I don’t know why Republicans cede this revenue debate to them. We’re not going to increase revenue if we increase taxes. We’ll increase revenue if we cut taxes. That’s the kind of pro-growth message Republicans should be talking about, along with our spending cuts. – Rep Joe Walsh, R-IL
All of the above to indicate that this mantra “Tax Cuts Increase Revenues!” is hardly a liberal invention (unless the folk above can be said to be secret members of the “Librocommiefascist plot”). It IS mainstream conservative thought.
Also note that there are no qualifications on any of the statements above. It’s not that SOME tax cuts, in certain situations MIGHT raise revenues, but rather that tax cuts raise revenues, PERIOD. (And of course, it’s not only the pundits and politicians that say this…their battle cry is picked up and repeated–loudly, often–by idiots like this guy).
Anyway…tax cuts increase revenues.
Without fail or qualification.
That’s the claim.
Just so we’re clear on that (cos it’ll be important later).
I would like to put the mystery to rest once and for all. To do that, I’ll use no-spin source data from irs.gov (unless some conservative somewhere would like to posit that irs.gov is “a liberal blog” and part of the conspiracy? – if so, I’ve got a lovely padded room and a designer jacket with no arms I can recommend for you.
I’ll outline my entire methodology, and post my results here.
Every time the conservatives run out of things to gab about, they throw this one back on the fire, so I’ve collected all the info in one place.
There are three (3) key tax cuts (specifically, cuts to the personal federal income tax rate) in conservative mythology that they point to as having “increased revenue.”
The Kennedy Cuts (passed in 1963, first impacting budgetary receipts in 1964)
The Reagan Cuts (passed in 1981, first impacting budgetary receipts in 1982)
and, of course,
The Bush Cuts (passed in 2001 and 2003, first impacting budgetary receipts in 2002)
Data used was for personal federal income tax receipts only (in order to not cloud the picture with total receipts…the cuts impacted PERSONAL INCOME TAX at the Federal Level, so let’s focus on that and see what happened to receipts during each period).
Data gathered here.
To establish constant dollar valuations, I used the CPI calculator here.
In other words, this is the unvarnished source data. There’s no spin here. Just the raw data.
All tax receipt data is charted in constant dollars (1960 dollars for Kennedy, 1980 dollars for Reagan, and 2000 dollars for Bush).
I have compiled all the numbers for all three tax cuts in a spreadsheet which I will attach in my top secret archive.
Additionally, I will post the graphs charting the receipts here (click the charts for larger images).
Despite heavy war spending, and it’s usual Keynesian effects, the year the tax cuts were enacted, growth basically stalled (receipts DID nudge slightly higher that first year (only to lose ground slightly the next), because the economy was already growing robustly before the cuts, but the cuts took nearly all the gains out of the receipts. They recovered, yes, thanks to several more years of heaving war spending, but that’s hardly the argument the supply siders want to make). This is significant, and cannot be overstated. When the tax cuts were made, receipts STALLED (turning slightly negative on year two), in spite of the fact that the cuts were made during an already strong economic boom. The downward pressure to accomplish that was ENORMOUS.
Passed in ’81, hitting the budget in ’82, their effect was immediate, long lasting (receipts didn’t fully recover for five years, and that just put them back where they were before the cuts happened, so that’s five years of normal economic growth erased. Thanks Ronnie! In any case…this is hardly an argument in favor of “cutting taxes increases revenues.” Quite the opposite, really.
Again, the data is compelling, and exactly the opposite of what the conservatives argue. The first of the cuts, passed in 2001, hitting the budget in 2002, had an IMMEDIATE (and predictably downward) impact on revenues collected. In fact, in the case of these cuts, the receipts didn’t recover until 2007, thanks to an overheating economy. Again, this is HARDLY an endorsement in favor of this methodology, especially in light of what happened as a direct result OF said overheating economy.
But, don’t take my word for it, take a look at the data yourself. Or, if you think I’ve lied and/or spun it, feel free to follow the links above and run the numbers yourself.
Because, in my experience, and based on the ones I’ve met so far, conservatives cannot often handle large words, or blocks of text longer than what can be fit onto a bumper sticker, the above might be too much for most of them, and it could lead to aneurism, or other severe medical condition. If that be the case, here’s a simpler way to explain it.
* The Bush Tax Cuts of 2001
These tax cuts were passed in 2001, and began hitting the budget in 2002. If the conservative theory is correct, then 2002 and subsequent years should be bigger, after adjusting for inflation.
Here are the receipts from IRS.gov for the period. All are adjusted for inflation, and measured using constant 2000 dollars:
2001: $964.47B (tax cut #1 happens)
2002: $823.97B (tax cut #1 begins impacting the budget. Q: Is this number larger than the one above it?)
2003: $746.08B(tax cut #2 happens, but has not yet impacted the budget. Note that tax cut #1 has now had two years of “revenue increaseyness” – are you seeing it yet?
2004: $736.19B (both tax cuts now impacting the budget…see any sign of that revenue increase yet?)
2005: $815.94B (up! Still not to where we were prior to the tax cuts, but increasing, so that’s a goodness!)
