A Comparison of Tax Rates [Reader Post]


As we near the so-called “Fiscal Cliff”, I feel it necessary to point out, again, that higher tax rates will lead to lower revenue for the federal government. Previously, I only had the words of various economists on my side, and re-iterated those words in defense of keeping the tax rates low. However, recently I worked to come up with a comparison showing how higher tax rates lead to lower revenues, and vice versa.

The results actually surprised me, as to how far they were in the favor of the lower rates, when you extrapolated out the difference to a ten year period. When you consider the tax rates under the two most recent Presidents not named Obama, the following was observed:

Given the period from 1994 to 1999, the growth period under Clinton, federal revenues increased by 1.3% for every 1% increase in GDP.

Given the period from 2003-2007, the growth period under Bush, with the lower tax rates, federal revenues increased by 1.7% for every 1% increase in GDP.

Applying those percentages in a comparison model, then, we can see that if given a starting point of $2.5 Trillion in revenues, and a growth of 3%(real GDP growth) in GDP, that under the Clinton tax rates, the following year’s revenues would equal roughly $2.598 Trillion. Under the Bush tax rates, that figure goes up to $2.628 Trillion. For a ten year period, the difference in revenue, assuming constant growth in GDP, becomes roughly $2.2 Trillion dollars difference in revenue

Is $2.2 Trillion enough to give up, just to implement some arbitrary, ambiguous idea of “fair share”?

$2.2 Trillion, in ten years time, is a hefty difference in revenue generated by the federal government. If the government combined this with meaningful spending cuts, in a decade the deficits could very easily fall to more manageable numbers, even zero, or surpluses, if the spending is contained well enough.

The old liberal mantra that tax-cuts do not pay for themselves has been proliferated amongst the public to their own detriment. I welcome the challenges from the liberal/progressives on my math, which I believe is much clearer, and correct, than Obama’s.

0 0 votes
Article Rating
Inline Feedbacks
View all comments

Its the old saying- you need taxpayers and not higher tax rates. Higher tax rates kill the economy. Its that simple.

Let me repeat what I think a long term solution is to the problem:

A flat tax for everyone, with no deductions for anything! This would be a truly free market system and it would get the government out of picking winners and losers via a tax code. Then change welfare to workfare so everyone participates.

The progressive tax is UNFAIR because it penalizes success!


I agree with your long-term solution, bwax. Specifically, it’s the FairTax that I support, but the purpose of my posting wasn’t to discuss taxation in general, but to address the ludicrous idea from the left that higher taxes on those who make more, will beget higher revenue for the government. It’s my attempt to prove that viewpoint of liberal/progressives who support raising taxes on the higher income earners as a falsehood.

To reiterate, I believe that my math on this topic is correct, and I issue a challenge to anyone who believes differently to prove it wrong.

(Totally off-topic, but wouldn’t that be refreshing to hear from an AGW believer on their work?)

We’ve been on the incline toward the top of the Laffer Curve for so long that the Left forgot that it has an entire downside.

Tobacco taxes in NY are so high now that they reached the downside of the Laffer Curve in smokers.
Oh, and guess what?
It also costs New York JOBS!

New York State’s cigarette excise tax rate is $4.35 per pack, the highest in the nation
In New York, cigarette-tax evasion costs the state at least $1.7 billion a year in tax revenue and 6,700 jobs….
*In 2011, New Yorkers purchased 384-million packs of cigarettes from other states, Indian reservations, duty-free shops and military bases. If New York State tax had been collected on all of these purchases, it would have generated $1.67 billion in tax revenue. The actual tax-loss figure is probably even higher, because this estimate excludes black-market and counterfeit cigarettes, which are becoming more prevalent.

*If all cigarettes consumed in New York State were purchased in-state from tax-collecting sources, it would generate an additional 6,776 jobs and an additional $257 million in wages.

And this is also going on elsewhere:

Cook County, Illinois, investigators have been raiding stores across the county that have been ripping off taxpayers of millions of dollars by selling cigarettes without proper taxes.
About 800 raids take place each month.

About $400 is confiscated per raid.
The raids COST the taxpayers far more than that.

Several states have also reached that downside of the Laffer Curve when one adds up all taxes, local, state and federal.
The wealthy from NY and Ill move away.
So do wealthy and even not-so-wealthy from CA move out of state.

In a few cases the USA loses taxpayers who have other places they can move to.

We’ve been on the wrong side of the Laffer Curve for a long time. Every time RATES had been reduced, REVENUES have increased. Even Obama admits that, but he’s fixated on FAIRNESS.

