How beneficial to society are permanent tax cuts?Have they ever been done before & still in effect today?

Question

How beneficial to society are permanent tax cuts?Have they ever been done before & still in effect today?

Answer 1

The THEORY is that tax cuts at the upper end of the earnings scale will trigger investment that will boost the economy, thereby generating higher total tax revenues with a "trickle down" effect to folks lower down on the earnings scale.  However in actual practice this has never proven to be the case.  Every time that taxes were cut in an attempt to boost the economy, real spendable income at all levels dropped and any increases in tax revenues that may have resulted from any investment were insufficient to recoup the losses from the tax cuts in the fist place.

Both Bushes and Reagan cut taxes in an attempt to prove the theory, however the economy staggered under the increased deficit burden as the government had to borrow to cover the lost tax revenue.  This resulted in less infrastructure investment as money was diverted to cover the cost of interest to cover the deficit instead of being used on programs that would have immediately impacted the economy, such as highway improvement programs, bridge repairs and replacement (sorely needed today!) or other direct investment in the economy.  The national deficit under The Shrub has tripled in large part due to his irresponsible tax cuts. Even if you factor out the cost of 2 wars and Katrina, the deficit would have more than doubled on his watch!

Under the Clinton administration, taxes were raised a number of times, however real spendable income actually GREW despite the tax increases.  Who really CARES what the tax bill is if you have MORE money in your pocket at the end of the year??  This is the fallacy of tax cuts to spur the economy in action.  It simply doesn't work.

The definition of insanity is repeating the same act repeatedly and expecting a different result.  After multiple attempts at spurring the economy by cutting taxes and failing miserably, you'd THINK that they'd figure out that it won't work.

Answer 2

Federal tax rates are progressive (percentage increases with income).  If the gov't did nothing, they would get an ever increasing percentage of our money as more people start working and getting raises.  So tax cuts, or increased standard deduction, are eventually necessary just to keep things balanced.  But some people want to raise taxes even more to buy votes (entitlements).

Sometimes it takes awhile for tax cuts to reach their full effect as money is freed up and passes around and around the income loop (taxed each time).  So Bill Clinton actually benefitted by what was done before him, and he did not mess things up too much because he was preoccupied with something in a blue dress.

Answer 3

The start of the modern tax cuts was under Reagan.  His advisors argured that if taxes were cut, people would make more money and pay more in taxes overall.

It didn't work out that way.