Some politicians want higher tax rates because they resent success and think it is okay to base public policy on emotions like hate and envy, but most pro-tax lawmakers presumably are interested solely in getting more money to spend. These “practical” lawmakers may want to consider becoming supply-side tax cutters. After all, the Treasury has received a gusher of additional tax revenue since the 2003 reductions in capital gains tax rates, dividend tax rates, and personal income tax rates. The real lesson, of course, is that pro-growth tax policy leads to faster growth – and faster growth translates into more taxpayers and more taxable income. As the Wall Street Journal opines, the key question is whether politicians can control the impulse to over-spend:
Americans are sending more money than ever to Washington; revenues for the first seven months of fiscal 2007 are up 11.3%, or $153 billion. This Beltway bonanza has helped to slash the projected federal budget deficit by more than half from the same point last year. Across the past three Aprils, federal red ink has sunk by nearly $300 billion. The deficit this year could tumble to $150 billion, or an economically trivial 1% of GDP. This revenue boom certainly casts doubt on the political wails about tax loopholes for the rich. So far this year, the taxes paid on so-called nonwithheld income, which are dollars that don’t come from normal wages and salaries, have climbed by nearly 30%. This is income largely derived from capital gains, dividends and other investment sources – i.e., the tax rates that President Bush cut in 2003. Individual income taxes are also up by 17.5% – a handsome fiscal dividend from rising wages and low unemployment. In other good news, the pace of federal spending, which was pedal-to-the-metal in Mr. Bush’s first term, has finally decelerated. So far this year federal outlays have climbed by 3%, and, save for Medicare and Medicaid, federal expenditures are nearly flat from 2006.