This 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 (the stock market), and collections lag gains or losses by about 1 year.
After the recent Bush tax cuts, tax receipts are more efficiently tied to the economy, which demonstrates that the current tax rates are closer to optimum than during the Clinton years. Contrary to popular opinion, this verifies the principles of the Laffer curve and 'Supply Side' economics. Even after cuts in tax rates, tax revenues increased. Tax cuts are beneficial to the economy. Deficits are caused by excessive spending (the household equivalent of poor budgeting).
Note also that revenues to the U.S. Treasury from Personal Income Taxes after the Bush tax cuts exceeded the revenue from even the best year of his predecessor, at the peak of the dot-com explosion.
It is apparent here that the Personal Income Tax rates put into effect during the G.W. Bush years are near optimum. This means that tax increases proposed by President-elect Obama will most likely lead to lower revenue to the federal government, adding to the U.S. debt. This effect will be magnified by the lower taxes produced by a slowing economy. This is not political commentary, but proper analysis of fiscal policy.
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.
= recessions
Notice the relationship: Tax collections are dependent on economic growth (the stock market), and collections lag gains or losses by about 1 year.
After the recent Bush tax cuts, tax receipts are more efficiently tied to the economy, which demonstrates that the current tax rates are closer to optimum than during the Clinton years. Contrary to popular opinion, this verifies the principles of the Laffer curve and 'Supply Side' economics. Even after cuts in tax rates, tax revenues increased. Tax cuts are beneficial to the economy. Deficits are caused by excessive spending (the household equivalent of poor budgeting).
Note also that revenues to the U.S. Treasury from Personal Income Taxes after the Bush tax cuts exceeded the revenue from even the best year of his predecessor, at the peak of the dot-com explosion.
It is apparent here that the Personal Income Tax rates put into effect during the G.W. Bush years are near optimum. This means that tax increases proposed by President-elect Obama will most likely lead to lower revenue to the federal government, adding to the U.S. debt. This effect will be magnified by the lower taxes produced by a slowing economy. This is not political commentary, but proper analysis of fiscal policy.
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.
= recessions