Great article from the Wall Street Journal today.
The hottest domestic political issue of the coming two years will be federal income taxes.
The Democratic Party is for a big tax increase, via repeal of the Bush tax cuts. Its three major presidential candidates are for it (Hillary Clinton and John Edwards voted against the 2003 Bush tax cuts and Barack Obama against their extension). House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid are for it. Bill Clinton is for it because he believes the 2003 Bush tax cuts were "way too big to avoid serious harm." And the party's newspaper, the New York Times, is for it, stating that the 2003 tax cuts were "economically unsound" and would "increase the deficit by hundreds of billions of dollars."
Republicans, arguing that the 2003 tax cuts have helped the economy grow, created jobs, increased federal tax revenues, and thus reduced federal deficits, are mostly against raising tax rates.
The truth about Bush's tax cuts-
So what are the facts? Did the tax rate reductions of the Bush administration spur or diminish economic growth? Grow or diminish federal tax revenues? Were they good or bad economic policy?
Economic indicators show that since the 2003 tax cuts the GDP has grown an inflation-adjusted average of 3.3% a year, and eight million new jobs have been created over 44 consecutive months of job growth. Unemployment has fallen 25%, from 6.1% to 4.5%, with strong declines across all ethnic groups. Productivity growth has expanded 2.8% a year since 2001, outstripping the past three decades' average. So according to all these economic indices, the 2003 tax cuts have strengthened the American economy.
The tax cuts have also produced substantial tax revenue increases--14.5% growth in 2005 and 11.7% in 2006. For the first seven months of the current fiscal year, total revenues were up 11.3% over last year, and individual income tax receipts were up by 17.5%. Total tax receipts in April were $70 billion higher than in April 2006.
The Congressional Budget Office and the Congressional Joint Tax Commission estimated that a reduction in the capital gains rate to 15% from 20%, which was passed in 2003, would cost the U.S. Treasury some $5.4 billion over three years. But actual revenues exceeded expectations by $133 billion, so the government profited substantially from our strong economy and the tax rate reduction. In fact, the tax cuts have actually expanded revenues as a percentage of gross domestic product. Over the past 40 years, federal tax receipts have accounted for 18.3% of GDP. That figure was 18.4% in 2006, and the CBO projects it at 18.6% in the current fiscal year.
These revenue increases have also had a positive impact on the federal deficit. Since the 2003 tax cuts the deficit has declined from $413 billion (3.5% of GDP) in fiscal 2004, to $318 billion in 2005, then $248 billion in 2006, and an estimated $150 billion to $200 billion (1.1% to 1.5% of GDP) in the current fiscal year.
Lower tax rates have also produced another important economic change: fewer and shorter recessions. As economist Brian Westbury noted in the Wall Street Journal last month, in "the high-tax, highly regulated years between 1969 and 1982 the economy was in recession 32% of the time. Since then, following Ronald Reagan's tax cuts, and deregulation . . . the U.S. economy has only been in recession 5% of the time."
So Bill Clinton and the New York Times have it backwards; there was serious economic improvement, rather than harm, produced by the tax cuts, and the deficit decreased rather than increased. The truth is that tax rate reductions have been good for the American economy and the American people.
Remember all of the hysterics from the Democrats about deficits in 2004?
The federal deficit has actually dropped since the tax cuts. It is possible that the federal deficit will be paid off before Bush leaves office.
President Bush and the Republicans win this round.
Since they have taken over Congress, the Democrats have already signaled what they plan on doing as far as taxes and spending is are concerned.
The Democrats plan on increasing spending and increasing taxes-
Ryan: Higher Taxes and Spending, Raiding Social Security Are No Way to Balance Budget
The Democrats recently passed the 2008 Budget in the House.
Here are a few details about this budget from Congressman Ryan's office-
-Includes a tax hike of at least $217 billion by fiscal year 2012 – the second largest tax increase in U.S. history. This includes increases in marginal rates, capital gains rates, dividends taxes, and others.
-Contains a tax hike “trigger” to automatically raise taxes even higher if surpluses do not materialize – in other words, if Congress spends too much. The majority claims their budget plan will maintain certain popular tax relief provisions, but the trigger automatically turns off this tax relief – reimposing the marriage penalty, cutting the child tax credit in half, among others – if Democrats spend too much and future surpluses fail to materialize. This would raise the budget plan’s tax increase right back to the initial House-passed amount of nearly $400 billion – the largest tax hike in American history.
-Fails to protect Social Security. Despite massive tax increases, the Democrats’ budget plan fails to provide a surplus large enough to halt the government’s raid on Social Security – contradicting House Members’ commitment last week to do so when they voted for Ryan’s motion to instruct budget conferees.
-Increases non-defense appropriations spending by $22 billion in the next fiscal year (FY08) alone. To put this in context, this is on top of the $6 billion the Majority in Congress added to the omnibus and the more than $20 billion of extraneous spending they are pushing for in the war supplemental.
-Abandons the emergency set-aside fund that Ryan had helped secure in last year’s budget resolution, and drops any limitation on what Congress can call an “emergency,” exempting the spending from any limits. Without an emergency set-aside fund and a clear definition of what counts as “emergency spending,” there’s nothing to prevent non-emergency, pork-barrel items from being included in “emergency” bills.
-Contains 23 reserve funds that include promises of more than $190 billion in additional spending – without providing any means to pay for it. If these promises are kept, it will almost surely lead to even more tax increases.
-Ignores non-partisan experts’ repeated warnings about the unsustainable rate of entitlement spending and puts off any significant entitlement reform for at least five years.
-In addition, this budget plan fails to comply with the pay-as-you-go (PAYGO) rule that Democrats adopted, with much fanfare, at the beginning of this Congress.
It may just be easier to hand over our wallets and our bank books to the Democrats.