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Author Topic: The Evidence Is Clear, Tax Cuts Work  (Read 70 times)
Hydrogen
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July 12, 2018, 03:53:29 AM
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It happened again. Tax receipts soared in the United States after the recent tax cuts.

Although it will take a while for the full effect of the 2017 tax reform to kick in, U.S. state and local government tax revenue climbed to $350.2 billion in the first quarter of 2018, a rise of 5.8 percent compared with the same time period in 2017. Individual income tax collections had big gains for a second-straight quarter with a 12.8 percent increase to $107.4 billion in 2018’s first quarter.

But the evidence of the positive impact on growth, jobs, and wages of lower corporate taxes has been published in many studies over time. The example of more than 200 cases in 21 countries shows that tax cuts and expenditure reductions are much more effective in boosting growth and prosperity than increasing government spending.


Multiple studies conclude that in more than 170 cases, the impact of tax cuts has been much more positive for growth.

In Denial
However, some commentators continue to deny the positive impact of tax cuts using the argument that deficits rise.

The fallacy that 'deficits rise' has nothing to do with tax cuts, but with increases in government spending on top of the tax cuts.

The deficit excuse is very simple. It says taxes should not be cut because governments will spend all revenues, even if these increase, and more. But this excuse is wrong.

The mistake of pointing at deficits as proof that tax cuts don’t work is debunked by looking at the proposals of the same economists that argue against tax cuts. Economist Paul Krugman is one example. He argued against tax cuts in his New York Times article “Time to Borrow” after the Obama administration increased debt by $10 trillion. These demand-side economists defend deficit spending, yet consider tax cuts as negative … because deficits may increase. Only Keynesian economists manage to pull off such mindbending logic.

Deficits need not rise or exist at all if governments spend in line with revenue growth. And the evidence points to rising revenues from lower taxes and higher growth.

Deficit Spending
While analyzing the deficits of the G-20 economies during the past 15 years, we found that more than 80 percent come from higher spending. Even in the 2008–2010 crisis, European government deficits were explained more by the “stimulus” plans and government spending increases than any loss of revenues.

Spain, for example, lost 40 billion euros of tax revenues from the bursting of the real estate bubble but deficits rose by 300 billion euros, driven by stimulus and automatic “stabilizers.” The European Union spent almost 1.5 percent of its GDP on stimuli and increased taxes, sending deficits and debt to GDP to all-time highs.  The United States increased taxes by $1.5 trillion under the Obama administration but the average deficit was 5 percent of GDP. The final tally was a $10 trillion increase in national debt.

During the Obama administration and the massive expansionary monetary policies of three rounds of quantitative easing (QE) and ultra-low interest rates, economic growth on average was only 1.4 percent and 2.1 percent if we exclude the crash year of 2009. That compares to an average of 3.5 percent during the Reagan administration, 3.9 percent during Clinton’s, and 2.1 percent during Bush Jr.’s.


Positive Effects
The evidence of the positive effects of tax cuts on jobs and growth is clear.

The 2018 “Economic Report of the President” shows that tax cuts generated more federal revenues even after adjusting for inflation and population growth.

President John F. Kennedy’s major tax cut, which included chopping the top marginal rate to 70 percent from 91 percent, became law in early 1964. The economy grew at an average 5.5 percent, and unemployment fell to 3.8 percent. In turn, the annual deficit shrank to $1 billion from $7 billion as individual income-tax receipts nearly doubled.

President Ronald Reagan cut the top personal rate from 70 percent all the way down to 28 percent. Between 1982, when the first round of Reagan’s across-the-board tax cuts went into effect, and 1990, when President George H.W. Bush broke his no-new-taxes pledge, individual tax receipts jumped 57 percent to $467 billion.

And even President Bill Clinton’s budget surpluses didn’t materialize until after the president in 1997 signed a GOP tax bill that cut the capital-gains rate to 20 percent from 28 percent. Tax receipts from capital gains soared as capital investment more than tripled. Between 1996 and 2000, “the increase in capital gains revenues accounted for a little over 20 percent of the total increase in federal revenues,” former Treasury official Bruce Bartlett said. For the first time, individual tax receipts hit $1 trillion.

