Are Tax Cuts Good for the Economy?

This article discusses proposed tax cuts during 1999. It offers multiple reasons why across the board tax cuts are beneficial to the economy. First, unlike targeted tax relief they "don't discriminate by rewarding only taxpayers favored by politicians." Secondly, as people get to keep more of their money, they will spend and invest more. Finally, a tax cut removes revenue from the government;...

"Rarely do spectacular entrepreneurs leave their realm of business for the political arena. One exception is Andrew Mellon, the third-wealthiest American of his era, who left a dazzling career in American industry to become secretary of treasury under Presidents Warren Harding, Calvin Coolidge, and Herbert Hoover. ...

As treasury secretary Mellon confronted three major crises: a...

"If one needs further proof that the current political climate breeds sophistry should have been listening to a recent television interview featuring former U.S. Secretary of Labor Robert Reich.

To cut current taxes, Reich commented, would be 'risky' and 'irresponsible.' Any tax cuts would endanger economic growth and starve the government, he said. Besides, he added, the American...

This article argues that proposed tax hikes will significantly harm the economy. First, the author demonstrates that including all taxes, not just federal income taxes, middle-class Americans will pay a large share of their income to the government. Mr. Boskin argues this creates a "[r]ecipe for economic stagnation, socioeconomic ossification, and the loss of American global competitiveness...

"Ezra Klein brandishes a graph comparing employment and economic growth under the Clinton tax increase versus the Bush tax cuts. He says it refutes the Republican argument that 'you can't reconcile higher taxes and growth.' I'll acknowledge that it proves tax increases generally and the Clinton tax rates specifically can be compatible with growth. I'll even concede many Republicans predicted...

"In December 2010, Congress extended the research and development (R&D) tax credit through tax year 2011, but it has since lapsed and has not yet been renewed for 2012. The tax credit was first enacted in 1981 in an effort to improve the international competitiveness of American businesses by encouraging innovation and new technology.

Concerned about the budgetary impact of lost tax...

Are tax cuts Keynesian? Mitchell argues they are not, despite Dana Milbank's claims. He concedes that Republican politicians often use Keynesian logic to defend tax cuts, but that merely obfuscates the free-market position. Mitchell explains that low taxes are great growth policies because they promote greater freedom in the market. The more the market is free, the better it will perform.

"We need to pinch pennies these days. Don’t you know we have a budget deficit? For months that has been the word from Republicans and conservative Democrats, who have rejected every suggestion that we do more to avoid deep cuts in public services and help the ailing economy.

But these same politicians are eager to cut checks averaging $3 million each to the richest 120,000 people in the...

This article discusses why short term "stimulus" tax cuts are ineffective. According to Taylor, "Temporary increases in income won’t lead to significant increases in consumption. However, with longer-term increases, such as a permanent tax cut, consumption is not only increased but significantly so."

In this article, Moore discusses the falsities that surround the Reagan tax cuts. Many people believe it was the Reagan Administration that damaged the economy, however, Reagan actually inherited the damaged economy. When Jimmy Carter left office, the United States economy was in very bad shape, but with the tax cuts Reagan revived it. By the time his presidency...

In this article, Bernstein discusses the differences between the Reagan tax cuts and the Bush tax cuts. Each had varying degrees of success, which is due to the the monetary policies enacted during that time. The monetary policy during the Reagan administration was much more strict than that of the Bush Administration, which is why the Reagan tax cuts were more...

In this article, Moore makes it clear that tax cuts are in fact good for the economy, unless paired with reckless spending. This happened during George Bush's second term when his $2.6 trillion budget increased national spending and debt at an exponential rate. His budget was larger and called for more funds then every other president before him combined.

Many discussions of tax cuts involve government budget concerns. A cut in taxes increases personal consumption but decreases government spending due to a loss of funds. The Laffer curve posited that a decrease in taxes could lead to an increase in personal wealth and government revenue. Greg Mankiw lays out the basic framework for this curve.

This is a blog post about the $70 billion tax cut passed by Congress under the Bush Administration. It explains that this new tax cut will not cause a major increase in the nation's deficit because it is supposed to span five years. It also presents other facts to show the tax cuts have had and will have little negative effect on the economy and the nation.

