The Facts About Tax Cuts, Revenue, and Growth


Michael T. Griffith


@All Rights Reserved

Fifth Edition

In every case over the last 60 years, major tax cuts have more than paid for themselves.  In fact, every major tax cut since JFK has been followed by substantial increases in revenue, not to mention solid economic growth.  Moreover, total federal revenue rose at a faster rate after each of those tax cuts than it did before them.  Anyone can confirm these basic facts for themselves by checking federal budget data and economic indicators before and after major tax cuts (see, for example, Federal Budget Data, Data 360 Unemployment U.S., and Total Economy Database).  Let’s take a closer look at the results of the last four major tax cuts (and then for good measure we’ll examine the Mellon tax cuts of the 1920s).

Bush Tax Cuts:  President George W. Bush’s 2003 tax cuts generated a massive increase in federal tax revenue and were followed by 52 consecutive months of economic growth. From 2004 to 2007, federal tax revenue increased by $780 billion, the largest four-year increase in American history.  Total federal revenue from 2003 to 2007:

2003 -- $1.78 trillion

2004 -- $1.88 trillion

2005 -- $2.15 trillion

2006 -- $2.40 trillion

2007 -- $2.56 trillion

Total federal revenue for 2008 dropped slightly, down to $2.52 trillion, because a recession started that year, but revenue was still substantially higher than it was in 2003 or 2004.  During the same period, income tax revenue rose dramatically, going from $925 billion in 2003 to $1.53 trillion in 2007.  As with other types of federal revenue, income tax revenue dropped slightly in 2008, down to $1.45 trillion, due to the fact that a recession began that year.

It’s important to keep in mind that the recession had nothing to do with the tax cuts.  The recession was brought on by destructive federal intervention in the subprime mortgage market, irresponsible funding and securitization of subprime loans by Freddie Mac and Fannie Mae, unsound Federal Reserve monetary policy, a lack of oversight by the Securities and Exchange Commission, greed and fraud committed by certain large banks and investment firms, and consumers who bought homes they really couldn’t afford.  Furthermore, even in 2009, when the recession neared depression territory and remained severe throughout the year, total federal revenue was $2.10 trillion, which, even adjusted for inflation, was very close to total federal revenue for the boom years of 2005 and 2006.

What's more, after the 2003 tax cuts, the rich paid a higher percentage of the total tax burden than they had at any time in the previous 40 years. This shocked the New York Times, whose astonished editorial board could only describe the gains as a "surprise windfall."  This was also true with regard to income taxes.  For example, after the Bush tax cuts, the top 1% paid a larger share of all federal income taxes than before.  In 2007 the top 1% of taxpayers earned 22.8% of the nation's income, yet paid 40.4% of all federal income taxes, whereas in 2004 the top 1% paid 36.89% of all federal income taxes. So the percentage of income taxes paid by the top 1% went from 36.89% in 2004 to 40.4% in 2007. (Incidentally, this also means that in 2007 the top 1% paid more in federal income taxes than the bottom 95% paid.)

Interestingly, total federal revenue grew at a faster rate during the three years following the Bush tax cuts than it did during the three Clinton boom years of 1998-2000.  From 1998 to 2000, following Bill Clinton’s 1997 tax cuts, total federal revenue rose $300 billion, from $1.72 trillion to $2.02 trillion, an increase of 17%. A very respectable, solid increase. But, from 2004 to 2006, total federal revenue rose a whopping $520 billion, from $1.88 trillion to $2.40 trillion, an increase of 27%. The rate of inflation for the two periods was very similar (2.55% vs. 2.98%). So, even adjusted for inflation, the revenue growth that followed Bush’s tax cuts was considerably better than the revenue growth that occurred during the three most prosperous years of Clinton’s presidency.

As for economic growth under Bush, the Wall Street Journal pointed out the following in September 2008:

U.S. output has expanded faster than in most advanced economies since 2000. The IMF reports that real U.S. gross domestic product (GDP) grew at an average annual rate of 2.2% over the period 2001-2008 (including its forecast for the current year). President Bush will leave to his successor an economy 19% larger than the one he inherited from President Clinton. This U.S. expansion compares with 14% by France, 13% by Japan and just 8% by Italy and Germany over the same period.

