by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Thomas Sowell‘s latest column challenges the notion — popularized by President Obama and his supporters — that the federal government can no longer afford the loss of tax revenue associated with Bush-era tax cuts “for the rich.”
What is remarkable is how easy it is to show how completely false Obama’s argument is. That also makes it completely inexplicable why the Republicans have not done so.
The official statistics that show plainly how wrong Barack Obama is can be found in his own “Economic Report of the President” for 2012, on page 411. You can look it up. …
… Those who find that “a picture is worth a thousand words” need only see the graphs published in the November 30 issue of Investor’s Business Daily.
What both the statistical tables in the “Economic Report of the President” and the graphs in Investor’s Business Daily show is that: (1) Tax revenues went up — not down — after tax rates were cut during the Bush administration, and (2) the budget deficit declined, year after year, after the cuts in tax rates that have been blamed by Obama for increasing the deficit.
Indeed, the New York Times reported in 2006: “An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year.”
While the New York Times may not have expected this, there is nothing unprecedented about lower tax rates’ leading to higher tax revenues, despite assumptions by many in the media and elsewhere that tax rates and tax revenues automatically move in the same direction. They do not.
The Congressional Budget Office has been embarrassed repeatedly by making projections based on the assumption that tax revenues and tax rates move in the same direction.
This has happened as recently as the George W. Bush administration and as far back as the Reagan administration. Moreover, tax revenues went up when tax rates went down as far back as the Coolidge administration, before there was a Congressional Budget Office to make false predictions.
The bottom line is that Barack Obama’s blaming increased budget deficits on the Bush tax cuts is demonstrably false. What caused the decreasing budget deficits after the Bush tax cuts to suddenly reverse and start increasing was the mortgage crisis. The deficit increased in 2008, followed by a huge increase in 2009.
So it is sheer hogwash that “tax cuts for the rich” caused the government to lose tax revenues. The government gained tax revenues; it did not lose them. Moreover, “the rich” paid a larger amount of taxes, and a larger share of all taxes, after the tax rates were cut.