Personal Income Taxes / Revenues ChartThis chart shows Personal Income Taxes collected by the U.S. federal government, in relation to the S&P 500.
Notice the relationship: Tax collections are dependent on economic growth (which correlates to the stock market), and collections lag gains or losses by about 1 year.
After the Bush tax cuts, revenues to the U.S. Treasury from Personal Income Taxes actually increased, exceeding the revenues from even the best year of his predecessor, at the peak of the dot-com explosion. Notice also that tax receipts are now more efficiently tied to the economy, which demonstrates that the current tax rates are closer to optimum than during previous years. Contrary to popular opinion, this is validation of the principles of the Laffer curve and 'Supply Side' economics. Even after cuts in tax rates, tax revenues increased, as tax cuts are beneficial to the economy. This stands as proof that deficits were not caused by tax cuts, but could only be caused by excessive spending (the household equivalent of poor budgeting).
Government revenues are dependent on economic growth, which is hindered by increasing tax rates.
Note the effects of the Gerald Ford tax rebate checks in 1975.
Other spikes explained: In March, 1985, there was a delay by the federal government in mailing out income tax refunds. These refunds were put off until April and May. The effect seen is higher net taxes in March, and sharply lower net taxes in May. Also, during the first quarter of 1987, employers were not properly withholding taxes from their employees' paychecks. This was due to delays in getting employees to fill out the newly introduced W-9 withholding forms. In April, 1987, withholding amounts were recalculated and sent in, resulting in an upward spike in tax revenues received.