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10.01.2008 0

Excessive Spending, Not Tax Cuts, Leads to Deficits

  • On: 10/08/2008 14:03:35
  • In: Fiscal Responsibility
  • New data from the U.S. Treasury indicates another record-setting April for tax collections, putting to bed the myth that tax cuts lead to greater deficits.

    At a time when Americans are paying higher prices than ever for staples such as food and energy, Big Government has grown by more than 7 percent in the past year. Unfortunately, revenues have not grown that fast.

    So reports Pajamas Media’s Tom Blumer in his column, “Federal Budget Woes: It’s the Spending, Stupid!”:

    “The April Monthly Treasury Statement issued by Uncle Sam on Monday should put to rest the idea that the government is not getting enough in “revenues” (i.e., taxes) to get by. Contrary to the expectations of many, including myself, that report, along with the April 30 Daily Treasury Statement that preceded it, showed that there is still a bit of life left in George Bush’s supply-side tax cuts…

    “After April 2007’s record collections of $383.6 billion, which broke the previous one-month record set in April 2001 by 15%, I expected the sluggish economy’s mediocre 0.6% growth in each of the past two quarters to cause April 2008’s receipts to come in lower. Surprise!”

    Instead, April 2008 receipts totaled $403.75 billion, about a $20.1 billion or 5 percent increase in revenues.

    As ALG News has reported, lower tax rates stimulate economic growth, which in turn allows for government revenues to grow. Mr. Blumer attributes the increased collections to the relatively lower tax burden American taxpayers have faced for the past seven years under the Bush administration:

    “As was the case in the 1920s with Coolidge, the 1960s with Kennedy, the 1980s with Reagan, and 1997 with the Clinton capital-gains tax cut, Bush’s lower tax rates and investment-related tax cuts have led to impressive increases in money coming into the government. Supply-side economics’ naysayers have once again been shown to be wrong.”

    And he warns what will happen if the Bush tax cuts are allowed to expire:

    “Supply-side econ works in the opposite direction too. If taxes are allowed to return to their pre-2003 levels over the next few years, as will be the case if Congress does not act, Treasury collections will likely decline, or will at least trail inflation significantly. One could and should argue that in addition to extending the existing tax system — the one the markets have gotten used to for the past six years — the next president should push to enact another business-stimulating, collection-increasing tax cut. Hong Kong, Ireland, Iceland, and Australia, as well as Reagan during the 1980s, have all shown that multiple supply-side cuts continue to lead to increased collections.”

    According to U.S. Treasury data, revenues have grown by as much as 45% since 2004:

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