Repeat after me: Tax Cuts do not cost money

They make it.

Repeat after me:  Tax Cuts do not cost money.

Say it again.  Tax Cuts Do Not Cost Money no matter how vehemently our elected representatives claim that cutting taxes costs the government money.  This fallacy has been around as long as there have been Democrats wanting to tax away your money.

Tax cuts don't cost money.  Of course, no taxes at all will not bring in any money to the treasury, but there is a rate at which the revenues will be maximized - and it's not a 100% tax.

This gets to the question of how much should we be taxed to provide revenues to the government; for the sake of this discussion we will leave out the whole issue of what the revenues should be spent on.  I found this interesting quote from an article written by Arthur B. Laffer:

It should be known that at the beginning of the dynasty, taxation yields a large revenue from small assessments. At the end of the dynasty, taxation yields a small revenue from large assessments.

That bit of economic wisdom was written by a 14th century Muslim, Ibn Khaldun, in his work The Muqaddimah.  Simply put, he means that it is possible to get more revenue from lower tax rates than one might get from higher tax rates.

The reasoning is simple:  more money in the economy creates more economic activity.  More economic activity will create more wealth to be taxed, whereas taking money out of the economy means there is less wealth to be taxed.  This is the point Democrats never get.

Ibn Khaldun also recognized a fundamental fact - dynasties and societies die, usually because tax assessments get too high.  This quote recognizes the Confucian cycle we've been talking about - taxes start out low, but go up over time as government takes on more and more bureaucrats.  Eventually, the system collapses because there isn't enough money left for people to live.

Our current economic downturn is yet another sign of this problem: people are cutting back on spending because they cannot earn enough money, and our government's solution is to take still more money away from them?

Split the Pie or Grow the Pie?

To use the old pie analogy: Democrats see the wealth of the country as a single fixed-size pie.  There is a finite amount of pie and we need to make sure everyone gets a piece of the only pie in town.

Conservatives (and libertarians, I might add) instead see the country as a pie factory.  There is an essentially infinite amount of potential pie.

Government regulations permitting, new products and services will be brought to market to create new wealth.  The best way for government to get more money is to make the pie bigger so people have more income on which to pay taxes.  That way government benefits along with the people instead of government benefiting by taking from the people.

Of course, when you make more pie the kitchen gets messy and some people, for a time, may get less for a while, thus having less pie in their life... but they're always welcome to get back in the kitchen.  The Democratic Party way is to seal off the kitchen so nobody can make any new pies, slice half the pie away, then let us fight to the death over the other half.

But back to the original point.  Tax cuts, unless they go too absurdly low (no risk of that!), are not a cost.

A recent graph showed the "cost" of the TARP included tax cuts.  The creator of the graph didn't explain where the tax cuts were coming from (or that many of the cuts were actually wealth transfer payments called "tax credits"), but they were included as a cost in the new stimulus bill - just like the costs of the pork in the new stimulus pork pot pie, even though the two are totally different.

By accepting the premise that tax cuts cost the Treasury money, we've already lost half the battle (and pie).  What is needed is for the Republicans, whenever a camera is in their face or a microphone is at their mouth, to say "tax cuts will increase revenues to the Treasury".

Prof. Laffer goes on to say in his Heritage Foundation article:

Moving from total tax revenues to budgets, there is one expenditure effect in addition to the two effects that tax-rate changes have on revenues.  Because tax cuts create an incentive to increase output, employment, and production, they also help balance the budget by reducing means-tested government expenditures.  A faster-growing economy means lower unemployment and higher incomes, resulting in reduced unemployment benefits and other social welfare programs.

Lowering tax rates costs the government less money because fewer people need government money!  Wow!

Mr. Laffer's articles contain lots of graphs and charts and data supporting his idea.  What's great about what he says is that there is actual historical data to prove it - it's not just an unproven theory.

The next time you hear anyone prattling about the cost of a tax cut, don't believe it.  Let everyone within sound of your voice know that tax cuts increase economic activity, lower government costs, and lead to increased government revenue.

Let's go make us some pie!  Just no pork pot pie for me, though.

