Tax Cuts and Revenue: What We Learned in the 1980s | Richard W. Rahn | Cato Institute: Commentary

Tax Cuts and Revenue: What We Learned in the 1980s | Richard W. Rahn | Cato Institute: Commentary: "The Reagan tax-rate reductions did, in fact, pay for themselves — but it took about seven years."

"In the 30-year period from 1970 to 2000, the maximum tax rate on individual income ranged from 28% to 70%, yet individual tax revenue as a percentage of GDP ranged from a low of 7.6% (when the maximum rate was 70%) to a high of 9.6%. Total tax revenues ranged from a low of 17.1% of GDP to a high of 19.8% during that same 30 years. Over the long run (seven years or more), individual federal tax rates not exceeding 25% or so would probably maximize federal tax revenues"

"Their analyses show that increasing the capital-gains tax rate would result in lower tax revenue and higher deficits. The studies are also congruent with the historical experience of the last 40 years.

The official government tax revenue and economic forecast models are still largely Keynesian static models, rather than dynamic; they do not capture most of the incentive and long-term effects of tax-rate changes. As a result, they give the wrong answers. These models missed the revenue gains from the 1978 and 1997 capital-gains rate cuts. They missed the economic gains from the Reagan-era tax cuts. Most recently, they spectacularly failed in their employment, tax revenue and economic growth forecasts from the Obama 'stimulus' program."