(10-18-2018 01:51 PM)Redwingtom Wrote: And you can't just look at the individual taxes in a vacuum. You need to consider the drop in revenues on the corporate side since they were all part of the same tax cut.
Quote:Overall, federal revenues came in slightly higher in FY 2018 — up 0.5%.
Spending, on the other hand, was $127 billion higher in fiscal 2018. As a result, deficits for 2018 climbed $113 billion.
Let's compare these results with Obama's last full fiscal year in office, 2016.
Individual income tax revenues went up by a mere 0.3%, Treasury data show. Fiscal 2016 also saw a 13% drop in corporate income taxes. FICA tax collections climbed by less than 1%. Excise tax collections dropped almost 3%.
Overall revenues increased by 0.5% — about the same as this year. The deficit? It climbed by $148 billion.
Overall, total revenues increased pretty much the exact same amount under Obama his last full fiscal year in office. And clearly, with an increased economy and more people working, it only stands to reason that revenues on the whole would be up. What's not known yet, as it is still too soon, is whether this is a direct result of the tax cut.
What is known with certainty is that it is the result of something. With that in mind, I think we can say with reasonable certainty that the tax cuts had some significant impact.
The corporate tax cut was badly needed. We had reached the point where we had the highest corporate tax rates in the developed world, and that was clearly harming the economy. Higher tax rates were definitely a factor in offshoring. The left likes to say, look at our effective tax rates, they aren't that high. But that's because multi-nationals essentially pay a worldwide tax rate of around 25%. They are going to source enough taxable income in low-tax jurisdictions to get their effective rate down to the level of their competitors. The effective rate doesn't drive business decisions, it is the result of them.
Let's go back, if you will, to basic supply side theory. There are two, and exactly two, tax rates that ensure that zero tax revenues will be produced. Those two rates are 0%, for obvious reasons, and 100%, because nobody will engage in business for a profit if all those profits are going to be taxed away. So the optimum tax rate is obviously somewhere in between. Actually, there are two optimum tax rates--one, the rate that maximizes tax revenues, and two, one generally somewhat lower that maximizes economic activity and growth. If you set the rate higher than the rate that maximizes tax revenues, then the decrease due to decreased taxable economic activity has a greater impact than the increase in the rate. As for going lower than the rate that maximizes economic activity, some government spending does support or stimulate economic activity, and if you set the rate too low, either you lose that stimulative effect, or the amount of borrowing required to sustain that stimulative effect negatively impacts capital markets. Obviously, if you can't afford to pay for police and fire protection and courts to resolve disputes and national sovereignty, then you have a significant negative effect on the economy.
What supply side economics says is that ideally you want to set the tax rate somewhere between the rate that maximizes economic activity and the rate that maximizes tax revenues. Then you want to balance the budget by restricting spending to an amount equal to or less than the tax revenues raised.
The 1981 Reagan/Kemp/Roth tax cut was almost strictly supply-side. Reagan and his advisors determined that tax rates were so high that they were stifling economic activity, and therefore reducing rates would bring about more taxable activity. Based on results, it probably came pretty close to being revenue neutral. The 1986 Reagan/Bradley/Gephardt was a bit different. It broadened the tax base by eliminating a bunch of exclusions and deductions, and that permitted rates to be lowered substantially and remain revenue-neutral. In between was the 1982 TEFRA that broadened the tax base to offset what some believed was too great a reduction in rates in 1981.
I would argue that we reach that tax rate for maximum tax revenues somewhere around the worldwide effective tax rate. Above that, people are going to move taxable income to lower-tax jurisdictions. Somewhere below that, we are going to maximize economic activity. The trick is to pick the sweet spot in between that best accommodates both goals.
Right now, on the corporate side, we are a bit above the world rate when state taxes are considered. We used to be way above the world rate before the 2017 tax law. I would expect that corporate tax revenues will go up once businesses have had time to respond to the rate change. That won't happen in one year, but the effect could be fairly massive in 5-10 years--if the rates remain in effect.
I've stated my recommended approach multiple times. Look at what Europe REALLY does. They tried funding a massive welfare state with "progressive" taxes. Money left town. So they discovered consumption taxes, which allowed them to lower and flatten their income tax rates. Because consumption taxes are "regressive" they end up getting a much smaller portion of their total tax revenues from the "wealthy" and corporations. They provide both a more comprehensive safety net (because everybody benefits) and a more tax-efficient return for investors (because everybody pays). We start with a much smaller revenue requirement as a percent of GDP (almost 10% less), so we could adopt their philosophy and have much lower rates than they do. We could become a tax haven, and a really interesting tax haven because our economy has enough vitality that we don't need tax haven status. The result could be an incredibly robust economy, and in the words of JFK, "A rising tide lifts all boats."
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Tax cuts produce record high revenue
Source?
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