Posted by johngalt on 21 December, 2012 at 7:44 am. 16 comments already!

As we near the so-called “Fiscal Cliff”, I feel it necessary to point out, again, that higher tax rates will lead to lower revenue for the federal government. Previously, I only had the words of various economists on my side, and re-iterated those words in defense of keeping the tax rates low. However, recently I worked to come up with a comparison showing how higher tax rates lead to lower revenues, and vice versa.

The results actually surprised me, as to how far they were in the favor of the lower rates, when you extrapolated out the difference to a ten year period. When you consider the tax rates under the two most recent Presidents not named Obama, the following was observed:

Given the period from 1994 to 1999, the growth period under Clinton, federal revenues increased by 1.3% for every 1% increase in GDP.

Given the period from 2003-2007, the growth period under Bush, with the lower tax rates, federal revenues increased by 1.7% for every 1% increase in GDP.


Applying those percentages in a comparison model, then, we can see that if given a starting point of $2.5 Trillion in revenues, and a growth of 3%(real GDP growth) in GDP, that under the Clinton tax rates, the following year’s revenues would equal roughly $2.598 Trillion. Under the Bush tax rates, that figure goes up to $2.628 Trillion. For a ten year period, the difference in revenue, assuming constant growth in GDP, becomes roughly $2.2 Trillion dollars difference in revenue

Is $2.2 Trillion enough to give up, just to implement some arbitrary, ambiguous idea of “fair share”?

$2.2 Trillion, in ten years time, is a hefty difference in revenue generated by the federal government. If the government combined this with meaningful spending cuts, in a decade the deficits could very easily fall to more manageable numbers, even zero, or surpluses, if the spending is contained well enough.

The old liberal mantra that tax-cuts do not pay for themselves has been proliferated amongst the public to their own detriment. I welcome the challenges from the liberal/progressives on my math, which I believe is much clearer, and correct, than Obama’s.

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