Tuesday, October 25, 2011

We Don’t Need Higher Taxes—We Need Lower Taxes!

Congress’s Joint Select Committee on Deficit Reduction is struggling to find $1.5 trillion in cuts over the next 10 years. This is a unique opportunity to use tax reform to reduce future budget deficits while lowering individual tax rates.
The Tax Reform Act of 1986 showed how a tax reform that includes lower rates can change incentives in a way that grows the tax base and produces extra revenue for the federal government. In that law, the top tax rate in the U.S. was reduced from 50% to 28%.

After that law was enacted, there was an enormous rise in taxes paid, particularly by those who experienced the greatest reductions in tax rates. Taxpayers who faced a tax rate of 50% in 1985 were paying 50% of federal taxes. After 1986, they began paying 72% of the federal intake! That was because the decrease in taxes provided an incentive to invest and to take financial risks that grew the economy.

Our government should look at the experience of 1986. Lowering taxes will increase the federal intake of revenue monies.

This blog post was redacted from the Wall Street Journal of 24 October 2011, page A15.

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