Amid the ongoing “fiscal cliff” battle, a popular argument about tax revenues has been reintroduced by Republican-leaning commentators. Eager to disarm facile Democratic proposals meant to erase federal deficits through higher tax rates levied on top earners, conservative pundits have published voluminous commentary and stats showing that income tax increases on the rich don’t produce the revenues desired.
In USA Today, Michael Medved wrote that “The problem with this odd wave of high tax nostalgia is that it ignores one crucial fact about the Eisenhower era: Higher tax rates on a few wealthy taxpayers didn’t produce higher revenues.” Writing in Investor‘s Business Daily, the great Thomas Sowell noted that “under both Republican President Calvin Coolidge and Democratic President John F. Kennedy, high-income people paid more tax revenues into the federal treasury after tax rates went down than they did before.” They did this despite lower tax rates because “Under these conditions, higher tax revenues can be collected by the government, even though tax rates are lower.”
There’s a great deal of evidence showing the above to be true. Whether the 1920s, 60s or 80s, tax revenues increase in concert with top earners accounting for a rising percentage of federal receipts whenever the headline tax rate on the rich declines. So while the argument is hard to argue with, it’s also very dangerous.
Indeed, seemingly forgotten by Republicans is a truth they at least pay lip service to about the horrors of government wrought by rising federal spending. Though we might wish otherwise, when federal revenues spike they rarely go toward paying off debt. Instead, the funds are used by the political class to either expand existing programs, or to introduce new ones. Spending is oxygen to politicians, and growing revenues represent a gusher of fresh air.
(Excerpt) Read more at forbes.com ...
