Tags: david | frazier | politicians | Ignorant | Lying | Tax | Cuts

Some Politicians Ignorant or Lying About Tax Cuts

Tuesday, 14 Dec 2010 01:37 PM

Almost immediately after President Barack Obama proposed last Monday for the U.S. Congress to maintain all of the Bush-era tax cuts, a slew of Democratic politicians said that they opposed those proposals because, according to those politicians, an implementation of those proposals would cause the U.S. federal budget deficit to rise.

In usual fashion, none of those persons provided any empirical evidence to support their claims. That came as no surprise to me because there isn’t any evidence to support such claims. Quite the contrary, tax data from 1913 – the year that the U.S. government began to levy income taxes on Americans without apportioning those taxes among the states in accordance with the population – to the end of 2009 clearly reveal that tax cuts don't lead to federal budget deficits; and tax cuts don't cause existing budget deficits to rise.

Perhaps more importantly, a review of tax data from 1913 to 2009 shows that reductions in marginal tax rates tend to be followed by increases in economic activity and overall economic expansions, as measured by industrial production and the total output of goods and services (gross domestic product or GDP). In addition, the unemployment rate tends to fall to low levels following reductions in tax rates.

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Lastly, because tax cuts tend to lead to increases in GDP and employment, tax data since the year 1913 clearly reveal that the amounts of tax revenues collected by the federal government tend to rise following reductions in marginal tax rates.

However, in direct contrast to the claims made by numerous politicians during the past two weeks, the data reveal that there is no direct correlation between tax cuts and federal budget deficits. Instead, the data reveal that budget deficits tend to be caused by prolonged wars, massive government spending on social welfare programs, and large amounts of government spending on the U.S. military. Unfortunately, few politicians are willing to tackle those issues.

I therefore urge you to ignore anyone who claims that an implementation of Obama’s recent tax proposals will lead to increases in the U.S. federal budget deficit. My research strongly indicates that anyone who makes such a claim has either not reviewed the data on tax rates, tax revenues, gross domestic product, and the unemployment rate for the 96 years from 1913 to 2009, is unable to correctly analyze that data, or is lying.

Interestingly, one of the more-respected Democratic presidents in the history of the United States said during a news conference on Nov. 20, 1962, that “the soundest way to raise the revenues in the long run is to cut the rates now …. Cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus.” That person was John F. Kennedy.

On Jan. 17, 1963, Kennedy added to those comments, saying “Lower rates of taxation will stimulate economic activity and so raise the levels of personal and corporate income as to yield within a few years an increased – not a reduced – flow of revenues to the federal government.”

And, on Jan. 21, 1963, Kennedy stated in his annual message to the U.S. Congress: “The most important single thing we can do to stimulate investment in today’s economy is to raise consumption by major reduction of individual income tax rates.”

Kennedy proved to be right, as tax revenues rose sharply, the U.S. economy expanded at a fast pace, and the unemployment rate fell to low levels shortly after the U.S. Congress substantially lowered marginal tax rates during 1964 and again during 1965. Unfortunately, the federal budget deficit began to expand sharply during 1968 as a result of the Vietnam War and President Lyndon Johnson’s Great Society social welfare programs.

Note from Moneynews:

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About the Author: David Frazier
David Frazier is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He also writes two very successful investment newsletters. Discover more by Clicking Here Now.

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Almost immediately after President Barack Obama proposed last Monday for the U.S. Congress to maintain all of the Bush-era tax cuts, a slew of Democratic politicians said that they opposed those proposals because, according to those politicians, an implementation of those...
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2010-37-14
Tuesday, 14 Dec 2010 01:37 PM
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