BY DON C. BRUNELL
On July 9, 2006, The New York Times proclaimed, "Surprising Jump in Tax Revenues is Curbing Deficit." The Times reported that federal tax receipts had increased $250 billion over last year's levels - a 26 percent increase - and as a result, the federal deficit would be $100 billion less than predicted just six months ago. The Times also noted that most of the higher tax revenues are coming from "...corporations and the wealthy...."
One wonders why the Times was surprised. The same thing happened last year.
In fact, on July 13, 2005, the Times published an almost identical article in which the newspaper called the higher tax revenues "unexpected" rather than "surprising." But once again, the newspaper noted that the higher tax receipts came from "...relatively wealthy taxpayers."
In both cases, the cause of the increased tax revenues is the same: The Bush Administration tax cuts in 2001 and 2003.
It's just common sense. More money left in the pockets of consumers and employers spurs economic growth, which increases tax revenues to the government. That's the economic life cycle in a market-based free economy. It works like a well-oiled machine unless politicians screw it up by overtaxing people or attempting to redistribute wealth.
The bottom line is if you and I have more money in our checking accounts, we spend that money on home repairs, clothes, groceries, dry cleaning, even a new car, dishwasher or television. Those purchases help support those businesses, which can then spend more on employee benefits or hire workers who, in turn, have money to pay for home repairs, clothes, groceries, etc.
In addition, by taking less of our hard-earned money, the government makes it possible for us to put a little more in savings for a rainy day or retirement.
History has shown that cutting tax rates increases tax revenues.
• When President Kennedy reduced tax rates from 90 percent to 70 percent, tax revenues climbed from $94 billion in 1961 to $153 billion in 1968, an increase of 62 percent.
• President Reagan's tax cuts created similar benefits. After years of stagnation, real median family income increased in the wake of Reagan's tax cuts from $37,868 in 1981 to $42,049 in 1989. Inflation fell from 13.5 percent to 4.1 percent. Again, the rich paid more.
It's interesting to note that when the federal government cuts tax rates, the wealthy pay a bigger share of the taxes.
• In 1961, the wealthy paid 11.6 percent of all federal income taxes.
• In 1988, they paid 27.5 percent.
• In 2003, the top 5 percent of income earners paid 54 percent of all federal income taxes; the top 25 percent paid 84 percent of all federal income taxes.
Washington state is experiencing a similar tax windfall. Experts say tax collections in June were $85 million higher than expected. Economic forecasters say the state could collect more than $959 million over the next three years, erasing a projected deficit.
Hopefully, this news will blunt efforts by some Democrat lawmakers to raise taxes or approve legislation that increases costs for employers. Perhaps they will heed the advice of one of their most famous Presidents, John F. Kennedy, who said, "An economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits. The soundest way to raise the revenues in the long run is to cut the rates now."
I couldn't have said it better.
Don C. Brunell is president of the Association of Washington Business.