Please comment on this article about taxes and government revenue.

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pohnpei397's profile pic

pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted on

Although this article gives some reason for hope, it does not mean that all is well.

According to the article, governments have taken in as much tax revenue this year (a 12 month period ending in June) as they did in the last year before the financial crisis and the recession hit.  This is good news in the sense that it means that things are getting somewhat better and there is more income to be taxed.

The problem is that this does not yet make up for all the lean years in between.  In the last few years, government deficits have gone up tremendously.  This means that the money that is now coming in has to pay for current needs and make up for past problems.  The revenue increases are not enough to do that and so we are not yet out of the woods.

gopikrishna's profile pic

gopikrishna | High School Teacher | (Level 1) Valedictorian

Posted on

whether tax cuts do wonderful things for growth. What you see is that there was a huge revenue increase during the Clinton years. There was also the much-touted revenue surge of the later Bush years, but this followed a spectacular revenue plunge earlier. That’s actually abnormal: given the long-term growth of the US economy, we should have expected a continuing upward trend in revenues per capita.If there's one thing that Republican politicians agree on, it's that slashing taxes brings the government more money. "You cut taxes, and the tax revenues increase," President Bush said in a speech. If there's one thing that economists agree on, it's that these claims are false.

Laffer is a bona fide economist with a doctorate from Stanford. He's also largely responsible for the Republican belief that tax cuts pay for themselves.In trying to explain to Cheney why a tax hike mooted by the President might not be such a great idea, Laffer drew a chart on a napkin that showed government revenues increasing as the tax rate moved up from 0% but then turning around and heading back toward zero as it neared 100%.The idea that high tax rates brought diminishing returns was not controversial or even new--Laffer traces it to 14th centuryLaffer is convinced that the reduction of the top tax rate from 70% to 28% during the Reagan years paid for itself--in part by encouraging the rich to stop finagling--and the evidence mostly backs him up. "You find these enormous responses in the upper brackets," Laffer says. "What Clinton did was, he gave Bush the fiscal flexibility to do what was right," Laffer says. In the face of the recession and terrorist attacks of 2001, Bush "needed to stimulate the economy and spend for defense, and Clinton gave him the ability to do that.In other words, the Bush tax cuts were meant to create big deficits.



 

 

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