Fennoman is a guest writer for  Read other articles by Fennoman or other articles on Economics.
Reader Comments
The Democrats on the Hill understand this concept, but just don't care. Increasing their treasure chest is only half the issue. They're equally (or more) concerned about getting votes and keeping power. To do that, they need to push their agenda. The benefactors of their agenda don't care about taxes, only handouts. So handouts it is.
February 9, 2009 8:56 AM
I have send this to everyone I know. Perhaps if enough people get it, we can affect change, real change. We all have to believe!
February 9, 2009 11:11 AM
I hope that Straywolf told his friends where he got it!
February 9, 2009 11:20 AM

"The benefactors of their agenda don't care about taxes, only handouts. So handouts it is."

On the other hand, Democrats could give out a lot more handouts if they cut taxes because it would increase revenue.
February 9, 2009 11:29 AM
They pulled that one in the stimulus package. Part of the $54B "energy" section includes $16B for "alternative/renewable energy" - but that's not an actual government expenditure for R&D, rather it's a tax credit for present (and presumably up and coming) firms in that space. But they treat tax credits as "cost to government" as opposed to what they really are: a disinclination to tax certain politically-favored industries at the rates they tax other industries. But the attitude is: it's ALL the government's money, and they're just deigning to give some of it back. Despite all that, it will be government bureaucrats deciding which firms qualify for the credit and which do not. Will plug-in hybrids qualify? Or only vehicles that run purely on electricity or "renewable" fuels?
February 9, 2009 1:01 PM
Thomas, the government has already shown that it will be favorable to hybrids even though the entire auto industry knows they don't do anything except make people feel good.

Back in 2005, a tax credit was put in place for Hybrids.
February 9, 2009 1:10 PM
Great article. It's really sad that more people don't pay attention in introductory micro economics.

"Mmmmmm Pie!"

February 9, 2009 2:00 PM
Moronic. The more you cut taxes the less taxes the government gathers. Taxes are monetary. No one has ever called for a 100% tax. It's not as complicated as you want it to be, and you're not some intelligent teacher letting us in on the "real deal"; if you were, people outside of your little niche audience would care. Evidenced by the fact that you all say "the Democrats" this and that, you are clearly preaching to the choir, trying to get as many people saying "YEAH!" as possible, and then checking your bank account to see if it helped at all.
February 9, 2009 9:07 PM

Why resort to name calling? There is actual data--historical data, showing that there is an optimal tax rate for maximum revenues. Maybe a careful reading of Laffer's theory would help you understand.

To paraphrase physics: For every economic action (of which taxation is) there will be other economic reactions. Too many taxes reduce productivity which reduce taxable revenues. How hard is to to understand?

Who said I wanted it to be complicated. I want it to be simple. Don't tax at a rate that slows economic activity and reduced potential revenues. That's not complicated.

And it's certainly not moronic.
February 9, 2009 9:59 PM
Republicanism Explained

In the last few months, as the scavengers have picked at the carcass of the Republican party, I've heard a lot of people talk about what "conservatism" means. Most recently, the New York Times saw fit to address the issue in this waste of virtual space.

Well, I can't definitively say what "conservatism" means. I possess no advanced degrees, am not a philosopher, and have almost no knowledge of political science.


I can tell you what Republicanism means, and that, I think, is a more germane issue. As I'm sure you've noticed, we don't have a "Conservative" party on our ballots. No. We have a "Republican" one. So figuring out what they stand for seems to be a much more useful endeavor than attempting to define "conservatism."

Well, I've done a lot of observing and thinking, and it seems to me that the Republican party stands for two things.

1. Tax cuts are the cure for everything, including the common cold.
2. Fuck you.

And that's pretty much it. All of the shit that the Republicans do flows from those two points.

I know what you're thinking. "What about the religious right?" "What about the anti-science stand?" "What about the neocons?" "What about all of the other cherished bullshit of the GOP?"

They can all be explained by number two. The Republicans don't really care about God. They just like to use him to tell people "fuck you." Women want to control their own reproductive systems? Fuck you. People want to get married to whatever other adult they want? Fuck you. There's overwhelming evidence that life on earth is billions of years old? Fuck you.

