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SedyAlpha · #1 (**permalink**) 05-06-2005, 03:56 PM

Lower Tax Rates, Higher Revenues

http://www.realclearpolitics.com/Com...5_5_05_LK.html

Quote:

By Lawrence Kudlow

This morning's Washington Post headline reports "Tax Receipts Exceed Treasury Predictions." Digging underneath the headlines, I found inside the daily Treasury statements that during the April tax payment month non-withheld receipts from capital gains, dividends, stock options, and other sources came to $144 billion, an incredible 29% increase from a year ago. Last year, these receipts fell by 5%.

Consequently, the FY2005 budget deficit should come in around $395 billion, or 3.2% of gross domestic product, calculations that include the military appropriations supplement for the terror war. As a result, the Treasury Department will actually pay down $42 billion in debt during the April-June quarter. Last year they had to borrow an additional $42 billion. Last year's budget gap was $412 billion, or 3.6% of GDP.

But the real story behind the higher tax payment numbers is the successful supply-side experiment that began in the middle of 2003, when investment tax rates were slashed on capital gains and dividends. With new incentives to counter the deflation of investment in 2000-2002, both capital formation and economic growth have come back from the dead over the past 2 years.

Real GDP since the tax cuts has averaged 4.3% at an annual rate, whereas growth was only 2.4% in the anemic recovery preceding the tax cuts. The latest government data on tax collection for calendar 2004 confirms the tax-cut-led recovery through the explosion of high tax collections at lower tax rates. The Laffer curve is working.

With more people keeping more of what they earn and invest, after-tax, a major new economic boom has been launched. Enormous wealth creation from real estate, stocks, and small business creation is the backbone of this entrepreneurial recovery. Despite naysayers in the mainstream media and parts of Wall St., strong economic expansion will continue for many years.

Supply-siders in the White House and the Republican Congress have the economic story absolutely right. That is why the investment tax cuts have been extended to 2010 from 2008 in the budget resolution. Even the estate tax rate may be cut to 15%, or eliminated altogether, in this Congress.