The latest ICP findings, published by the World Bank in its World Development Indicators 2008, also show that GDP per capita in the U.S. reached $41,813 (in purchasing power parity dollars) in 2005. This was a third higher than the United Kingdom's, 37% above Germany's and 38% more than Japan's. (

Critics claim that the growth during the Bush years was merely the result of the housing bubble and wild consumer spending.  James Pethokoukis responded to this claim in a January 2009 article in U.S. News & World Report:

"Economy Made Few Gains in Bush Years", declared the Washington Post earlier this week. And while the story grudgingly acknowledged the 52 straight months of job growth, it dismissed any economic gains as the ephemeral product of the housing bubble and wild-spending consumers.  Except . . . that worker productivity -- the most important long-term indicator of the core health and competitiveness of an economy -- has risen at a really impressive 2.6 annual rate during the Bush years vs. 2.0 percent for Clinton and 1.6 percent for Reagan. . . .  This is important stuff. It's one big reason why the World Economic Forum says the U.S. has the most competitive economy in the world. The economic rebound after the pro-growth 2003 tax cuts was no mirage . . .

Bush's successes are destined to be overshadowed by the imploding housing and credit bubbles. They are the economic equivalents of IEDs, and they blew up at the end of his second term. The causes?  Everything from Fed monetary policy to government housing policy to cultural dysfunction on Wall Street and Main Street. But as teenagers like to say, "Too bad, so sad." Bush was president, and Big Media has already declared its summary judgment: Failure. Reaching such a mistaken conclusion, though, requires an almost purposeful misreading of the past eight years. (

Whatever problems there were with Bush’s economic policies, his tax cuts were not among them.

Clinton Tax Cuts: In 1997 President Bill Clinton signed a tax cut bill that, among other things, created a new $500 child tax credit, raised the income limit for deductible IRAs, nearly doubled the estate tax exemption, and slashed the capital gains tax rate by a whopping 28%.  The reduction in the capital gains tax was especially helpful.  In 1995, just over $8 billion in venture capital was invested. By 1998, the first full year in which the lower capital gains rates were in effect, venture capital activity reached almost $28 billion, more than a three-fold increase over 1995 levels, and it doubled again in 1999.  At the same time, total federal revenue rose every year after the 1997 tax cuts.

In addition, it’s worth noting that total federal revenue grew at a slightly faster rate in the three years after the 1997 tax cuts than it did in the three years before them.  From 1994 to 1996, total federal revenue grew by $200 billion, from $1.26 trillion to $1.45 trillion, an increase of 16%.  From 1998 to 2000, total federal revenue grew by $300 billion, from $1.72 trillion to $2.02 trillion, an increase of 17%. 

Moreover, although the economy was doing respectably well in the four years before the 1997 tax cuts, it did considerably better after the tax cuts. For example, from 1993 to 1996, the economy grew at an annual rate of 3.2%, but the annual growth rate jumped to 4.2% after the tax cuts (both rates are adjusted for inflation).  In the four years before the tax cuts, the rate of real wage growth was only 0.8%, but it rose to 6.5% after the tax cuts. Dr. J. D. Foster:

The Clinton years present two consecutive periods as experiments of the effects of tax policy. The first period, from 1993 to 1996, began with a significant tax increase as the economy was accelerating out of recession. The second period, from 1997 to 2000, began with a modest tax cut as the economy should have settled into a normal growth period. The economy was decidedly stronger following the tax cut than it was following the tax increase. . . .

The economy averaged 4.2 percent real growth per year from 1997 to 2000--a full percentage point higher than during the expansion following the 1993 tax hike. Employment increased by another 11.5 million jobs, which is roughly comparable to the job growth in the preceding four-year period. Real wages, however, grew at 6.5 percent, which is much stronger than the 0.8 percent growth of the preceding period (illustrated in the graph below). Finally, total market capitalization of the S&P 500 rose an astounding 95 percent. . .

In summary, coming out of a recession into a period when the economy should grow relatively rapidly, President Clinton signed a major tax increase. The average growth rate over his first term was a solid 3.2 percent. In 1997, at a time when the expansion was well along and economic growth should have slowed, Congress passed a modest net tax cut. The economy grew by a full percentage point-per-year faster over his second term than over Clinton's first term. (

There can be no denying that overall Clinton compiled a good economic record, but some important points need to be made about that record.  Rich Lowry:

The deficit reached its 1990s high of $290 billion in fiscal year 1992 and fell to $255 billion in fiscal year 1993, a roughly $40 billion reduction even before Clinton got started. Why was the deficit already declining? The deficit tends to rise during recessions, and fall during expansions. It climbed with the recession of 1990-91, before declining again as the recovery took hold. So, just as Clinton was taking office, natural forces were already working to reduce the deficit. . . .