2006: $887.32B (note that the economy is overheating here…we’re verging on the RE crash, and still aren’t even back to par)
2007: $965.71 (ahhhh, Nirvana! At the peak of the bubble, we finally surpass revenues before the first cut…yay!) – now, imagine how much higher they’d have been if we hadn’t bothered with the cuts…
Okay, but let’s look at the Regan cuts…surely we’ll see the magic of supply side wizardry at work there, right? (cos after all, Rush said so!).
The Reagan cuts were passed in 1981, and began hitting the budget in 1982. All values here are inflation adjusted, and recorded in constant 1980 dollars.
1981: $260.17B (tax cut happens)
1982: $253.05B (is this number larger than last year’s?)
1983: $239.79B (how ’bout this one? Is this larger than the receipts before the tax cuts?)
1984: $235.74B (this one?)
1986: $261.75B – Hey! Back to where we started!
Now, the Kennedy cuts were interesting, because the taxes were cut during a robust economic expansion AND during massive military spending in Vietnam, so you’d expect to see a HUGE surge in receipts, right?
The Kennedy cuts took place in 1963, and began hitting the budget in 1964. We’ll be using inflation adjusted, constant 1960 dollars:
1963: $46.17B (tax cut happens!)
1964: $46.27B (ahhh! we see an increase! Granted, it barely shows up on the RADAR, but it IS an increase! Of course, given the robust expansion and the big Keynesean military expenditures, that easily explains this nominal increase, and we could expect that it would have been even larger, had it not been swamped by the tax cut, but of course, conservatives will choose to ignore that, and look at this…this one beautiful shining data point as vindication of their beliefs, never mind that the other forces acting on the economy were orders of magnitude greater)
1965: $45.87 (and of course, despite the robust economy and the military spending, the bloom quickly comes off the rose, and revenues shrink…they just can’t keep pace with the downward pressure exerted by the tax cut)
And of course, economists agree that had the tax cuts during the Kennedy years NOT taken place, then revenues would have been even higher, and almost certainly wouldn’t have seen that two year dip. Still, this is the closest thing the conservatives have to “proof” that their wacky theory works, and they’ll ignore all the other explanations for why revenues increased, preferring instead to focus on “the dream.”
After posting this, I had an extended discussion with a conservative commenter on “The Daily Beast.” I’ve summarized the shape and direction of that conversation below, because I feel it adds depth to the topic, and because it sheds some light (however illogical) on the conservative mindset regarding taxation in general, and this myth in particular.
It’s no secret. Conservatives say it all the time. TAX CUTS INCREASE REVENUES!
And when conservatives deploy this all powerful, magical phrase that serves as one of their foundational beliefs, they NEVER put any qualifications on it. That is to say, you never hear a conservative say:
“Yeah, so …. you know. Sometimes, in some very specific circumstances that aren’t always applicable, tax cuts may raise revenues.”
No. Let’s be clear about this point. The mantra is that “tax cuts have raised revenues every time they have happened!” (see the quotes from a variety of well respected conservatives, and note the complete LACK of qualifiers to the statement).
No distinctions. No caveats. No nothing. Just the pure, magical bliss of cutting taxes to increase revenues.
Except, apparently, when they are called on it. Our conversation centered around the recend Dem sponsored Tax cut (for the middle class).
I asked the question why, given that tax cuts increase revenues, the Dems were being forced to “pay for” their proposed tax cut with offsetting spending. This seems like it would set up a situation where the Dems were being forced to pay for their tax cut twice, yes? Once, by virtue of the enhanced revenues that the cut is supposed to generate, and a second time, by cutting spending. Deeply unfair, given the magical and all encompassing power of tax cuts, and their abilities to increase revenues.
Several conservative regulars on TDB attempted to dodge the issue, but I was fairly dogged, and kept turning back to the original question, and finally, it was Creebold who was able to provide us with an answer, and WHAT an answer it is! Read below and do your best to follow this logic to its end point.
1) Permanent tax cuts increase revenues. Temporary tax cuts do not.
2) The Bush 2001 and 2003 tax cuts were touted (both by President Bush, and by every Republican candidate running in 2008) as “increasing revenues” (reference the famous McCain example: http://www.factcheck.org/2008/01/the-impact-of-tax-cuts/
(note that McCain seems to be unaware that the temporary tax cuts he’s talking about from 2001 and 2003 aren’t suppose to increase revenues, per point 1 of Cree’s argument, and he isn’t alone…none of the other Republican candidates for President seemed to be “in” on this particular bit of wisdom either)
3) The Bush Tax cuts were temporary (they had a defined expiration date)
4) This is okay though, because the Republicans REALLY WANTED them to be permanent, so there is no conflict in the internal logic.
Thus, we come to understand that tax cuts only increase revenues if the R’s REALLY WANT a tax cut to be permanent (this applies whether the cuts are temporary or permanent…the DESIRE for permanence is the thing). That’s the mechanism that “bakes in” the revenue enhancing qualities of a tax cut. THAT is where the magic lives, you see? Any tax cut that the R’s REALLY DON’T WANT TO BE PERMANENT will, of course, lack the revenue increasing pixie dust, and thus, not count.
Find the original discussion here. It’s a hoot, and I couldn’t make this stuff up if I tried!
Original conversation here, tho I do not know how long they hold comments.