Wednesday, July 12, 2006

Sometimes in Life

Sometimes in life, there are times when you need to beat a dead horse. Heralding the indisputable success of the 2003 tax cuts is one of those times.

Three springs ago, a cadre of lefty tax hikers insisted that President Bush’s tax cuts would unleash something just short of economic Armageddon. They appeared on our television screens, in our newspapers, on the radio and all over the blogosphere, proclaiming—over and over again, with absolute certainty—that Bush’s tax cuts would devastate the U.S. economy.

There was no question about it they stubbornly maintained.

Bush’s reckless tax cuts would cost Americans their jobs! Economic growth would suffer! The budget deficit would soar to the stratosphere!

Were these folks ever wrong.

As The Wall Street Journal points out today:

“Yesterday's political flurry over the falling budget deficit shows that even Washington can't avoid the obvious forever: to wit, the gusher of revenues flowing into the Treasury in the wake of the 2003 tax cuts. The trend has been obvious for more than a year (see our May 23, 2005, editorial, "Revenues Rising"), but now it's so large that Republicans are trying to take credit while Democrats explain it away...

The real news, and where the policy credit belongs, is with the 2003 tax cuts. They've succeeded even beyond Art Laffer's dreams, if that's possible. In the nine quarters preceding that cut on dividend and capital gains rates and in marginal income-tax rates, economic growth averaged an annual 1.1%. In the 12 quarters -- three full years -- since the tax cut passed, growth has averaged a remarkable 4%. Monetary policy has also fueled this expansion, but the tax cuts were perfectly targeted to improve the incentives to take risks among businesses shell-shocked by the dot-com collapse, 9/11 and Sarbanes-Oxley....”

As for the class warfare zealots on the left still lobbing their tired claim that tax cuts only benefit the rich, here’s an interesting fact worth mentioning: The top 1 percent of America’s most successful earners are paying a higher and higher proportion of tax collections. In ballpark terms, the top 1% of income earners (those earning roughly 17% of total income) pay roughly 35% of the tax collections. Of course, that’s the way the system should work under a progressive tax code.

And the fact remains that lower tax rates across the board means higher tax revenues, especially from these top earners and investors. All this of course, is the result of an ever-expanding economic base triggered by low tax rate incentives and rewards for work, investment and risk taking.

So actually, as the WSJ smartly mentions, “If liberal Democrats are really determined to soak the rich -- and we don't doubt it for a second -- they'll also vote to make the tax cuts permanent.”

The bottom line here is that Bush’s pro-growth tax cuts worked. After all the dust settled, the supply-side was right.

The Bush tax cut trifecta:

1. The economy has grown at a 4.0 percent annualized rate since the tax cuts were passed.
2. Unemployment is well below 5 percent since the tax cuts were passed.
3. And, to top it all off, Uncle Sam’s coffers are overflowing in tax revenues.

Shout it from the mountaintops.