Tax Cuts and Extra Revenue


We’re still in the period of anecdote, when it comes to assessing the effects of the federal tax cut on the economy, but Investor’s Business Daily suggests that we’re seeing early indications of a tax cut’s ability to generate revenue that takes a bit off its projected cost:

The Congressional Budget Office says that federal revenues in January added up to $362 billion. That’s an increase of $18 billion— or 5.2% — from the year before. As a result, the government ran a surplus of $51 billion that month, which is equal to the previous January. …

Individual income and payroll taxes, it says, rose by $68 billion. “That change largely reflects increases in wages and salaries,” the CBO says. …

What’s more, the fact that employment gains continue to be strong means more people will be earning taxable wage income. It also means fewer people collecting government benefits, which will mean less government spending than would otherwise be the case.

The most shocking thing is that we’re debating the cost of the legislation.  Here, we see more people finding work and getting off of welfare.  Those sorts of positive outcomes are supposed to be what welfare programs are about, and it turns out that economic growth accomplishes them.

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So to accurately assess pro-growth policy, one must first adjust the static “cost” to account for increased revenue and then assess the benefits to individuals and our society against the remaining reduction in government revenue.  Naturally, I’m biased, but it seems to me that a fair assessment will show that the U.S. and most of the states (especially high-tax ones, like Rhode Island) have a long, long way to go before cutting taxes is anything less than a no-brainer.

  • Mike678

    Cutting taxes can increase revenue–the Reagan years, for example:

    When Reagan left office, real federal revenue was more than 19% higher than it was the day of his first inauguration. A major recession had been overcome, inflation had been broken, the tax code had been indexed to eliminate bracket creep, and the largest tax cut of the postwar era had been implemented. The Reagan tax cuts and the boom they created stand as the most successful policy initiative and recovery of the postwar era—the polar opposite of Mr. Obama’s program and economy.

    The Reagan tax cuts laid the foundation for a quarter-century of strong, noninflationary growth, which, despite three subsequent recessions, averaged 3.4% until the beginning of the Obama administration. And tax revenue was generated by an expanding economy rather than pilfered through bracket creep.”

    On the other hand, spending also increased and deficits grew as the Democrats refused to cut domestic spending, wasting trillions of dollars on failed programs–vote buying, if you will.

    The sad thing is that history repeats itself….see the current budget agreement.