Can somebody please explain to me how cutting taxes increases revenue?

[Cali_Democrat]

Republicans say this all the time, but how does it make any sense?

The government gets revenue through taxes. How exactly will revenue increase when taxes are cut?

Wouldn't cutting taxes actually increase the budget deficit?

[rfranklin]

1. Cutting taxes causes businesses to expand and pay greater net taxes on the increased profits...

which is a theory that only works in Republican Wonderland.

[Vincardog]

2. Cutting taxes actually increases the budget deficit, look at what happened under RayGun and aWoL

Other than that it is another in a long line of RW BULLSHIT

[slackmaster]

3. Any theory can be taken too far in practice, including increasing taxes to make up a shortfall

Simplistic discussion is simplistic.

[Spike89]

11. Exactly! It works, but not always

It is a matter of balance and values. Only in the repugs black and white view of the world does it always work. It is also true (sometimes, but not always) that taxing and spending will stimulate an economy.

The reality is that you tax too heavily, you potentially stifle investment. However, what the repugs don't also acknowledge is that you can tax very high and provide tax breaks specifically for behaviors/investments you want to see. For instance, when we had a relatively stiff marginal tax rate, we also had very generous investment shelters, particularly for payroll--in a sense, we made it economically advantageous for the rich classes to hire the rest of us at decent wages. That built the middle class in this country.

[rfranklin]

30. We have the lowest tax burden among the OCED nations...

We haven't even started to approach overtaxing.

[atreides1]

4. It's like someone standing over you...

...and telling you it's raining, when the truth is they're pissing down your back!:hide:

[Motown_Johnny]

5. it may have made some sense when the top rate was ~90%

but since it went below 50% it is all bull shit.


They can say it but they have no evidence to support their claim.

[taught_me_patience]

6. If taxes are oppressively high

then cutting them would stimulate the economy, which would, in turn, stimulate revenue. However, tax collection is currently at a record low, and cutting them further would probably mean a reduction in revenue.

[TheKentuckian]

7. If taxes were too high at some point it would reduce the incentive to invest.

That point is somewhere north of 60%. The current religious like belief came from growth after Kennedy brought us down from Eisenhower rates and now some folks think it is magic without diminishing returns and zero is the place to go.

Binary thinking is dangerous. There is a sweet spot in the rates that gives us the best return that we are now far below.

[BzaDem]

8. No, because it is complete hogwash. Targeted tax cuts to the poor and middle class in limited

circumstances can stimulate the economy (since they are the ones most likely to spend), but they do not come close to stimulating the economy enough to increase revenue. And tax cuts for the rich don't even stimulate the economy, let alone increase revenue.

[SoCalDem]

9. It's the Pixie Dust Theory

It goes like this:

If CEOs get to keep ALL the money, they will expand their business and hire bazillions of people to fuel the expansion...= Nirvana

in reality:

CEOs cheat & connive their way into not paying taxes, they wheedle and whine until they get "incentives" from government.

They write legislation for our legislators in exchange for campaign moolah, that exempts them from necessary regulations.. every penny not spent on toxic cleanup, pollution mitigation, is money in their pockets.

As they amass gigantic wads of cash, they can then cannibalize other weaker companies, gut them, lay off workers & sell off the pieces, thus eliminating any competition (no matter how weak it may have really been).

They arrive at a magical Monopoly moment, when they have all the cash, no competition , and the nations' legislators at their beck and call..

They are free to make even more money, and then hire people..but the people they hire will be in a Third World country, for pennies on the dollar.

[DanTex]

10. It doesn't

The supply-side theory is that cutting taxes will spur the economy so much that despite the lower tax rate, the total amount of taxes will go up.

For example, if the tax rate were 100% then cutting taxes to say 50% would increase revenue, because at 100% nobody would do any work at all,
and 50% of something is more than 100% of nothing.

But that only happens in extreme non-sensical thought experiments. In reality, the substitution effect (i.e. people deciding to work less if taxes go up because they get to keep less of their money) is nowhere near strong enough to compensate for the lower tax rate, and so cutting taxes decreases revenue and thus increases the deficit, just as you suggest.