After President George W. Bush in 2003 signed the largest tax cut since Reagan—including dropping the top marginal rate to 35 percent from 39.6 percent—government receipts from individual income taxes rose from $794 billion to a peak of $1.2 trillion in 2007, when the mortgage crisis began—a jump of 47 percent.

Stronger economic growth expanded the tax base and brought in so much revenue that Bush more than halved the deficit over that period.

There are plenty more examples globally. Professor Juan Manuel Lopez-Zafra from CUNEF in Madrid points to a few:


  • Russia introduced a 13 percent flat tax in 2001. Revenues rose 25 percent in 2002, and a further 24 percent and 15 percent in 2003 and 2004 respectively. Revenues rose 80 percent in three years. Russia is a country where government deficit spending is limited and the excuse of deficits does not mask the revenue improvement.
  • In 2012, Hungary implemented a 16 percent flat tax. Tax revenues soared 7.6 percent despite a decline in GDP of 1.6 percent. In its 2016 report, the OECD showed that the key to Hungary’s recovery was its tax system.
  • Ireland cut taxes to corporates to 12.5 percent from 50 percent and reduced the value-added tax, and tax revenues soared 67 percent. Between 2010 and 2017, Ireland’s tax revenues increased 21 percent and thanks to an attractive tax policy, Ireland is one of the few Eurozone countries that left the crisis with growth, lower unemployment and cutting deficits. Because spending did not soar.
  • Spain finally decided to cut taxes in 2015 and in 2016 and tax revenues grew 4.3 percent, more than nominal GDP, a level of increase that accelerated in 2017. Unfortunately, governments took the opportunity to increase expenditure, so deficits remained.
  • UK corporation tax receipts surged to a record high in 2017, up 21 percent rise from 2016 and an all-time high, despite the main rate falling from 30 percent in 2008 to 19 percent. The United Kingdom cut the corporate tax rate and did not lose any revenue. It paid for itself.
  • Corporate tax and marginal income tax have been reduced in the Nordic countries since the 2000s, and revenues have increased well above nominal GDP.
The evidence is clear. Tax cuts boost jobs, growth, and, in most cases, revenues. Those who choose to ignore it tend to do so because of a misguided view that governments need to spend more and that private individuals and companies make too much money.

But there is no public sector without a thriving private sector. Taxes cannot be a burden for growth and job creation because governments decide they want to spend more.

Deficits are no excuse for tax cuts. Deficits need to be addressed by curbing spending. Tax cuts are a necessary tool to keep an ever-expanding bureaucratic system from destroying the economy.

Giving back citizens and job creators part of their own money so consumption and productive investment continue to improve is not just economic logic—it is the right thing to do.

https://www.zerohedge.com/news/2018-07-11/evidence-clear-tax-cuts-work

It will be interesting to see what happens if the above prevails as a public held consensus stance on taxation. There used to be detailed accounts of how Ronald Reagan's tax cuts improved the US economy published on house.gov they were deleted years ago.

If anyone wants a prime example of how there could be a conspiracy to cover up and censor good economic policy in the USA.

Here is one way someone might gain evidence for it.

#1 Go to archive.org (its a website that archives website pages long after they've been deleted).
#2 Do a search for this URL:  https://www.house.gov/jec/fiscal/tx-grwth/reagtxct/reagtxct.htm

What you'll find is a page hosted on government servers that contained solid evidence that Trump's tax cuts would be successful as they followed the prior historical precedent followed by Reagan. Those pages were deleted and replaced by the media talking point which misinforms via claiming Reagan and Trump were "only interested" in cutting taxes for the wealthy, etc.

AFAIK there is an overwhelming amount of evidence for tax cuts being worth pursuing as economic policy which have been buried by political agendas and the media pushing misinformation campaigns.

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July 12, 2018, 04:14:39 AM
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More countries should follow this example. If the country has deficit, the government must decrease the state's size, shut off political/worthless positions, review if all the expenses are really necessary... But the globalists like to go through the most confortable path, that is: to increase taxes everywhere!

Then the productive sector loses interest and inspiration to work and improve. When it doesn't happen, businessmen try finding a more "fertile land" to start their operations. The most receptive countries, with lower taxes win the game - More jobs, development and technology are guaranteed for the winners.

Tax cuts work, but Non-Tax cuts the globalists income...

Andrej Peiboski
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July 12, 2018, 09:55:51 AM
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It's an interesting analysis, but I've long discovered that anyone can use the data and manipulate them to their advantage.
I do not know how to evaluate, but some statements seem excessively fanciful to me.

