Critics of tax relief often allege, incorrectly, that deficits will increase when taxes are lowered. In support of this claim they often point to the deficits of the Reagan and Bush II administrations. But notice how they ignore a key point: tax relief can contribute to deficits only if revenues decrease. But if revenues don’t decrease during a tax-cut, then tax-cuts can’t possibly contribute to the deficit. Correlation, in other words, is not causation.
Evidence proves that big government alarmists are wrong. During the Reagan administration, tax revenues increased after the ’80s tax cut, just like it did after the tax cuts of the ’20s and ’60s. This renders toothless the historical arguments against "fiscally irresponsible" tax-cuts.
The Jobs and Growth Act cut taxes an average of $1126 for 91 million Americans. Revenues have reached a record high.
Why does this not get any press? Your guess is as good as mine.
What’s more, the tax-cut has already paid for itself. Why? How? Noted economist Donald Luskin explains:
To appreciate this story, we have to go back in time to January 2003, before the tax cut was enacted. Table 3-5 on page 60 in CBO’s Budget and Economic Outlook published then estimated that capital gains tax liabilities would be $60 billion in 2004 and $65 billion in 2005, for a two-year total of $125 billion.
Now let’s move forward a year, to January 2004, after the capital gains tax cut had been enacted. Table 4-4 on page 82 in CBO’s Budget and Economic Outlook published then shows that the estimates for capital gains tax liabilities had been lowered to $46 billion in 2004 and $52 billion in 2005, for a two-year total of $98 billion. Compare the original $125 billion total to the new $98 billion total, and we can infer that CBO was forecasting that the tax cut would cost the government $27 billion in revenues.
Yes, instead of costing the government $27 billion in revenues, the tax cuts actually earned the government $26 billion extra.