More Revenues Aren’t Necessarily Good for America

by Justin Vélez-Hagan Reagan’s presidency is the oft-cited example Conservatives use to prove that lowering tax rates will increase federal revenues and vice versa.  In reality, other presidents proved more […]

by Justin Vélez-Hagan

Reagan’s presidency is the oft-cited example Conservatives use to prove that lowering tax rates will increase federal revenues and vice versa.  In reality, other presidents proved more successful examples.

Although revenues did increase substantially under Reagan (many liberal economists, such as Paul Krugman, argue this phenomenon had more to do population increases and inflation than “Reaganomics”) the federal budget also rose by more than 34%, ending his two terms with a federal debt nearly triple what it was when he initially took office.

Frankly, economists like Paul Krugman are right (in this case).  It’s very difficult to find a direct, positive correlation between tax cuts and revenue increases.  But it’s not just population increases and inflation that blur the data, there are so many other factors involved that it’s nearly impossible to test the theory that many Conservatives see as common sense.

“Fiscal conservatives” are far too often tempted to argue the historically improvable, not realizing that it is based on a false premise.  What Conservatives should dispute is that the federal government does not need ever-increasing tax revenues in order to sustain or even improve itself, an idea that would only be true if the federal government was more efficient than the private sector at using those revenues to improve the welfare of its people (an impossibility given its administrative costs alone).

Calvin Coolidge, the heavy-handed disciplinarian who took pride in saying “no,” provides a much better argument for economic and budgetary discipline.  He adamantly opposed out-of-control government spending, and even considered not implementing his tax decreases – which lowered the top tax rate from 70% to 25% and increased federal revenues – when he recognized that the extra revenue might only serve as a temptation for more spending.  Coolidge knew, what we all should be reminded of today, that government has an insatiable appetite.

The 30th president was more anxious to cut government spending than he was to increase its revenues because he knew that government spending meant government power and intervention in the daily lives of its citizens.  Agreeing with the Founders that few men of power can resist the urge to acquire more, Coolidge lived by the creed that Reagan so simply stated in his first inaugural address, “ . . . government is not the solution to our problem; government is the problem.”

In order to do so, Coolidge stuck to his principles and did what no one in Washington is willing to do today.  He decreased the government’s operating budget.

Coolidge knew he would make few friends doing so.  In fact, he was a pariah in the government he headed.

Yet, a remarkable phenomenon transpired in the country during his Presidency.  Not only did the country experience a period of economic growth, an increase in the standard of living, and higher wages, but Coolidge also found that voters agreed that “getting government out of the way” provided a greater opportunity for their own “pursuit of happiness.”

Coolidge’s famous “no,” resulted in Americans saying “yes.”  Coolidge received an absolute majority of the vote, gaining more votes than his two opponents combined.

Why was Coolidge so popular despite doing what so many would consider political suicide today (times haven’t changed, the media and pundits thought the same when he was in office)?  Coolidge knew that he was giving them something else:  freedom and the chance at prosperity.

Coolidge wasn’t necessarily concerned with adding to the Treasury – although he did – he instead was concerned with the moral case for lowering taxes that Americans deserved freedom more than they needed government.

Justin Vélez-Hagan is the Editor-in-Chief of Nousonomics.com, the National Executive Director of The National Puerto Rican Chamber of Commerce, and an Adjunct Instructor of Economics at the University of Maryland-University College.  He can be reached at JVH@Nousonomics.com or @JVelezHagan.