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July 12, 2018, 11:28:29 AM
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More countries should follow this example. If the country has deficit, the government must decrease the state's size, shut off political/worthless positions, review if all the expenses are really necessary... But the globalists like to go through the most confortable path, that is: to increase taxes everywhere!

Then the productive sector loses interest and inspiration to work and improve. When it doesn't happen, businessmen try finding a more "fertile land" to start their operations. The most receptive countries, with lower taxes win the game - More jobs, development and technology are guaranteed for the winners.

Tax cuts work, but Non-Tax cuts the globalists income...

I find it funny that countries would relentlessly increase taxes thinking that it will help them increasing their budget and decreasing deficit while in reality, it only gives investors more reason to take their business elsewhere and profit from their operations. It's also a bad answer from an administration that's supposed to come up with ideas to stay afloat while keeping the burdens from its citizens at bay, and also an example of how incompetent the current administration can be. Increasing taxes only makes matters worse IMO and is not always the answer for a country spiralling into debt.

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July 12, 2018, 12:29:05 PM
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All the Keynesian demand-side economy theories are totally wrong in a global world.Increasing the deficit and spending only increases the import of goods into the economy.This doesn`t help for the economical growth.
I`m lucky,because I live in a country with low taxes.This helps my business to grow faster.
We shouldn`t care about all the leftist liberal propaganda by Paul Krugman or some other "economists".

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July 12, 2018, 03:26:45 PM
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It probably works in the short term but what if we look in the long term? If it increases on one side it surely decreases on another side somewhere. The deficits coming from higher spending is because the countries need to support more things/programs/etc You can't really compare a budget in 2018 with a budget in 2000

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July 12, 2018, 05:10:40 PM
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It probably works in the short term but what if we look in the long term? If it increases on one side it surely decreases on another side somewhere. The deficits coming from higher spending is because the countries need to support more things/programs/etc You can't really compare a budget in 2018 with a budget in 2000

Two things are necessary for increasing tax revenue which is either increasing the tax rate or increasing the tax payers. The latter has been proven to be the most effective way of increasing the tac revenue for for that to happen, there is need for tax incentive and that is where the several mechanisms are employed. In some countries, they put in place tax forgiveness which practically removes previous tax liabilities while other means is to reduce the tax liability just like this one being talked about here. The point is just to encourage voluntary contribution which would then increase the revenue by reducing the cost that would have been incurred in going after defaulters in the first place. The fact is the model has been working and would continue to be so till the end of time.

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July 13, 2018, 04:04:47 PM
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The real problem is not taxes, but the use made of citizens' money.
When people realize that they are being robbed, they are clearly doing all they can to defend themselves.
And when taxes become a way to "punish" the most capable people, we remove all stimulus to growth and competition.

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July 15, 2018, 08:39:38 AM
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It is clear that there must be a correct balance between the level of taxation and that of services.
An excess of taxes - and especially progressive taxation, which "punishes" the most capable people - destroys motivation and entrepreneurial spirit.
But even reducing them excessively - after a first benefit - does not help.

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July 15, 2018, 09:03:16 AM
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Taking from a business owner perspective if the tax rate hike or stay the same, then i will move my business somewhere else and start to rethink carefully about what investment i should take to decrease my tax payment. However if the government will gave a tax cut then i will consider opening new business creating new employment line and will start another expansion of investment as it will increase my income and at the same time paying lower fee of taxes then i used to paid. I'm not giving free money to government while they're sitting behind their desk all day enjoying summer vacation. Roll Eyes Roll Eyes

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August 07, 2018, 09:24:12 PM
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Taking from a business owner perspective if the tax rate hike or stay the same, then i will move my business somewhere else and start to rethink carefully about what investment i should take to decrease my tax payment. However if the government will gave a tax cut then i will consider opening new business creating new employment line and will start another expansion of investment as it will increase my income and at the same time paying lower fee of taxes then i used to paid. I'm not giving free money to government while they're sitting behind their desk all day enjoying summer vacation. Roll Eyes Roll Eyes
The government is opening up and creating opportunities for individuals and organizations to participate in economic expansion is good. Your business will be tax exempt, it is fortunate for business. Although they do not do much, they are the guarantors.

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