Probably the most controversial claim of supply-side economics is that cuts in tax rates can lead to increases in tax revenues. Disbelief in this phenomenon may be why some of President Bush’s critics incorrectly blame his tax cuts for “exploding deficits as far as the eye can see.” The data prove them wrong.
Eight months into fiscal year 2003, President Bush signed a bill that accelerated his income-tax cuts on individuals and dropped the capital gain and dividend tax rates to 15%. Up until then, the federal government had received less than $1.2 trillion in revenues for fiscal 2003. During the first eight months of this fiscal year, revenues have soared to over $1.5 trillion. Despite the cuts in tax rates, tax revenues for fiscal 2006 are $386 billion ahead of tax revenues for fiscal 2003. This has caused the CBO to report a lower deficit than expected.
This year alone, federal revenues are up almost 13%. Because of improved profitability, corporate tax revenues have increased. However, personal income tax revenues have increased slightly more than other revenues, going up 14%. That confirms what the personal income statistics have been saying (and that critics of the Bush tax cuts have been denying): It’s not just business that is doing well under supply-side policies, but also individual Americans.