Sunday, May 8, 2011

The Economic Effects of Taxes

Republicans are trying to convince us that getting rid of taxes will make our economy grow. Many things affect the economy more than the federal tax code.

Changes to revenue generally aren't caused by the tax rates at all, but by other changes in the broader economy. Bill Clinton raised taxes in 1993, and the economy expanded for much of the 1990s and tax revenue went up.

"There's no clear relationship between taxes and economic growth," said Bob Williams of the nonpartisan Tax Policy Center. "Too many factors complicate the picture to draw clear conclusions about the taxes-growth relationship."

A 2006 report from the U.S. Treasury Department concluded the effect of most tax laws on the wider economy were "uncertain, but probably generally small."

The Treasury report sought to document the revenue effects of every major tax law passed since 1940. To compare the different laws, it examined tax revenues as a percentage of the Gross Domestic Product, a measurement that accounts for economic growth and inflation.

The report found that laws that lowered taxes produced declines in revenues, and that laws that increased taxes produced increases in tax revenues. Tax cuts don’t increase government revenues more than they would have increased otherwise.

Tea Partier Rep. Joe Walsh said on This Week with Christiane Amanpour, "Every time we've cut taxes, revenues have gone up, the economy has grown."

That’s not true. Revenues did not go up in 2001, 2002 or 2003, after tax rates were lowered.

The Bush tax cuts had a time limit because they were unsustainable. We were at historic lows for taxes already. All the cuts have to end, not just for the wealthy! We would have achieved a surplus in 2007 without them.

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