Monday, August 6, 2012

How Have Tax Increases And Tax Cuts Affected US Deficits?

The GOP argues that Obama's plan to increase taxes will increase budget deficits rather than reducing them.  Recent history in the US contradicts their argument.  Taxes were increased in the Clinton administration and budget deficits were reduced.  We had budget surpluses during the Clinton administration.  They were squandered by the Bush tax cuts which led to large budget deficits.

This does not mean that tax increases will always reduce budget deficits, but it does show that the economy will not always shrink when taxes are raised.  It also shows that tax cuts do not always lead to economic growth, higher tax revenue and lower budget deficits. 

The same economists who wrongly argued that the Clinton tax increases would shrink the economy, and increase deficits, are making the same argument today.  Obama wants to let the temporary Bush tax cuts expire and return to where they were under Clinton. 

We should also remember why the Bush tax cuts were temporary.  The were made temporary because the long term effect of the tax cuts led to large projected budget deficits.

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