TRUE THEN, TRUE TODAY
By Senator Mike Crapo
"The history of taxation shows that taxes which are inherently excessive are not paid. The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business and invest it in tax-exempt securities or to find other lawful methods of avoiding the realization of taxable income. …capital is being diverted into channels which yield neither revenue to the Government nor profit to the people."
-Andrew Mellon, Treasury Secretary for Presidents Harding and Coolidge, 1924
"Our true choice is not between tax reduction, on the one hand, and the avoidance of large Federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenues to balance our budget just as it will never produce enough jobs or enough profits…In short, it is a paradoxical truth that…the soundest way to raise the revenues in the long run is to cut the rates now. "
-President Kennedy, 1962
"It is undeniable that the sharp reduction in taxes in the early 1980s was a strong impetus to economic growth."
- President Clinton's Council of Economic Advisers, 1994
The notion that tax relief stimulates growth has 80 years of historical precedence. Last week, the Treasury Department announced that the FY 2007 budget deficit was $163 billion, $85 billion less than FY 2006. Steady economic growth fueled by six years of federal tax relief produced the lowest budget deficit in five years. As a member of the Finance Committee which oversees federal tax policy, it's clear to me that Andrew Mellon, JFK, Reagan and others were right: tax increases don't overcome budget deficits or grow the economy; quite the opposite is true.
Tax relief today (elimination of the marriage penalty and death tax and reduction of tax rates on capital gains and dividends) has contributed to surging tax receipts and steady deficit reduction. Incentives found in this tax relief for middle-income taxpayers, including small businesses, will continue to grow the economy at a responsible pace.
However, work remains to eliminate the deficit. If the budget passed by Congress remains in effect, gains will be erased after 2010. That's when pro-growth tax policies are set to expire absent a change in law. And, low tax rates are only part of the equation-federal spending must also be restrained. FY 2008 appropriations bills are a clear indicator: spending levels are rising this Congress, and that could spell a drastic deficit increase in the coming years.
From budgets in excess of $200 billion over those proposed by the President, to a complete dismissal of long-term entitlement program reform, Office of Management and Budget Director Jim Nussle had it right when he observed: "Our short-term budget outlook is improving, but beyond the horizon is a huge budgetary challenge-the unsustainable growth in Social Security, Medicare and Medicaid…For the sake of our children and grandchildren, Congress should begin to take action to prevent this fiscal train wreck."
With the security of a strong and growing economy even in the face of market disruptions, and indisputable evidence for the economic benefit of tax cuts, we can make the difficult decisions required by the crisis in our entitlement program spending. Over the past four years, the economy has added eight million new jobs and the national unemployment rate stands at 4.7 percent; Idaho's is at 2.3 percent-a record low. We must make the responsible choice to remain on the path of economic and fiscal sustainability and responsibility, not just next year, but for decades to come.
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