Tax Cuts Make Money

Sen. Bill Frist writes a piece in USA Today which reminds everyone, and especially the Dems, that cutting tax rates does not mean cutting Federal revenues, but in fact, the opposite is true:

Many people in Washington have long known a dirty little secret about tax-cut measures: When done right, they actually result in more money for the government.

Ever since the Senate approved the last major tax relief bill, in 2003, revenues have increased every year. In 2004, they went up 5.5%. Last year, they rose 14.5%, the largest increase in nearly 25 years.

Total government collections, in fact, increased more after President Bush's 2003 tax cuts than they did after President Clinton's 1994 tax hikes.

Could that last line be a not-so-subtle dig at one of Frist's potential opponents in the '08 presidential race? Could be.

Frist gives an example of how the best efforts of the Congressional Budget Office were off - by 200%:

Republicans' decision to reduce taxes on capital gains and dividends provides a good case study in effective tax policy. When we enacted these measures in 2003, the Congressional Budget Office estimated that revenues would decline by $27 billion over the next two years. Instead, it turned out that the tax cut stimulated investment and increased revenues by $26 billion — a $53 billion difference.

That difference, by the way, provides enough money to fund the entire Department of Justice for more than two years.

Even the CBO doesn't understand the reality of how tax cuts actually generate increased Federal dollars.

The problem basically comes down to the way each party looks at taxes and the economy.

Dems think that all money is the government's, and you're just lucky if they let you keep some of it. Money must be moved from the haves to the have nots, and the best way to do that is through taxation.

Dems look at taxes as a zero sum game. If you reduce tax rates, you therefore must reduce tax revenues. Conversely, if you raise taxes, in Dem world you raise federal income, which completely ignores the fact that when you raise taxes, smart people start looking for ways to shelter income and prevent themselves from being robbed by confiscatory tax rates. The economy gets throttled and growth is reduced. The government has never created a dime of wealth.

Republicans recognize that the government actually has no money that it doesn't take from someone else who earned it. They look at taxes as a drain on the economy and something which stifles growth and expansion. Reduce tax rates and you free up capital which in turn opens up the spigot on economic growth and causes the economy to expand and tax revenues to soar thanks to all the newly made money. It's a beautiful thing, and like abstinence, works every time it's tried.

We'll see if the Dems come up with some sort of response to Frist's article.