In this article, Crane and Edwards discuss the benefits of across the boards tax cuts. Reducing tax cuts on savings inevitably brings about gains in capital, for everyone. Tax rates for businesses should also be reduced, so they are capable of competing in the global market. Lowering the barrier of entry will make it easier for entrepreneurs to start a business....

"Tax expenditures are, quite simply, spending programs implemented through the tax code. These programs give people and businesses special tax credits, deductions, exclusions, exemptions, deferrals, and preferential rates in support of various government policies. Some of these programs help people save for retirement, buy a home, or pay for college; others encourage companies to invest in...

This paper examines the Mellon tax cuts of the 1920s. These tax cuts increased economic activity, helped all members of society, increased government revenues, and helped pull the country out of the 1920s recession.

"Proposals for tax reductions during periods of a weak economy are inevitably followed by a discussion of the stimulus effects that such cuts will have on economic activity over the next year or so. Less often is the focus on the more important issue, which is whether a tax cut helps in the long run. Tax cuts make sense for two reasons: First, government spending responds to tax revenues, so...

This article argues that lower taxes boost the economy, help the poor, and rarely harm government revenue. In attempting to prove this thesis, Mitchell examines three major tax cuts, the Mellon, Kennedy, and Reagan tax cuts.

This blog post shows that the Reagan tax cuts actually helped the economy and the government in the long run. Although Reagan and his administration were mistaken in their initial revenue forecasts, ultimately the tax cuts created more total taxable income thus creating more tax revenue. Not only did the people benefit from the tax cut, but contrary to popular...

"Two ways to make government bigger involve borrowing money and imposing progressive taxes. A third notable technique is tax expenditures. Tax expenditures allow the scope of government activities to increase without going through the nasty process of an explicit government appropriation and transfer payment.

Under conventional wisdom, tax expenditures can take many different forms. A...

"Mr. McConnell, who was self-righteously denouncing the budget deficit just the other day, now wants to blow that deficit up with big tax cuts for the rich. But he doesn’t have the votes. So he’s trying to get what he wants by pointing a gun at the heads of middle-class families, threatening to force a jump in their taxes unless he gets paid off with hugely expensive tax breaks for the wealthy...

"President Obama took to Twitter last week to advertise the fact that 1,470 millionaires paid no federal income tax in 2009. The White House has proposed a 'Buffett Rule' mandating that taxpayers earning more than $1 million pay at least 30 percent of their income in federal income taxes. However, the unfairness the Obama administration has identified is only one limited, albeit particularly...

"Tax Day 2011 is Monday, April 18. But where does all our money go? What are all those IRS checks for?

Here are five ways to look at our tax receipt and the way our tax dollars are used to define our national values. In the gallery below, I've also included a handful of images that dive deeply into the question, How Much Money Do We Fork Over? and How Is the Money Spent?"

"Tax cuts work when they stimulate consumption. President Bush's $150 billion tax cut didn't do this and any tax cuts that President Obama puts in place aren't likely to stimulate people to spend if they are worried about losing their jobs."

"In August 1981, President Reagan signed into law the Economic Recovery Tax Act (ERTA, also known as the Kemp-Roth Tax Cut). The ERTA slashed marginal earned income tax rates by 25 percent across the board over a three-year period. The highest marginal tax rate on unearned income dropped to 50 percent from 70 percent (as a result of the Broadhead Amendment), and the tax rate on capital gains...

This chart illustrates the growth in income for all groups under the Reagan Administration while the tax cuts were in place. Although this is not necessarily proof that the tax cuts were good for the economy, tax cuts appeared to be good for the American people. With growth in income, people are more likely to spend or invest more.

Effective R&D Tax Credit for Large Firms in Selected Countries, cents per dollar of R&D expenditure, 2008-2009

"Top earners have more incentive to move to a lower tax state in 2010 than they did throughout the high-tax decade of the 1970s. Just as important, they have a stronger disincentive to move to Minnesota from a low-tax state today.

Figure 1 depicts how the incentive for top earners to move away from Minnesota changed between 1970 and 2015 under current and proposed state and federal tax...

This chart illustrates the economy's growth rate under each administration from Eisenhower to Clinton. Under the Kennedy and Reagan Administrations the growth rates are the highest - administrations which also implemented tax cuts.

