Wednesday, August 23, 2006

History Shows Tax Cuts Work

Superb article by Richard Rahn in today's Washington Times ("Tax cut revenue rewards").

Many in the Washington establishment were shocked Aug. 17, when the Congressional Budget Office reported a surge of "unanticipated tax receipts" that will sharply push down this year's deficit. Those who had been proclaiming the Bush tax rate cuts would result in a big reduction in tax revenues tried to hide their disappointment. It was tough being proved wrong again after having said the same thing when Ronald Reagan cut tax rates in the early 1980s.

We have now had three major experiments with tax rate reduction in the last half-century, and each time both economic growth and tax revenues have surged, despite the fears and cries of the anti-tax-cut crowd. How much more evidence will they need to understand the difference between tax rates and tax revenues? Most everyone, including most members of Congress, can understand that properly structured tax rate reduction, by decreasing the impediments to working, saving and investing, will lead to a higher rate of economic growth. Why then is it so difficult to understand that a bigger economic pie can lead to more tax revenue rather than less?

Click here to finish the article.