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Eminent Domain Stuff

New London Update (2/24/06)
Coverage of the Rally at New London's City Hall (w/ pics)

Thursday, December 08, 2005


Misdirection On Tax Cuts

This happens literally every time I see an article on tax cuts. Here's how the Washington Post puts it:

House Passes 3 Tax Cuts, Plans a 4th

The House passed three separate tax cuts yesterday and plans to approve a fourth today, trimming the federal revenue by $94.5 billion over five years -- nearly double the budget savings that Republicans muscled through the House last month.
So they want us to believe that by decreasing a tax rate, the tax revenue is decreased. That's not how it works. Taxation is not a zero sum game for the simple reason that when taxes are lowered, more people become successful and start paying taxes on a greater number of dollars. The relationship is known as a Laffer Curve. Don't believe it? Take a look at what happened when Russia adopted a flat tax of 13%.

Anyway, the WaPo saves an interesting bit of information for the end of the article:

Although the federal tax revenue has grown since the passage of the 2003 tax cuts -- from $1.9 trillion in 2004 to $2.1 trillion in 2005 -- the tax revenue measured against the size of the economy remains below the 2002 level and well below the level of 2001, when the first of Bush's five tax cuts was passed. "The argument that tax cuts will grow the economy and pay for themselves is very attractive, but it's just not true," MacGuineas said.
Hold on, hold on. I'd like to challenge the premise. Why is the tax revenue being measured against the GDP? Is it really important to maintain a level of tax revenue of some arbitrary percentage of the country's economic output? Why?

Wouldn't the budge deficit be a better gauge of the country's solvency? After all, the idea (for Conservatives like me) is to decrease the tax revenue and spending by my government. So to just assume that tax revenues of X% of GDP is "good" strikes me as, well, Liberal.

An extremely brief look at the numbers presented above indicate that tax revenues increased 9.5% in one year. That's a good deal more than inflation (usually 2-3%). So in reality, the US government has more money (in constant dollars) in 2005 than it did in 2004. Remember, that's right after Bush's tax cuts went into effect. Why, then, should we be worried about cutting tax rates further? If we go too far and start heading down the left side of the Laffer Curve have no fear, the Left will be more than willing to help us out getting taxes back up to where they 'should' be.

Moral of the story: Don't let anyone tell you that a decrease in any particular tax rate (especially federal ones) will necessarily lead to a decrease in tax revenue. They are two very different things and the relationship is often exactly opposite what the Left (and their media lackeys at the WaPo, in this case) would have you believe.


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