"Thermostatic. That's how I would describe this graph. Despite marginal rates falling from 70 to 28, despite tax expenditures blasting wide open in the last 30 years and despite some wicked recessions, federal income as a percent of GDP has always stayed between 15 and 20 percent."

"Before the Reagan administration, the income tax system resembled a tall staircase with dozens of small steps all the way up to 70 percent, meaning that families could only keep three out of ten dollars earned beyond a certain point. Today, the highest marginal rate is only 35 percent. But as the next graph shows, federal income as a share of GDP has been pretty consistent throughout these...

"Figure 1 is a graphic illustration of the concept of the Laffer Curve--not the exact levels of taxation corresponding to specific levels of revenues. At a tax rate of 0 percent, the government would collect no tax revenues, no matter how large the tax base. Likewise, at a tax rate of 100 percent, the government would also collect no tax revenues because no one would willingly work for an...

This graph shows the unemployment rates from 1973 to 1995, including the years before, during and after the Reagan Administration. The Reagan Administration saw the lowest unemployment rate during this time period. When his administration began, he inherited a high unemployment rate.

"This paper shows that at zero short-term nominal interest rate tax cuts reduce output in a standard New Keynesian model. They do so because they increase deflationary pressures. Policies aimed at stimulating aggregate demand work better. These policies include (i) a temporary increase in government spending and (ii) a commitment to inflate. The multiplier of tax...

This paper suggests that the form of taxation -- not the level of taxation -- is significantly more important for creating a strong economy. However, this paper argues a good form of taxation would have a low marginal rate. The study explains why a shift from income to consumption tax is the optimal choice. Income tax distorts an efficient capital allocation which harms long-term growth;...

This paper is a critical review of a Brookings paper that claimed, amongst other things, "High taxes can improve economic growth" if used to shore up budget deficits. This paper argues that to be untrue. Instead, taxes should have low marginal rates to promote growth. The author contends it is immaterial whether spending is financed by taxes or deficits.

This piece compares the Mellon era low tax period of the 1920's to the high tax era of the Great Depression. This article credits Andrew Mellon for bringing about a period of high growth due to low taxes during the 1920's and blames the Hoover and Roosevelt administrations for worsening the Depression through higher taxes during the 1930's. Much like today, Roosevelt passed off soak-the-rich...

The political tax debate often focuses on income tax payed by the individual. This recent Cato study examines corporate taxes. First, it finds that the US marginal corporate tax rate is one of the highest amongst OECD countries. Secondly, it claims that corporate taxes distort the market more so than income taxes and therefore harm the economy even more. Thirdly, due to globalization, the US...

"The economy will likely play a prominent role in this year's State of the Union address. In the weeks and months leading up to the speech, the President and his economic team and staff have sought to create a selective and exaggerated picture of the economy as a means to justify their fiscally reckless economic policies and to support making their tax cuts...

This paper examines multiple ways budget deficits harm the American economy. As a result, the authors recommend tax increases to help reign in the debt. They suggest that under certain circumstances tax hikes can help the economy. Furthermore, they argue tax cuts have a hidden cost; present tax cuts limit future tax cuts or government spending. The same is true with government spending, and...

In this white paper, Moore and Stansel analyze the difference between raising taxes and cutting taxes. They look at the records of individual states that have implemented both or one of the two choices and explain the effects. They also provide a before and after analysis.

This collection offers a variety of history on American taxation. The information on the colonial tax issues which led to the American Revolution is particularly interesting.

This study performed a meta analysis of numerous studies regarding corporate tax rates' effect on foreign direct investment. It discovered a ratio of roughly 1 percent decrease in corporate tax to a 3.3% gain in investment. However, while this is the average of numerous studies, the results from each individual studies varied heavily.

"With tax day fast approaching, there is a considerable lack...

After recounting how the "Laffer Curve" allegedly came into being, Arthur Laffer explains his theory on how tax increases and tax reductions impact the economy. Laffer looks at three major tax cuts in American history (the Coolidge, Kennedy, and Reagan tax cuts) and effectively charts the causes and effects of these tax related decisions.

"Tax relief worked. It put the federal tax burden on track toward its historic norm. Combined with an aggressive monetary policy, tax relief helped to restore robust economic growth following the Clinton recession and subsequent shocks early in the decade. It produced a more growth-oriented tax policy for the long term, helping the economy to weather current storms...

