Democrats cling to soak-rich bias made laughable by Laffer

Tax reduction thus sets off a process that can bring gains for everyone, gains won by marshalling resources that would otherwise stand idle—workers without jobs and farm and factory capacity without markets. Yet many taxpayers seemed prepared to deny the nation the fruits of tax reduction because they question the financial soundness of reducing taxes when the federal budget is already in deficit. Let me make clear why, in today's economy, fiscal prudence and responsibility call for tax reduction even if it temporarily enlarged the federal deficit—why reducing taxes is the best way open to us to increase revenues.

—President John F. Kennedy,
Economic Report of the President,
January 1963

If only more of today's leaders thought like JFK. Sadly, in the debate over whether to extend the 2001 and 2003 tax cuts, and if so whether the cuts should be extended to those people who are in the highest tax bracket, there is a false presumption that higher tax rates on the top 1% of income earners will raise tax revenues.

Anyone who is familiar with the historical data available from the IRS knows full well that raising income tax rates on the top 1% of income earners will most likely reduce the direct tax receipts from the now higher taxed income—even without considering the secondary tax revenue effects, all of which will be negative. And who on Earth wants higher tax rates on anyone if it means larger deficits?

Since 1978, the U.S. has cut the highest marginal earned-income tax rate to 35% from 50%, the highest capital gains tax rate to 15% from about 50%, and the highest dividend tax rate to 15% from 70%. President Clinton cut the highest marginal tax rate on long-term capital gains from the sale of owner-occupied homes to 0% for almost all home owners. We've also cut just about every other income tax rate as well.

During this era of ubiquitous tax cuts, income tax receipts from the top 1% of income earners rose to 3.3% of GDP in 2007 (the latest year for which we have data) from 1.5% of GDP in 1978. Income tax receipts from the bottom 95% of income earners fell to 3.2% of GDP from 5.4% of GDP over the same time period.

Marco Rubio: "The meltdown in Greece should be a wake-up call"

The meltdown in Greece should be a wake-up call for those who wish to turn America into a high-spending, high-tax welfare state. The fact is, the global boom masked what was in fact an unsustainable situation, not only in Greece but in countries like Italy and Spain. Not only are governments spending far more than they are collecting in taxes (as we are in the U.S.), but wages have far outstripped worker productivity because of undisciplined governments and powerful unions. Entire countries have become profligate, unproductive, and uncompetitive. Unfortunately, the road ahead in these countries is going to be extremely difficult.

The question Americans should be asking is, Why do President Obama and the Democrats in Congress want to take America down this path? While our situation in America is not currently comparable to what is happening in these countries, those running Washington would take us down the same road of crushing tax rates, profligate spending and unsustainable government programs. The result, as we are now witnessing in Greece, is economic ruin and social unrest. What’s happening in Greece is a warning sign for us in America. Look how quickly things change when investors no longer have confidence in the ability of a government to pay its debts. Just a few months ago, Greece borrowed money at rates comparable to Germany or the United States.