There was a very interesting and straight forward
article at
The American Thinker that explained the real effects of the Bush tax cuts on the deficit and the economy. Particularly interesting was the explanation of The
Laffer Curve, which has been around for a long time (1974) and has proven true since. Simply stated, the
Laffer Curve illustrates the effects of raising tax rates on revenue received by the government. There is a point of maximum revenue, shown as the Equilibrium Point (EP) on the chart below, where either raising taxes or lowering taxes will have a negative effect on revenue. You could also think of the EP as the "point of diminishing returns."
When tax rates exceed the rate of Equilibrium, lowering taxes actually increases revenue to the government. This has been true whether it was done by a Democrat icon (St. John of Camelot), or a Republican icon (Ronaldus Maximus), or by that "big idiot" George W. Bush. Also, raising taxes lowers revenue, as when FDR did it and as it will if Obama does.
But, this is just part of the story. We must ask ourselves if revenue maximization is, or should be the goal. Lowering taxes, whether on the low or high side of the EP has positive effects on the economy, jobs, investing and the GDP. These things benefit the average citizen far more than whether the government bureaucracy is properly funded or not.
Certainly government, even a Constitutionally-based federal republic, has roles and responsibilities that require a certain amount of tax revenue. But do they need all the revenue possibly available to meet these responsibilities? The Federal government has long used its revenue excesses to bribe and coerce States (federal pork projects) into acting in certain ways or doing certain things. Most times, these bribes were in areas where the Federal government has no Constitutional mandate. In this way they have slowly usurped State sovereignty, centralized their power and destroyed the checks and balances designed into our federal form of government. Too much money, like too much power, in too few hands is a dangerous thing.
“The accumulation of all powers legislative, executive and judiciary in the same hands, whether of one, a few or many, and whether hereditary, self appointed, or elective, may justly be pronounced the very definition of tyranny.” – James Madison; Federalist No. 47.
Another question we must ask is, if revenue maximization and deficit reduction is really the goal...and it has been proven that lowering tax rates help meet this goal...then why would the Democrats want to
raise taxes? I propose that it is because this has never been the goal. The tax code has long been used as a tool of power by the Federal government. They raise taxes on areas they want to discourage and lower them for things they wish to encourage in the economy. They also use it to manipulate special interests and voting blocks. If you want to eliminate a majority of special interest groups in Washington, support a flat tax structure where there is no way to manipulate and lobby for loop holes. I'd bet that Washington D.C. would empty out by half in a short amount of time. But Congress, Republicans or Democrats, won't even consider such a thing because it diminishes their power.
Another issue to be considered is spending. If spending continues to exceed revenue, which it always seems to, then you will never eliminate the deficit...it's as simple as that. It doesn't matter if you are at the EP, above or below it. Federal spending MUST be reined in and controlled. There should be a mandate...maybe a Constitutional amendment...to balance the budget except in times of war or extreme national emergency. These exceptions to a balanced budget should be narrowly defined and guidelines should be set on when the budget must be restored to balance after the events.
I believe that if the Federal government were kept to its rightful, Constitutional roles, and spending is controlled, taxes could be considerably lowered (even below the EP) and the government could still run a surplus. Now, to meet some of the requirements of the roles dropped by the Federal government, State governments may have to raise their rates somewhat. But there is a lot of fat in State governments also and this would at least bring the power closer to
The People.