Make the Bush tax cuts permanent
By By Tray Smith
Despite having to endure a stock market bubble, the largest enemy attack on our country's soil in its history, two wars, corporate scandals and skyrocketing energy prices, our nation's economy has created thousands of new jobs and trillions of new dollars in economic output since President George W. Bush first took office in 2001. And the vast majority of that growth has occurred since 2003-when the President signed the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) into law.
Unfortunately, these observations go unnoticed by many American liberals, who do not view our tax policy as the means to an end of greater economic prosperity but as the means to an end of moral justice. That moral justice is a system of wealth redistribution that financially penalizes the "rich" through higher taxes in order to subsidize the "working poor". (This is, of course, despite the fact that these liberals have provided no definition of "rich" or "poor" and most of the poor they want to subsidize are not working.)
It is this philosophy that has led Democrats, soon to control Congress, to oppose the permanent extension of JGTRRA and allow an automatic tax increase to occur when the provisions of that act begin to expire in 2008. The main argument in favor of such action is that it will reduce our nation's budget deficit, which many Democrats believe was caused by the tax cuts in the first place. But in order to affect our nation's budget deficit, such a tax increase would have to increase government revenue, and there is significant historical data that suggest revenue increases faster when taxes are cut.
In 1993, President Clinton worked with the then Democratically-controlled Congress to enact an economic program that increased tax rates in order to rein in the budget deficit. By fiscal year 1996, three years after President Clinton's plan had been enacted, government revenues had increased by 299 billion dollars. After adjusting for the inflation that occurred over those three years, revenue only increased by 99 billion dollars, which would be the equivalent of around 120 billion dollars today. But by the end of fiscal year 2006, three years after President Bush's signature of the Jobs and Growth Tax Reconciliation Act in 2003, federal government revenues have jumped by 418 billion dollars, 267 billion dollars after adjusting for inflation. That means that, according to the federal governments own records, tax revenues increased by 267 billion dollars after President Bush's tax cut but they only increased by around $120 billion dollars after President Clinton's tax hike.
How government revenues can increase more after a tax cut befuddles many Americans. But it is really as simple as Wal-Mart. Wal-Mart could decide to raise the cost of everything in its store by 10 percent, and in the short term, its revenue would rise. But over the long-term, competitors would emerge to under price Wal-Mart, shoppers would go elsewhere, and Wal-Mart's revenue would decline. In the same way, when the government raises taxes now, its revenues will grow. But as businesses flee to other countries with lower tax rates, the economy will shrink, the government's tax base will shrink with it, and revenues will not grow as fast as they would have otherwise. This phenomenon is caused by the fact people and markets can distribute money and capital much more efficiently than the government can, and when they are allowed to do so, the economy grows, and the government's tax base grows with it. It is very easy to look at the economy today and declare that if tax rates were higher, government revenues would be higher. But the economy would also not be as big as it is today had taxes been higher for the past couple of years.
The reason that President Clinton's policy led to a surplus in the budget and President Bush's policy has not is that President Clinton benefited from the "peace-dividend", being able to reduce military spending in the aftermath of the Cold War, and President Clinton had to negotiate with a Republican Congress. But President Bush has had no such "peace-dividend" as his time in office has called on the military to fight two wars. President Bush has also not had to live with a divided government-until now- and has thus lost the will to reign in spending.
The best thing we could do to our tax code is eliminate it. But short of such bold action, we can at least extend the tax cuts that have kept our economy rolling for the past three years, just as did the Coolidge tax cuts in the '20's, the Kennedy tax cuts in the '60's, and the Reagan tax cuts in the '80's. The merits of sensitive social issues can be debated all day long. But on economics, Republicans are on the side of fact. They should fight until the Democrats concede that.
That is the bottom line.
Tray Smith is a sophomore at ECHS and former intern in the Riley administration. He can be reached for comment at email@example.com.