Debunking the Republican Myth that Cutting Taxes Increases Government Tax Revenue

Since the arrival of Supply Side Economics during Reagan administration, a constantly repeated Republican theme used to justify tax cuts for the wealthy is the counter intuitive idea that tax cuts result in increased government tax revenue. The theory holds that tax cuts pay for themselves by stimulating economic growth so that people and bushiness end up paying more taxes on more income and profits. Republicans believe the resulting increased tax revenue more than makes up for the decreased tax rate.

It would be nice if this were true. Unfortunately, it isn't.

We touched on this in our earlier post Ten Republican Lies About the Bush Tax Cuts. Even Alan Greenspan, the reigning high priest of Republican economics since the passing of Milton Friedman, finally admitted it, saying that the only way to balance the federal budget is to let the Bush tax cuts expire. But in face of all evidence, Republicans are still saying that their proposed tax cuts for the wealthy will actually make the government money.

Andrew Leonard thoroughly takes apart this frequently repeated Republican myth in a Salon.com in an article titled "The great GOP tax cut fantasy."

If you look at the raw numbers of federal tax revenue over the last 40 years, you will notice a striking phenomenon -- the numbers almost always go up, except in the case of deep recessions. This is basically a function of population growth, and it happens whether taxes are cut, or raised.

But the raw totals don't tell you much, because of inflation. In 2006, Time business columnist Justin Fox adjusted the raw federal tax income revenue totals for inflation, and discovered an interesting thing. Revenue fell in the first few years after both Reagan and Bush's tax cuts, before growth resumed. In 2008, Paul Krugman adjusted for both inflation and population growth, to try to figure out the per-capita tax revenue increase for each decade since Reagan, and found something even more enlightening. Real revenues per capita rose 19 percent from 1980-1988. From 1992-2000, real revenues per capita rose 41 percent -- after tax hikes by both George H. W. Bush and Bill Clinton! And the numbers for George W. Bush? Pure disaster.