Tax cuts do not generate deficits; overspending is.


Writing last month about the explosive growth of a national debt approaching $ 29 trillion, I blamed the two fiscal reckless US political parties. Republicans and Democrats continue to expand the federal budget, spending more and more money the government does not have, steadily swallowing the nation in red ink.

Many readers have scoffed at my inability to mention the tax cuts – especially the 2017 Tax Cuts and Jobs Act, signed by President Trump, which lowered personal tax rates and businesses. “You blame the public debt entirely on government spending,” wrote a correspondent. “You conveniently forget to mention the tax cuts.” Another warned: “What is irresponsible is not to invest in America’s infrastructure, education and health, but the refusal to pay for it with tax increases for those who can afford it. “

These are popular sentiments, especially among the Liberals. President Biden accuses “unpaid tax cuts” of being a key driver of federal budget deficits. Democrats in Congress are pushing to raise taxes on high-income corporations and households. To those who lean to the left, it may seem obvious that the Trump-era tax cuts deprived the federal government of needed revenue and that if only corporations and the wealthy paid their “fair share,” it wouldn’t. Washington would not need to borrow so heavily.

The latest data from the Congressional Budget Office explodes this illusion.

In its report for fiscal year 2021, which ended Sept. 30, the CBO estimates that federal revenues have increased by more than 18%, the largest year-over-year increase in 44 years. The government raised $ 627 billion more than in fiscal 2020, reaching a record high of $ 4.05 trillion.

Tax collections have increased in just about every area. Personal income taxes rose $ 443 billion, a 27.5% increase. Even compared to 2019 – the last pre-pandemic year, when the economy was at full throttle – the 2021 tax levy is a third of a trillion dollars higher. Corporate income tax has also increased, from $ 212 billion in 2020 to $ 370 billion in 2021: a whopping 75% increase. In fact, as the Tax Foundation points out, businesses paid $ 73 billion more in taxes last year than the year before. Congress cut their taxes.

This is how a lesson in economic history was repeated. Lower tax rates can generate higher tax revenues.

There was a time when Democrats defended this message. “It’s a paradoxical truth,” President Kennedy told the Economic Club of New York in 1962, “tax rates are too high today and tax revenues are too low and the healthiest way to increase revenue in the long run is to reduce the rate now. ”The tax cuts JFK campaigned for were eventually incorporated into the Income Act of 1964. Effectively, the reduction in corporate tax rates. individuals and corporations led to an increase in federal revenues, from $ 113 billion in 1964 to $ 158 billion in 1968, a jump of nearly 40 percent.

With all due respect to my outraged interlocutors, irresponsible tax cuts do not fuel America’s metastatic national debt. Irresponsible budget spending is. The federal government has an overspending problem, not an overspending problem. And despite the endless clamor that the rich do not shoulder a fair share of the tax burden, the overwhelming majority of tax revenues that flow into the treasury are paid by the rich.

“The share of taxes paid by high-income households has exceeded their share of income; the reverse is true for low-income households,” noted the CBO in August. “In 2018, households in the highest quintile received 55% of income before transfers and taxes and paid 70% of federal taxes.”

For the richest of the rich, the disparity between the share of income earned and the share of taxes paid is even more striking. The richest 1% of taxpayers earned 21% of the country’s income in 2018 (the year after the 2017 tax cuts were passed), but they paid 40% of all federal income taxes. Contra Representative Alexandria Ocasio-Cortez of New York, “Taxing the Rich” is not a prescription for necessary reform, but a summary of existing policy.

Americans, especially wealthy Americans, are sending taxpayer dollars to Washington at record levels. But tax revenues, plentiful as they are, cannot keep up with Washington’s out-of-control spending. Prodigy Republicans and spendthrift Democrats are begging the nation with crazy spending. Limiting these expenses is our most urgent financial priority. If only we had political leaders to say it.

© The New York Times Company


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