Moreover, this (the fact that lowering taxes does not in fact increase revenue) is a researched and well established fact. People who claim that lower tax increase revenue are either dishonest or ignorant.

[kentuck]

12. If Kennedy cut the top rate to 70% to spur economy?

That is the same as cutting it to 20% to spur economy. They see no difference. In fact, they use Kennedy as an example from time to time.

[rurallib]

15. but Kennedy closed loopholes that EFFECTIVELY raised rates.

[kentuck]

20. We don't talk about that...

:-) That doesn't fit the "narrative".

[DJ13]

13. THE book on the subject

[jtuck004]

14. +1 eom

[rurallib]

16. looking at the data, it doesn't

[XemaSab]

17. Republicans love fairy tales

Adam and Eve lived 6,000 years ago and they are the ancestors of all people alive today.

Noah and all the animals rode out the flood on the ark.

Jesus died and was resurrected three days later.

If you criminalize abortion, then people will stop having premarital sex.

If you criminalize sodomy, people will stop being gay.

Some schools are bad because the teachers there are lazy.

Tax cuts increase revenue.

[sharesunited]

18. Works on only a portion of the curve. Breaks down at the extremes.

100% tax results in zero economic activity, and 0% tax results in infinite tax receipts?

Those limits are obviously absurd.

[Travelman]

19. The idea is that it stimulates the economy

and thus more economic activity generates a higher volume of tax collections. IOW, the thinking is that if you cut taxes to a smaller "piece of the pie," the pie itself will get bigger, and even though as a percentage you are getting less, in terms of actual pie, you're getting more.

There is a certain degree of validity to the idea, if you go to the extreme. Suppose that taxes are 100% above, say, $50,000 of income (just for the sake of simple math). Well, no one in their right mind would ever bother earning more than $50K in a year. If you cut that tax rate to 50%, you're going to take in a lot more revenue from people who make over fifty grand than you would when they just got up to that number and stopped working. There are plenty of people out there who could make $100,000 and they would take home $75,000, with $25,000 going to the coffers.

The trick is that the other extreme doesn't work. If taxes are 0%, then it doesn't matter how much people make, how big the proverbial pie is, because you're never going to take in any tax revenue. So that won't work.

The question then becomes: where and how much difference does it make? Well, back when we did have marginal rates up in the 90% range, it made a pretty big difference to cut it down to whatever it was that Kennedy cut it down to (60%? Can't remember now.). When it's a relatively low percentage, though, the "increase the pie" effect is greatly diminished. If you cut the marginal rate from 20% to 15%, you're not going to see a whole lot of pie growth. There's very few people out there for whom they would make the choice to not work any more (stop adding to the pie) at a 20% level, so that marginal difference down to 15% is most likely going to have a pretty negligible effect on pie growth.

[al_liberal]

21. It only makes sense in Art Laffer's theory.

He uses a parabolic curve of tax rates measured against revenue to try to show that if taxes are raised to the right of the apex of the curve revenues will drop. Thus, lowering taxes will actually move revenue closer to the apex which would mean higher revenue. The problem with the way the R's view this theory is that whatever the current tax rate, it is to the right of the apex of the parabola and it needs to be lowered to the left so as to move closer to said apex. So if we are to view the apex as constantly shifting to the left at each lowering of the tax rates we will end up at the point that lowering the rates to zero will generate the most revenue since it will be the apex.

[Johonny]

25. +1

[mmonk]

32. Yep. Except I call it the Laugher Curve.

[damntexdem]

22. Sure. Cut taxes. Wave magic wand. Revenues increase.

Didn't work? Well, get a better magic wand.

;-)

[Historic NY]

23. its doesn't lots of links ...........

http://www.politifact.com/truth-o-meter/statements/2011/apr/19/joe-walsh/rep-joe-walsh-said-every-time-weve-cut-taxes-reven/

[Capitalocracy]

24. Step 1. Get the underwear.

Step 2. ???
Step 3. Profit!