@Joseph P. Martino:

That is the point that I want people to see, Mr. Martino. That the liberal/progressives who are advocating for raising the taxes on some, do so only out of some ambiguous, arbitrary idea of “fairness”. My guess is that there aren’t many of them that realize the amount of lost revenue the government will see with increased tax rates.

$2.2 Trillion over ten years is a lot of money. Obama and the Dems believe that raising taxes on the “rich” will garner around $1 Trillion over that same period, but given the example of the full Clinton tax rates, and the full Bush tax rates, that I exampled above, it’s likely that the actual effect will be a serious reduction in tax revenue.

Couple that with no serious action on the real culprit to our higher deficits, the spending, and the deficits will likely climb to upwards of $2 Trillion a year. At that rate, it won’t take us very long to experience what Greece is going through.

The liberals in congress know that the higher the taxes, the lower the revenue. They have seen it happen many times over the years. Why would they keep trying to raise taxes, knowing it would bring the economy down? I figured it out a long time ago. How long will it take those who haven’t figured it out yet?

I also like the Fair Tax, because it even takes care of the poor in a way that is brilliant, but sounds stupid at first.

Too bad Bob Hope and Dorothy Lamour aren’t still around to do a new movie: “The Road to Zimbabwe.” That’s where we’re headed, where the paper the money is printed on costs more than the purchasing power of the bill printed on it.

Marx admitted in his writings that the progressive income tax was DESIGNED to bring a capitalist society down to make it easier for the communists to impose their evil upon a society.

The leftists had to destroy our education system to allow “students” to become so puffed up with self-esteem instead of critical thinking skills that they could be easily manipulated into believing the marxist “2+2=5” economic ideology.

It will take a miracle to get back the country our Founding Fathers worked so hard to give us. The self-righteous vacuousness of kids in college today would be laughable if they didn’t think the drivel they regurgitate from their leftist professors was actually true.

It is time to change the terminology; i.e., tactics.

@Pete: #10

It will take a miracle to get back the country our Founding Fathers worked so hard to give us.

Many times I have thought about what they would think of their country if they could be brought into the future. It would make a great conservative documentary.

Tax Rates have nothing to do with creating income equality.
Just the opposite, in reality.

There is NO WAY jury-rigging rates could equalize our various incomes.
For one thing, Washington DC keeps 15% of all tax dollars collected!
$80 billion every year just for their paper-pushers to live on.

In DC income inequality has only gotten worse the more taxes DC collects!
20 years ago the top 5% of DC earners there made 39 times the income of the bottom 5%.
NOW that top 5% of DC earners makes 54 times more than their bottom 5% brothers!
(Peggy’s rent and gas money will have to wait, as will all those free ObamaPhones.)

Obama is such a liar!
He knows that the more regulation and spending expands, the richer Washington DC gets.
(I guess I’m a racist for pointing this out, huh?)

Facts and figures:

I hope you’re not saying that it’s axiomatic that lower tax rates will result in more tax revenue. Here’s an article that you are probably familiar with, that discusses the Clinton and Bush administrations’ experience with lowering/raising taxes on revenue: http://www.forbes.com/sites/billfrezza/2012/10/10/hey-romney-heres-a-comeback-to-obamas-5-trillion-tax-cut-canard/

The thesis and conclusion being that , “Lower tax rates can actually lead to higher tax revenues”. The operative word in this statement is ‘can’. The word can implies possibility, not necessity. Therefore, although ‘lower tax rates can actually lead to higher tax revenues’ , depending on various factors, it’s not necessary that they do.

This assertion is emphasized in a paper which analyzes the proposition rationally and mathematically—as opposed to empirically—in terms of the Laffer principle, and concludes that, “…the results of this chapter tend to reject the notion that there is an inverse relation between major U.S. tax rates and government revenues….” http://www.nber.org/chapters/c11222.pdf

In other words, lower tax rates do not necessitate higher revenues, regardless of the anecdotal evidence.

@Liberal1 (Objectivity):

I’m not saying that lower tax rates automatically result in higher revenues, Lib1. I used simple math to show that the Bush tax rates result in higher revenues per growth in GDP versus the Clinton tax rates. Given that, it seems incredibly stupid to want higher tax rates if your stated goal is actually to get higher revenues, by going back to the Clinton era tax rates.

The math also destroys the liberal/progressive idea that the Bush tax cuts led to higher deficits. It’s actually quite the opposite, in that the Bush tax cuts helped to keep the deficits from climbing higher than they otherwise were.

Check the math out, Lib1.