7.13.2008

JFK AND TAX CUTS

Here is one of my favorite quotes from John F. Kennedy: "It is a paradoxical truth that tax rates are too high and tax revenues are too low and the soundest way to raise the revenues in the long run is to cut the rates now...Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus." What Kennedy is saying is that this concept of tax cuts resulting in a revenue increase for the government is a paradox.

A paradox is defined by Webster as: 1. A tenant contrary to received opinion. 2. A statement that is seemingly contradictory or opposed to common sense and yet is perhaps true.

Kennedy believed that if the government wanted to increase revenue (from tax collection) it should reduce the tax rate. This seems like a contradictory statement yet each time the government has reduced tax rates in our nation's history, its revenues have shortly increased. President Kennedy proposed a significant tax cut which was subsequently passed by the Democrat led congress. Kennedy believed that cutting the tax rate would lead to increased private investment (resulting in job creation),and increased consumer spending, which would lead to increased revenues. History proves Kennedy's policy of tax rate cuts to be true.

Ronald Reagan signed into law tax cuts which led to a twofold increase in government annual revenue from approximately 500 billion at the beginning of his term to 1 trillion at the end. Unfortunately he did a tremendous disservice to this concept by increasing government spending and increasing the national debt threefold during the same time. The national debt increased from $908 in 1980 billion to $3.2 trillion in 1990. [1]. These actions gave people the impression that tax cuts resulted in the large increase in the national debt. The real culprit was increased spending. The tax cuts made by President Bush have also increased government revenues, but again, spending has not been reigned in.

If I began to spend more than I make each month, I would soon become insolvent. If I receive a large raise, but increase my spending beyond the level of the raise I would also soon become insolvent. You CANNOT spend more than you make in the long run, it is a principle of nature.

Kennedy was right. Tax cuts do increase government revenues in the long run. When people have less of their own money stolen taxed, they have more to spend, more to invest, more to save, more to do with it what they will. When people have more of their money stolen taxed, then have less incentive to work harder or invest. This has been proven time and time again by both political parties actions. [2].

[1] - http://www.treasurydirect.gov/govt/reports/pd/histdebt/histdebt_histo4.htm

[2] - When I say stolen it refers to income taxation. I do not consider duties, tariff's, or consumption taxes as theft.

1 comment:

Emily said...

Thank you for the number two clarification.
Interesting.