Country flourishes by lowering taxes

Here’s a trivia question for you. Who said, “It is a paradoxical truth that tax rates are too high today and tax revenues are too low, and the soundest way to raise the revenues in the long run is to cut the rates now”?
Take your time.
Was it Bob Dole? Jack Kemp? Malcolm Forbes, maybe?
Off by a mile. Think back. Way back.
Was it Ronald Reagan?
Nope. The man who uttered these words was none other than President John F. Kennedy. “Our true choice is not between tax reduction, on the one hand, and the avoidance of large federal deficits on the other,” he instructed back in 1963. “It is increasingly clear that an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits.” Sure enough, after the Kennedy-Lyndon B. Johnson tax cuts, the amount of money the government received from taxes increased more than 16 percent over the next three years.
If this answer sounds improbable, you can blame journalists, commentators and political cartoonists who incessantly misrepresent the theory that lower tax rates can lead to higher tax revenues as an irrational fantasy of distinctly republican origin. These critics invariably point to the Reagan tax cuts, claiming they caused the federal deficit to explode. In reality, according to the latest Economic Report to the President from the President’s Council of Economic Advisers, government revenues from taxes increased a whopping 69 percent in the years following those cuts. Lower rates had nothing to do with the ballooning deficit, which was instead caused, as always, by ever greater government spending.
If deceiving the public about the supposed role tax cuts played in the deficit is not spurious enough, critics of lower taxes often resort to playing the class warfare card as well. They denounce Reagan for making the deepest cuts to the highest tax brackets. Meanwhile, they suppress the more important fact that the share of tax revenue taken from the richest 1 percent of earners increased from 18 percent in 1981 to 28 percent in 1988. The top 10 percent of earners saw their tax share increase from 48 percent to 57 percent during the same period. It takes a great deal of manipulation to construe these results as a heartless assault on the poor. Bear in mind that the folks who contend tax cuts are unfair to the poor also insist that slowing the growth of entitlements is somehow equivalent to “slashing benefits.” Interestingly, the rich shouldered a larger portion of the tax burden after President Kennedy’s tax cut as well.
Although oblivious to these facts, critics of lower taxes contend that they have logic on their side. “Lower taxes mean less government revenue,” they insist, “and higher taxes mean more. How could anything be more obvious?” If that were the case, the government might as well tax 100 percent of all income and be done with it — only, the economy would grind to a halt. Think about it. How inclined would you be to work if the government took your entire paycheck? For that matter, what if the government confiscated 90 percent of your pay — or 70 percent? At this point you might accuse me of using unrealistic examples. Obviously the government would never take 90 cents or even 70 cents of every dollar a person earned. Or would it? In fact, the Kennedy-Johnson tax cut reduced the highest rate from 90 percent to 70 percent where it remained until Reagan slashed it to 28 percent.
The point is, lowering taxes can increase revenues because more people find it worth their while to work or to work harder, thus creating more income for the government to tax. Raising taxes can have the opposite effect. This is not a new idea. David Hume understood it in 1756 when he wrote, “Exorbitant taxes, like extreme necessity, destroy industry by producing despair. … An attentive disinterested legislature will observe the point when the emolument ceases, and the prejudice begins.”
In other words, at any given time there is some ideal tax rate that will net the government the highest possible income. Any rate higher or lower than this ideal will result in lower revenues. The only trouble is, the economy is such a complex beast it is impossible to determine what this ideal rate is and whether or when it will change.
This brings us to the one credible argument against lowering taxes. Critics of tax cuts ought simply to assert that tax rates are currently not exorbitant. Although it is sometimes possible to lower taxes and the deficit at the same time, it will not work in this instance.
I give the critics this piece of advice, not because I’m against a tax cut, nor because I particularly mind watching them make idiots of themselves blabbering about corny, fictitious conspiracies against the poor and wallowing in denial of the irrefutable lessons of history. Rather, I give them this advice because the tax cuts the Republicans will surely propose deserve intelligent public debate. Unfortunately, opponents have limited themselves to the trivial and the mythical, while ignoring or missing the truth Kennedy expressed back in 1963.

Charles Foster’s column appears in the Daily every other Monday.