Lower Tax Rates, Higher Revenues

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.

PJO34 · #2 (**permalink**) 05-06-2005, 07:09 PM

I am not an economist, but even I know that none of that makes a difference unless the government stops spending money like a crack whore with a gambling problem.

Gian55 · #3 (**permalink**) 05-06-2005, 07:21 PM

The government isn't going to stop pissing our money away any time soon. We've still got billions in interest to pay on more than $7 trillion in debt, a lot of it held by foreign creditors. We still have to work on paying that back before that interest consumes our budget like a cancer.

I wouldn't give an ounce of credit to those morons in the halls of Congress. Why, exactly, did the most fiscally reckless institution on the planet have the audacity to pass a tougher bankruptcy reform bill last month? Anyone else see the irony?

raytri · #4 (**permalink**) 05-06-2005, 08:13 PM

"Exceeding expectations" is easy if the expectations are low enough. The real question is, are collections up BECAUSE of the tax cut?

According to the story, the surge was unexpected and largely dependent on the AMT -- a tax that affects more and more people every year. So the answer appears to be "no."

Rebellion · #5 (**permalink**) 05-07-2005, 12:36 PM

Quote:

Originally Posted by raytri";p=&quot

"Exceeding expectations" is easy if the expectations are low enough. The real question is, are collections up BECAUSE of the tax cut?

According to the story, the surge was unexpected and largely dependent on the AMT -- a tax that affects more and more people every year. So the answer appears to be "no."

It says that it's mainly a result of receipts on capital gains, options etc. So that would have nothing to do with AMT. It's no coincidence that the stock market exploded and the economy started to grow immediately following the cuts.

SedyAlpha · #6 (**permalink**) 05-07-2005, 06:25 PM

Quote:

Originally Posted by PJO34";p=&quot

I am not an economist, but even I know that none of that makes a difference unless the government stops spending money like a crack whore with a gambling problem.

True but that is only half the story.

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