Tax Cuts Don’t Increase Revenues

Mitch McConnell recently released some of the old-time religion known as orthodox conservative economic policy and told Brian Beutler “There’s no evidence whatsoever that the Bush tax cuts actually diminished revenue … [t]hey increased revenue because of the vibrancy of these tax cuts in the economy.” Jon Kyl on Fox News Sunday explained that while high deficits are a good reason to avoid extending Unemployment Insurance “you should never have to offset cost of a deliberate decision to reduce tax rates on Americans.” So do tax cuts really increase revenue? It’s of course possible to specify a model in which this happens (you can specify a model showing all kinds of things), but it’s not the world we live in:

image9 1

Since the economy usually grows and inflation is usually positive, tax revenue in Year N+1 almost always exceeds revenue in Year N, but the Bush tax cuts did exactly what you would think tax cuts would do and deflected the country to a permanently lower revenue path.