In this video, Alison Fraser and other guests on CNBC discuss the current economic situation and whether or not cutting taxes would help stimulate and grow the economy.

This is a clip of a discussion on CNBC about whether or not tax cuts do in fact stimulate the economy. It includes commentators from both sides.

"What, then, is the subject of our controversy with the mother country? It is this: Whether we shall preserve that security to our lives and properties, which the law of nature, the genius of the British constitution, and our charters, afford us; or whether we shall resign them into the hands of the British House of Commons, which is no more privileged to dispose of them than the Great Mogul....

"This act was passed by the British Parliament to forbid the American colonies from printing their own money. It was part of the efforts of Prime Minister George Grenville to reduce the national debt and rebuild the British and colonial economies by removing a confusing and inflationary mish mash of bills printed in the colonies at various times. The act actually harmed the economy by removing...

This document explores the president's proposed changes to the tax code. For each change, "There is a description of present law and the proposal (including effective date), an analysis of policy issues related to the proposal, and a reference to relevant prior budget proposals or recent legislative action." The main thrust of this proposal is to use the tax code to stimulate the economy by...

This document contains a collection of primary sources composed in response to the Revenue Acts issued by the British Parliament in the mid-1700s. The documents include petitions from various state legislatures requesting reconsideration of taxation practices.

This act sought "To amend the Internal Revenue Code of 1954 to encourage economic growth through reduction of the tax rates for individual taxpayers, acceleration of capital cost recovery of investment in plant, equipment, and real property, and incentives for savings, and for other purposes."

"Two series of letters that have been described as 'the wellsprings of nearly all ensuing debate on the limits of governmental power in the United States' are collected in this volume. The writings include Letters from a Farmer in Pennsylvania - the 'farmer' being the gifted and courageous statesman John Dickinson and Letters from the Federal Farmer ... being the redoubtable...

"The present federal income tax dates from the act signed by President Wilson on October 3, 1913. That act was made possible by the ratification of the Sixteenth Amendment to the Constitution adopted on February 3, 1913. Earlier federal income tax laws had been repealed or held unconstitutional. The income tax first became a significant source of revenue during World War I.

Four tax...

"Fellow Americans and fellow taxpayers:

Eleven weeks ago, in mid-January, I requested the new Congress to pass as its first priority a simple $16 billion reduction in Federal income taxes in order to stimulate economic activity and put people back to work.

I asked for a one-time refund to individual 1974 taxpayers up to a maximum of $1,000, enough to assist in the purchase of new...

This collection of Herbert Hoover's statements and Press conferences paints a picture of Hoover's policy towards taxes. He stressed the need for an adequate increase of taxes in order to maintain the good credit of the United States. At the same time, the amount of tax increases would be dependent upon the government deficit. Hoover stressed the importance of balancing the budget with the...

"By the case stated, only one question is submitted to the opinion of this court; — whether the law of Congress, of the 5th of June, 1794, entitled, 'An act to lay duties upon carriages, for the conveyance of persons,' is unconstitutional and void?"

In this address, President Kennedy presents his plan for reducing taxes. First, he articulates that high level of taxes hurt growth by robbing the private sector of capital and incentive. His plan calls for cutting private taxes, corporate taxes, and improving the equality and simplicity of the tax code.

According to Oyez, "The Constitution gave the states the power to impose direct taxation. The federal government could impose direct taxes as well, but only if those taxes were apportioned among the states in proportion to their representation in Congress. In this case the Court examined a national income tax...

President Bush argues that high taxes hurt the economy and stimulus taxes encourage economic growth. He argues high taxes on the rich directly hurt small business, preventing them from expanding and thereby hurting everyone. Also, the President claims stimulus taxes encourages companies to invest leading to job growth.

"The activities of governments have grown remarkably rapidly in all Western countries during the twentieth century, especially during the last fifty years. This growth cannot be entirely explained by benevolent governments maximizing social welfare because subsidies to agriculture, restrictions on entry into the airline, trucking and other industries, duties on Japanese imports, and many other...

