The so-called static revenue cost of President Bush's tax-relief plan is overestimated by one-third to one-half. Credit markets are not fooled by the resulting deficit forecasts. Neither is the public.
Tax cuts under JFK, Reagan and Clinton (during his second term) all produced faster economic growth, more jobs and higher tax revenues for Washington. Indeed, Clinton's 1997 capital-gains tax cut was the driving force for late-decade budget surpluses. Revenues in this period soared, as profits accrued from stock market gains and stock options. It was a near-perfect illustration of the Laffer Curve, which says, in clear terms: Tax something more, get less of it; tax something less, get more of it. The less we penalize work and investment, the more work and investment there will be.
This is Economic Behaviorism 101 -- and it's a simple science that too many members of the U.S. Congress and most state governments fail to comprehend. Or do they get it?
The so-called sin taxes on alcohol, beer and tobacco suggest that liberal lawmakers just might understand the behavioral basics of taxation. In recent years, legislatures on every level have poured taxes on these products -- especially tobacco, where the latest liberal mantra aims to save smokers from themselves. But doesn't this assume a behavioral change by smokers in response to the higher tax-cost of cigarettes? Sure does.
So why wouldn't the same logic apply to taxes on investment? Of course it applies. If we tax investment more, we will get less investment. But if we tax investment less -- including dividends, the centerpiece of the president's plan -- we'll certainly get more investment. And that's exactly what the American economy thirsts for today.