[Igel]

26. You need to be specific.

There was a bump in corporate tax payments when they cut the rate for repatriating money earned overseas. The companies had kept it overseas and let it pile up because the US charged the full tax rate for "bringing it home"--even though the companies paid taxes on it in the country in which it was earned. The feds made the *total* tax equal to the US tax rate--so if they paid 20% income tax on it in Country X, and the US tax rate was 30%, the companies only had to pay 10% to Uncle Sam.

There was a similar bump when the capital gains tax was reduced and people thought it was temporary. Investors cashed out billions in capital gains to "lock in" a new base price, and paid lower taxes on a far greater amount.

So there are two examples on how cutting taxes increased revenue.

As for stimulating increased growth, that's like saying the stimulus saved jobs: It really depends on your model, on your forecasts (the foolish thing is to always confuse what isn't but could be with what was; there's a lot of that going around). If you believed that more jobs would be lost if nothing were done, then you could claim that either tax cuts or the stimulus saved jobs. If you think the models are whack, then you'd conclude otherwise.

You'd need to say something about the current tax rate, the new tax rate, how it would vary by income level, deductions, the economy, and a bunch of other "stuff" before anybody could give you anything more than a "I believe" answer.

[Festivito]

27. By claiming to do so, people donate to your personal income.

Hey, a long time ago, during the great depression, CEOs(or whatever they were called back then) could set their own salary and did. This killed the money supply for lower folk.

So, the tax rate was set at 90% over a HUGE HUGE HUGE amount, and this stopped that practice and gave US, the U.S.A. a share of that wealth and increased the money supply for more people. And, we progressed like crazy, out a hole to up on a hill.

HOWEVER,

inflation came. The HUGE HUGE HUGE amount was no longer as huge. It should have been changed. But, no. (I think some wanted it gone, so on purpose they would not change it hoping it would blow up.)

So, some of the lower earners were becoming over taxed. Take Reagan. He was right. Why should he do another movie when 90% gets taken away.

So, Kennedy lowers the top rate. Couldn't do it right, i.e. raising the "huge" amount, understand the Ike had just won for the Republicans after they were toast after the depression and Repubs were too much of a force.

Thus, the lower rate opened up the upper-middle class to invest more. (Of course the upper-upper just took what they could.)

With more investment in the middle-upper, the middle had more, the lower had more and the taxes collected went up with all those people working.

At least that's what I think.

[Festivito]

28. By claiming to do so, people donate to your personal income.

Hey, a long time ago, during the great depression, CEOs(or whatever they were called back then) could set their own salary and did. This killed the money supply for lower folk.

So, the tax rate was set at 90% over a HUGE HUGE HUGE amount, and this stopped that practice and gave US, the U.S.A. a share of that wealth and increased the money supply for more people. And, we progressed like crazy, out a hole to up on a hill.

HOWEVER,

inflation came. The HUGE HUGE HUGE amount was no longer as huge. It should have been changed. But, no. (I think some wanted it gone, so on purpose they would not change it hoping it would blow up.)

So, some of the lower earners were becoming over taxed. Take Reagan. He was right. Why should he do another movie when 90% gets taken away.

So, Kennedy lowers the top rate. Couldn't do it right, i.e. raising the "huge" amount, understand the Ike had just won for the Republicans after they were toast after the depression and Repubs were too much of a force.

Thus, the lower rate opened up the upper-middle class to invest more. (Of course the upper-upper just took what they could.)

With more investment in the middle-upper, the middle had more, the lower had more and the taxes collected went up with all those people working.

At least that's what I think.

[Guy Whitey Corngood]

29. It's like the tides. Nobody can explain it. Ask Bill O'Loofah. nt

[mmonk]

31. No. It can't be explained because it isn't truthful.

If taxes are too high, they can be an impediment. However, federal taxes are at an historic low. So where's the revenue increase in the treasury? Taking this belief to its illogical conclusion, if we reduced taxes to say just 1%, the treasury would be overflowing. Supply siders have started a cult belief that causes many to repeat it like robots or parrots due to the repetition of their propaganda.

[HopeHoops]

33. The GOP cuts taxes for the rich and in return they get more "revenue" in campaign contributions.