The President and Vice President discuss the recent tax cut bill. They praise this bill as a compromise and note its stimulatory effect. But instead of economics, the President focuses on the human side of these tax cuts. He discusses how it will help the middle-class pay their bills, pay for college, raise children etc. He also claims it increases job prospects.

This document is a transcript of the questions-and-answer that occurred while Ronald Reagan was signing the Economic Recovery Tax Act and the Omnibus Budget Reconciliation Act. Although all the questions/answers do not deal with the tax cuts and budget bills, Reagan is able to expand upon the address he made to Congress.

Established in 1948, this document is cited as "An Act To reduce individual income tax payments, and for other purposes." The bill was originally rejected by President Truman on April 1st, but his veto was promptly overridden and the bill passed into law.

"The central and controlling question in this case is whether the tax which was levied on the income, gains, and profits of the plaintiff in error, as set forth in the record, and by pretended virtue of the acts of Congress and parts of acts therein mentioned, is a direct tax. It is fundamental with respect to the rights of the parties and the result of the case. It will be last considered."...

Cited as "An Act To amend the Internal Revenue Code of 1986," this law extended the various tax relief laws enacted throughout the first decade of the twenty-first century.

"Have you never chanced to hear it said, 'There is no better investment than taxes. Only see what a number of families it maintains, and consider how it reacts upon industry: it is an inexhaustible stream, it is life itself.'

In order to combat this doctrine, I must refer to my preceding refutation. Political economy knew well enough that its arguments were not so amusing that it could...

Dick Armey presents his case for the flat tax in front of the President's Commission on Tax Reform. He argues that taxes should be lowered, incomes should not be taxed multiple times, and the tax code should not be used to distort the market. He argues that a decrease in marginal tax rates -- across the board -- increases incentives for additional work and investment. Furthermore, he argues...

This particular Federalist Paper is entitled, "The Utility of the Union In Respect to Revenue." Hamilton describes how productive commerce is needed in order to provide necessary revenue for the nation, an element without which "[a] nation cannot long exist."

"Also known as the American Revenue Act of 1764, the Sugar Act enforced the collection of taxes on various goods including sugar to help raise revenue to pay off the British national debt which grew substantially as a result of the French and Indian War."

"AN ACT for granting certain duties in the British colonies and plantations in America; for allowing a drawback of the duties of customs upon the exportation from this kingdom, of coffee and cocoa nuts of the produce of the said colonies or plantations; for discontinuing the drawbacks payable on china earthen ware exported to America; and for more effectually preventing the clandestine running...

"The Sugar Act passed in 1764 was the first attempt to tax the colonies. It would have passed unnoticed had it not been for Samuel Adams who saw it as an infringement on their rights and liberties. Adams gained the support of the Massachusetts Assembly by stating valid arguments against Britain’s tax policies on the colony and the need for legal representation to avoid becoming tributary...

This speech given by Dick Cheney in front of the Commonwealth Club discusses how the tax cuts have boosted economic growth in America. He points out what makes our economic system unique and why it works. When government gets involved in the economic process it interferes with how our system works, which is why, according to him, the Bush Administration chose to...

"The 21st century knowledge economy requires a fundamentally different approach to boosting growth than simply cutting taxes on the richest investors. The alternative is not, however, to resurrect old Keynesian, populist economics as too many Democrats hope to do. Rather, as Rob Atkinson makes clear, our long-term national welfare and prosperity depends on a new...

"To follow the debate over tax reform, the interested citizen is forced to choose between misleading sound bites and academic treatises. Taxing Ourselves bridges the gap between the two by presenting in clear nontechnical language the key issues in tax reform: who should pay taxes, how taxes affect the economy, and whether to reform or replace the current...

"National Taxpayers Union (NTU) is America's independent, non-partisan advocate for overburdened taxpayers. NTU mobilizes elected officials and the general public on behalf of tax relief and reform, lower and less wasteful spending, individual liberty, and free enterprise. Founded in 1969, we work at all levels for the day when every taxpaying citizen's right to a limited government is among...

"The Tax Policy Center is a joint venture of the Urban Institute and Brookings Institution. The Center is made up of nationally recognized experts in tax, budget, and social policy who have served at the highest levels of government. ...

TPC provides timely, accessible analysis and facts about tax policy to policymakers, journalists, citizens, and researchers."