Business said:

I was suprised by the Kennedy reference: Back then, Democrats were for them: more than 80% of Democratic senators and representatives voted for the Kennedy tax cuts.    Nowadays, only 4% of democrats are for them.    Everyone wants growth, more jobs, investment, etc.   In our current economic environment, it appears that by putting more control in the consumers/investors hands, it actually ends up putting more money in the government's hands.   We might want to try further tax cuts based on these results.  

On April 2nd, 2007 at 01:14 AM, Anonymous (not verified) said:

I think the improving economy has more to do with the fact that it dove so far after 9/11 than any of the tax cuts.

On April 2nd, 2007 at 07:30 AM, Run4cvrlib said:

I think allot of things around here people always tell me they want facts?