The same applies to their foreign policy. What, you aren't happy with us starting a war with a country that never attacked us? Fuck you. Don't like our carbon emissions or bullshit missile defense? Fuck you. Pissed off that we abducted and tortured your citizens? Fuck you.

And on and on it goes. These people aren't interested in cutting spending or in limited government--they spend like drunken sailors (I would know) and want to regulate who, when, and where you can fuck. That's about as fiscally irresponsible and intrusive as government can get. They don't care about patriotism or families. And "drill, baby, drill" was just a "fuck you" that was acceptable to the FCC.

As for # 1, they keep parroting that insane fucking line no matter what. Got a surplus? Cut taxes. In a deficit? Cut taxes. Booming times? Cut taxes. Worst economy since the Great Depression? We need to--you guessed it--cut taxes. They never explain how it would work. It's an article of faith. I mean, when a group of imaginary creatures from a cardboard cut-out cartoon show has a better economic model than a major political party, things are really fucked up. Yet, somehow, they still get taken seriously. There are a lot of things I don't understand about the world. That fact is about forty of those things.

So it comes down to this: Republicanism is an ideology by and for bullies. But not the kind of bullies who have the guts to get in actual fights, even if the deck is stacked in their favor. No. They hire people to do their fighting for them. Even in their grand and glorious overseas crusades, the ones where they denounce everyone who opposes them as cowards and appeasers, these cocksuckers stay on the sidelines. How many prominent Republicans ran out and enlisted after 9/11? How about before the Iraq war? Which major Republican pundits were cops? Not a goddamn one. Why? All talk, no action.

They're the kind of bullies who love to pick on anyone at the lower end of the economic ladder. It's what weak, shitty people do. What, you want health care you can afford? Fuck you. Your kids need better schools? Fuck you. Workers want to be able to form unions to get better pay and benefits? Oh, fuck you.

That tax cut shit is bullying, too. Because they don't really care about cutting your taxes. No. They want to cut rich people's taxes. It's like they read the story of Robin Hood and thought he was robbing the wrong people. And, since somebody eventually has to pay the bill for all the costs the government incurs when it's out invading sovereign countries that have never threatened us, who do you think gets left with the tab? That's right. The people who can least afford it.


Because fuck you.

So I guess Republicanism has just one premise after all.

February 10, 2009 8:06 AM
It's always humorous to me how liberals say Republicans are evil monsters, out to offend and screw over everyone else, and then when you get into civil debates like this, they're the ones that use hateful language and become wildly offensive and disrespectful. My parents always taught me that you can tell when someone has lost the debate by the vocabulary they use. Real classy, my friend.
February 10, 2009 8:17 AM
Then I guess the stimulus bill is really only 52% of what is being reported since 48% of the amount is tax cuts.

So $402 billion of the stimulus bill is not really spending according to your "hypothesis"

We have seen 30 years of tax cuts for the rich (those making over $2 million a year) and where has that taken us? To right here and right now. Trickle down doesn't work, tax cutting for those who don't even work, doesn't work. Obviously a 15% tax on capital gains hasn't worked. So republicon (bush and paulson) decided to give the financial industry welfare to the tune of $700 billion dollars but heaven forbid that some money gets spent on the other 346.5 million people on our country.

And let's look at the facts. Moody's

Every $1 of tax cuts = $1.02 in economic activity.

$1 of infrastructure spending = $1.59 in economic activity.

Republicon economics don't work, have never worked, and will never work. Because cutting taxes doesn't do a damn thing when it comes to stimulating the economy.

February 10, 2009 8:40 AM
Good one george.
Rush Limbaugh,
Ann Coulter,
Michael Savage,
Sean Hannity
Michelle Malkin

Just to name a few of those right wing "civil debaters".

February 10, 2009 8:46 AM
In all my years of listening to Limbaugh and Hannity and reading Coulter and Malkin, I have never one single time heard them use the type of coarse, offensive language that you just did.

Do you listen to Limbaugh or just read what your friends say about him? He says things that are certainly hard to swallow, given this nation's affinity for political correctness, but he is never vulgar or classless.
February 10, 2009 8:52 AM
Or should I say reichwing.

