Morning Tax News

Cato’s Dan Mitchell points us to this IMF report indicating that, in a few instances, lowering taxes really can result in an increase in government revenues.  Either way, as Mitchell has pointed out previously, there’s ample evidence worldwide that a simple, low flat tax can produce huge economic benefits.

Meanwhile, over at Heritage, Brian Reidl goes into detail on a topic I mentioned yesterday — why only tax cuts, and not tax rebates, stimulate the economy:

Economic growth requires four main factors: 1) a motivated, educated and trained workforce; 2) sufficient levels of capital equipment and technology; 3) a solid infrastructure and 4) a legal system and rule of law sufficient to enforce contracts.

High tax rates reduce economic growth because they make it less profitable to work, save and invest. This translates into less work, saving, investment and capital — and that results in fewer goods and services. Reducing marginal income tax rates has been shown to motivate workers to work more. Lower corporate and investment taxes encourage the savings and investment vital to producing more plants and equipment, as well as better technology.

By contrast, tax rebates fail because they don’t encourage productivity or wealth creation. No one has to work, save, invest or create any new wealth to receive a rebate.

The whole thing is worth a read, and will be useful if and when President Bush announces his stimulus package today (some reports indicate that he’ll propose something far more substantive than the rebates that had initially been rumored).