Tax Cuts Benefit the Economy
The Costco Connection, January, 2005
By Terry Paulson, PhD

In a dynamic economic model, tax relief is not a cost to the government; it is an economic stimulant that increases federal coffers as the economy responds to incentives. President John Kennedy put it well: “The best means of strengthening demand is to reduce the burden on private income and the deterrents to private initiative imposed by our tax system.” Kennedy worked to cut taxes, and tax revenues went up, even at lower rates.

Twenty years later, President Reagan worked to decrease the top marginal rates from 70 percent to 28 percent. As a result, the IRS documents that federal tax revenue doubled from $519.4 billion in 1980 to $1.014 trillion in 1989. The deficits of the ’80s were created by out-of-control spending. The surplus of the ’90s was largely fueled by the strong economy created in the ’80s and cost controls by Congress.

In the post-9/11 world, our economy needed a stimulant. Bush, like Reagan and Kennedy, knew that tax relief would stimulate and sustain economic growth. The money given back to Americans was put to work in creating a stronger economy. Unemployment is down and jobs are being created. History continues to prove that tax cuts increase federal revenue.

It’s common sense that you aren’t going to be hired by poor people. People work harder and invest more of their time and money if they are allowed to keep more of what they earn. That investment creates jobs and economic growth.

Raising taxes is not the answer. By raising income taxes on the high-income earners you punish the very people who are making the economy strong. Even after all of the tax relief plans since 1980, the percentage of the income tax paid by the top 5 percent of wage earners has gone from just under 37 percent to well over 50 percent because their percentage decrease in taxes has been less.

Fiscal restraint is wise, but history shows that the cascade of revenue produced by an economic boom wipes out deficits. The key to entrepreneurial enterprise is incentive. Instead of over-taxing the rich, let’s make more Americans rich by having a vibrant economy that will support the American Dream.

Terry Paulson, Ph.D., from Agoura Hills, CA, is a professional speaker on making change work and author of The Dinner: The Political Conversation Your Mother Told You Never to Have