Nathan Lewis shares a graph, straight from the U.S. Congressional Budget Office, which illustrates the futility of raising taxes:
From this, he says, we make a few observations:
1) The trend is flat. There is no appreciable long-term rise or decline in revenues as a percent of GDP.
2) The minor variation in the trend corresponds to recessions and booms, not tax hikes or tax cuts. We can see a fairly large decline in the 2002 recession, another around 1992, another around 1982, another around 1971 and one in 1958. These are all recessions. We see no correspondance between tax revenue declines and major tax cuts, such as the Kennedy tax cut (1964), the first Reagan tax cut (1983), the second Reagan tax cut (1986, in which the top income tax rate fell to 28%), or the capital gains tax cut of 1997. 2003, the year of the Bush tax cut, was a dip, but that was because the Bush tax cut was coincident with the recession. Actually, this was the passage of the tax cut, which did not really take effect until the second half of 2003 at the earliest, for which there is no appreciable dip in revenues.
Likewise, the major tax hikes, such as the Nixon tax hike of 1969, the “bracket creep” inflationary tax hikes of the 1970s, and the Clinton tax hike of 1994, do not produce any substantial or sustainable increase in revenues/GDP.
See what I mean?
3) The makeup of taxes changes, but the total remains the same. As we can see, payroll taxes have risen by several multiples since the late 1950s. Corporate taxes have, on average, declined, although this decline really dates from the 1970s rather than recent years. (If you consider that a little more than 50% of the payroll taxes are actually paid by corporations, corporate taxes have remained roughly flat over the years. The increase in payroll taxes was also matched by a decrease in excise taxes.)
There you go: tax rates up, tax rates down, new taxes introduced, old taxes eliminated, none of it has made a whit of difference to the tax revenues of the Federal Government — as a percentage of GDP. General economic conditions — expansion or recession — definitely have an effect, but that is transient.
Over that time, the U.S. tax system has been subject to all kinds of changes. The top income tax rate in 1957 was 91%! In 1979, it was 70%. In 1986, it was 28%, and today it is 35%.
What does this mean?
1) Raising tax rates will produce no new revenue (as a percent of GDP).
2) Cutting tax rates will not result in a fall in revenue (as a percent of GDP).
I am using the future tense (“will not”) here. Of course, the future is not so certain. But, that is the best guess we can make with the evidence at hand.
3) Budget surpluses/deficits are entirely due to the variation of spending as a percent of GDP. So, pretty much all the “tax cuts caused/will cause budget deficit” and “tax hikes caused/will cause budget surplus” talk you’ve heard over the past fifty years is baloney.
Does this mean that higher/lower taxes “don’t matter”? Absolutely not. It’s one of the most important things there is. But it doesn’t matter to tax revenue as a percent of GDP.
Sounds silly, but we noticed that at church. No matter what happens, the income remained the same. When someone in the church who is prominent died, we recieved a lot in memorials and the weekly general fund dropped. We borrowed from the memorial funds to pay the bills. We tried getting pledges to make budgets on, and the money was still overall the same. When I watch politicians on C-span, it reminds me of a lot of committees on church I sat on. Try to cut a church budget without high emotions. Government runs a lot like church.