Tax Cuts for Rich Increased Federal Revenue By More Than the Estimated Cost of Katrina

It’s official: The Democratic Party line is that the rebuilding of the Gulf Coast will require tax hikes. We know this because Bill Clinton last week, on ABC’s “This Week with George Stephanopoulos,” blamed Gulf Coast poverty not on 40 years of welfare dependency, but on President Bush’s “tax cuts for the rich.”

Thus Democrats have been led inexorably through the logical extension of a wrong principle to a wrong conclusion: If tax cuts are the problem, then tax increases must be the solution.

The data, however, shows increasing taxes would be the worst thing we could do right now. The reason we have as much money as we do coming into federal coffers is the President’s tax cuts.

We don’t have to guess what the economy would look like if taxes were increased for high-income taxpayers. That experiment has already been run.

When Bush took office in 2001 he was forced to defer large portions of his tax-cut proposal. To get enough Democratic votes, he was forced to implement the lower-bracket tax cuts right away while deferring the higher-bracket tax cuts. Poor economic performance, however, caused the President to come back two years later and insist that the tax cuts for the wealthy be implemented immediately. Thus, between June 2001 and May 2003, the tax code looked exactly like Bill Clinton says it should look now: Tax cuts were in place for the poor and middle class, but not for the “rich.”

During that period, average federal revenues were slightly less than $149 billion per month. After the tax cuts for the wealthy kicked in, revenues soared to an average of more than $163 billion per month. Supply-side economics was proved right again: Lower tax rates led to higher tax revenues. (See chart below)

Today, tax revenues are accelerating. With 11 out of 12 months of fiscal 2005 accounted for, revenues for this year are ahead of fiscal 2003 by $311 billion. That is more than the estimated $200 billion in federal money that will be spent rebuilding in the wake of Katrina.