Tax Cuts and Federal Tax Revenues, Historically Speaking

December 27th, 2009 by Lee Eldridge

Tax Cuts and Federal Tax RevenuesThere’s a reason I’ve chosen to write about federal tax revenues and tax policy. I’ll get to it in a moment. But first we have to debunk the biggest myth that seems to exist about tax cuts and tax revenues.

Tax revenues are the lifeblood of the federal government. It’s through the taxation of the American people and businesses that our federal government has the funds to support our military, protect our country, create social programs and run federal organizations such as the FDA and the EPA.

So the question is: What happens when we cut taxes?

If you ask a liberal politician, their (myth) answer is: “This will reduce the amount of money we have to spend on important social programs. We’ll have to fire teachers and policeman because we won’t have enough money to pay them. We won’t be able to take care of the elderly, the poor and needy children…”

If you ask a conservative politician, their (myth) answer is: “Our federal government is too big already. We’re wasting our money on all of these pork programs. By cutting taxes we can reduce the size of our federal government…”

We hear this from our politicians every time we discuss tax cuts. They’re both wrong.

Let’s take a quick look at the last 50 years. In this time, we’ve had three presidents who have promoted and passed sweeping tax cuts: Kennedy in the ’60s, Reagan in the ’80s, and Bush in the ’00s. (These figures below are provided by the Tax Policy Center, and have been adjusted to 2009 dollars.)

John F. Kennedy was elected in 1960. Though he was killed in ’63, the tax cuts he championed were passed into law in 1964. In 1964, the government collected $112.6 billion. By 1970, just six years later, the federal government collected $192.8 billion. That’s an increase in tax revenues of more than 70%.

In 1980, Ronald Reagan was elected president, and passed sweeping tax cuts in 1981. In 1981, the federal government collected $599.3 billion. What year do you want to compare for future tax revenues? Within six years (1987) the fed was now collecting $854.4 billion, an increase of more than 42%. Tax revenues continued to grow every year. By 1992 when Bill Clinton was elected, the federal government collected $1,091.3 billion in tax revenues. That’s an increase of of more than 82% in about a decade.

And lastly, George W. Bush was elected in 2000, and lead the charge for a series of tax cuts in 2001, 2002 and 2003. In 2000 when GWB was elected, the fed collected $2,025.5 billion. And by 2008, the fed collected $2,524.3 billion, an increase of more than 25%.

All three presidents pursued tax cuts to stimulate the economy. And it worked every time. Taxes were cut. The economy was stimulated. And tax revenues went up.

So why is this important now? The Bush tax cuts will expire soon. And if they expire, the net effect is a tax increase, which will further damage our economy. The debate will begin soon. And expect to hear the same old misrepresentations from each side of the aisle.


3 Responses to “Tax Cuts and Federal Tax Revenues, Historically Speaking”

  1. Will Says:

    That is very interesting, Lee!

    The only thing that I’d point out is that, really, using the Rule of Seventy-Two as my guide, it seems to me as though an 82% increase over a decade isn’t THAT ridiculously large. It’s around 6% annually. And, in fact, 25% over 8 years is actually less than I’d expect….maybe 2.6% per year or so?

    Would be interesting to compare those figures to GNP and/or GDP growth over the same time periods….and also compare the growth in revenues following cuts to growth in revenue following tax hikes.

    Thanks, Lee!

  2. Lee Eldridge Says:

    Hey Will. Thanks for the note.

    The left and the media have told us that tax cuts = less tax revenue. And it’s simply not the truth. I agree that 82% is not ridiculous growth. But the left would have us believe that tax revenues don’t grow as a result of tax cuts. And I think the numbers of historically proven otherwise.

    And to equally pick on the right and those who pretend to be fiscal conservatives, you don’t reduce the size of government through tax cuts. You reduce government by reducing spending.

    I like watching GDP as well, and will continue my research 🙂

  3. Bobby Says:

    The democrats use class warfare when they discuss taxation. It’s scare tactics. Tell everybody that if we cut taxes then we can’t help the elderly. Or the children. Or the minorities. It appears to me that these numbers prove that their assertions and scare tactics are baseless. And we’re the fools for believing it. I had no idea that tax revenues had grown after tax cuts. The media certainly doesn’t report this.