Day by Day

Sunday, August 29, 2010

Perfect Financial Mismanagement Storm

Who said? “Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle—workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today's economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit—why reducing taxes is the best way open to us to increase revenues.”


John F. Kennedy, January 1963. And it worked. Lower tax rates produced higher tax revenues. Interestingly, the greatest increase in tax revenues came from the wealthiest taxpayers. In the past forty-seven years, as a percentage of GDP, the top one percent of taxpayers now pay 3.3 percent, compared to 1.3 percent in 1963. In fact, they are now paying the same in total as the bottom 95 percent, who are only paying at half the rate they were prior to the Reagan tax cuts.

That’s right. Since the Reagan tax cuts, the rich are paying at twice the rate, and the bottom 95 percent are paying at half the rate. So much for the Democrat mantra that Reagan gave tax cuts to the rich on the backs of the poor (and middle class).

That won’t stop Democrats from playing to the same old class envy and demanding more taxes on the rich so they “pay their fair share.” However, as always, if the taxes on the rich go up, total tax revenues (and employment, and investment, and job creation) will go down, and the deficit will go up.

It’s a “Perfect Financial Mismanagement Storm.”

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