Fear, hate, smears, and lies is all the republicon party has. They use it effectively.

I think if you look at the track record of republicon government (especially over the last 8 years)you will find that they stand for lawlessness and privatization, shredding the Constitution, starting wars, illegal domestic spying, and torture. How can a party govern (much less govern well) when they don't believe in government? When they don't believe in helping the county succeed? they only care about private industry and large multi-national corporations that don't give a rat's ass about America.

Give me one good thing that bush and the republicon congress (that ruled for 12 years) did that was good for all Americans.

If you make less than $500,000 a year and vote republicon you are cutting off your nose to spite you face because they don't care about you except as a voter. Look at their voting record.

February 10, 2009 9:02 AM
Oooohhhhh. George is offended.

Do you really want to get into this? If you want I will put together a loooooong list of their hate speech. No they didn't use the word "fuck" but that is only because the FCC won't let them.

Well I'm offended that over the last eight years if someone doesn't agree with the reichwing then they are somehow "anti-American" "unpatriotic" "traitors" etc. Reichwing hate speech I have been listing to for eight years. I'm tired of it and have decided to respond in kind. How does it feel?

February 10, 2009 9:12 AM
The FCC has nothing to do with it. It's about being purposefully offensive and vulgar. Limbaugh never seeks to offend or attack anyone personally. His points aren't well received because, occasionally, the truth hurts.

Consider this website. You're allowed to use whatever language you want here on the internet. Yet, consistently, the only people who use vulgar, offensive language are liberal posters. Traveling the internet, one can see that that is commonplace. Go to Digg or Stumble and count which side stoops to name calling and expletives more often.

Most of your lunatic ranting has little, if anything, to do with anything the Republican party actually stands for. Bush has almost as many critics on the right as he did on the left.

You say that government spending works and then criticize the last 8 years of "reichwing" power where Bush did nothing BUT spend money and increase size of government. So which is is? Is increasing government spending the solution or not? Bush tried that. He never vetoed ONE budget proposal. Or is just liberal spending that works?
February 10, 2009 9:26 AM
LP tried to answer but being blocked by site. so much for saying anything
February 10, 2009 10:01 AM
Tax cuts do cost especially when combined with out of control ruplicon spending. republicons spend on giveaways to large multi-national corporation that don't care about America or Americans and give no bid contracts to cheney's company. "Liberals want to spend money on our country and the other 346.5 million Americans not just the top 1%.a

So I am trying to post. If this makes it through it will be my last since the site is blocking me. so mush for say anything.

February 10, 2009 10:10 AM
Scragged does not currently have a policy of blocking posters, though exceptionally offensive posts may be edited or deleted after posting.

LoudPatriot's complaint that his post is being blocked is in error. There may be a technical glitch somewhere, but there is certainly no official block.
February 10, 2009 10:12 AM
"Tax cuts do cost especially when combined with out of control ruplicon spending."

You've missed the entire point of the article: Tax cuts, done properly INCREASE REVENUES TO THE TREASURY (yes, I'm yelling).

The only reason to argue against tax cuts is for social policy against wealth.

You also missed the point that we're not talking about spending in the article. Just the false notion that cutting taxes reduces revenue and thus need to be counted for as a "cost." That's just plain wrong.

"republicons spend on giveaways to large multi-national corporation that don't care about America or Americans and give no bid contracts to cheney's company."

About 46% of the country is "republicon". So 46% doesn't care about the other 54%. That's just silly. The giving of no-bid contracts is a non sequiter. It has nothing to do with the article, or tax cuts (but does have to do with spending). We'll not discuss the equal probability and possibility of it happening with democrats, too (do some research Barbara Boxer, her husband and his government contracts).

"Liberals want to spend money on our country and the other 346.5 million Americans not just the top 1%."

Again, we're not talking about the spending of money, only how to maximize how much money the government has to spend (which is really antithetical to the principles I espouse).

LoudPatriot: Have you recently read the Constitution and looked at it's limitations on the federal government? I'd like to know what you think after reading the Constitution.
February 10, 2009 3:43 PM

The writers answered your attack with a resounding article:
February 16, 2009 8:59 AM
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