Taxed to Prosperity

Arthur Laffer asks a good question: "Whoever heard of a country taxing itself into prosperity?"

When President Kennedy cut the highest income tax rate to 70% from 91%, revenues also rose. Income tax receipts from the top 1% of income earners rose to 1.9% of GDP in 1968 from 1.3% in 1960. Even when Presidents Harding and Coolidge cut tax rates in the 1920s, tax receipts from the rich rose. Between 1921 and 1928 the highest marginal personal income tax rate was lowered to 25% from 73% and tax receipts from the top 1% of income earners went to 1.1% of GDP from 0.6% of GDP.

Or perhaps you'd like to see how the rich paid less in taxes under the bipartisan tax rate increases of Presidents Johnson, Nixon, Ford and Carter? Between 1968 and 1981 the top 1% of income earners reduced their total income tax payments to 1.5% of GDP from 1.9% of GDP.

Given the inevitable relationship between taxes and the economy, it's difficult to tease out the effects of taxes as compared with the overall expansion and contraction of the economy, but as Laffer points out, even Sen. John Kerry's boat proves that the wealthy have great incentive to change their behavior in response to the incentives of taxation — even if that change only involves paying an accountant to place a particular dollar amount in one column as opposed to another.

To save the economy — and the government — elected leaders at all levels should cut taxes (adjusting spending as preparation) and encourage economic growth. The economy should come before the government. It's that simple.