As for economic growth, the fact is that the economy was already growing before any Clinton policies took effect. In 1992, growth was 3 percent. From 1993 to 1995 it was 3.1 percent annually. In other words, steady as she goes.

Now, later in the decade, the economy did indeed take off in a marvelous boom. This was a result of the corporate restructuring and downsizing of the 1980s and early 1990s, and the fantastic rise of new technology. You cannot attribute all this to the Clinton administration, unless you really do think that Al Gore invented the Internet.

Where Clinton should get credit is basically for getting out of the way of the free market: He . . . let Alan Greenspan keep inflation in check; he signed a "tax cut for the rich" in 1997; he signed various deregulatory bills; and his administration adopted a hands-off policy for the Internet (crafted by, of all people, former health-care guru Ira Magaziner). (

That being said, the Clinton economic record is impressive by almost any measurement.  A White House report discussed the economy‘s performance under Clinton as of November 2000 (just two months before he left office):

Strong Economic Growth: Since President Clinton took office, economic growth has averaged 4.0 percent per year, compared to average growth of 2.8 percent during the Reagan-Bush years. The economy has grown for 116 consecutive months, the most in history.

Most New Jobs Ever Created Under a Single Administration: The economy has created more than 22.5 million jobs in less than eight years—the most jobs ever created under a single administration, and more than were created in the previous 12 years. Of the total new jobs, 20.7 million, or 92 percent, are in the private sector.

Median Family Income Up $6,000 since 1993: Economic gains have been made across the spectrum as family incomes increased for all Americans. Since 1993, real median family income has increased by $6,338, from $42,612 in 1993 to $48,950 in 1999 (in 1999 dollars).

Unemployment at Its Lowest Level in More than 30 Years: Overall unemployment has dropped to the lowest level in more than 30 years, down from 6.9 percent in 1993 to just 4.0 percent in November 2000. The unemployment rate has been below 5 percent for 40 consecutive months. Unemployment for African Americans has fallen from 14.2 percent in 1992 to 7.3 percent in October 2000, the lowest rate on record. Unemployment for Hispanics has fallen from 11.8 percent in October 1992 to 5.0 percent in October 2000, also the lowest rate on record. (

Democrat Al From of the Democratic Leadership Council made some interesting points as he compared the economic records of Clinton and Reagan with the economic record of George H. W. Bush (i.e., Bush I or Bush Sr.) in a 2002 article:

On average, 2.65 million new private sector jobs were created every year during the Clinton Presidency. That's an average annual increase of 2.7 percent. Next best were the Reagan years, with an average of 2.34 million new private sector jobs created each year -- a 2.2 percent increase.

The Bush presidency lagged far behind Clinton's and Reagan's. During the elder Bush's term, an average of 355,000 jobs were created in each of his four years, increasing the number of available jobs by only 0.4 percent. . . .

Not surprisingly Clinton and Reagan had the best records of reducing unemployment, too. Interestingly, both began their terms with the unemployment rate over seven percent -- Clinton at 7.4 percent and Reagan at 7.2 percent. Both reduced unemployment substantially -- Clinton to 4.0 percent and Reagan to 5.3 percent. . . .

Family income, too, rose rapidly during both the Clinton and Reagan terms. In 2000 dollars, incomes increased nearly 23 percent from just over $53,000 a year at the end of the George H. W. Bush Administration to more than $65,000 a year when Clinton left office. In the Reagan years, family incomes (again in 2000 dollars) rose nearly 15 percent from about $47,000 annually to over $54,000. During Bush I, family incomes actually fell.

President Clinton was the only recent President to preside over a substantial drop in child poverty -- from nearly 23 percent to 16.2 percent. The proportion of children living in poverty was just about the same at the end of the Reagan years -- 19.5 percent -- as at the beginning -- 20 percent. . . .  Child poverty actually rose during the Bush I term, from 19.5 percent to 22.3 percent of children. (

Reagan Tax Cuts: In 1994 President Clinton's own Council of Economic Advisers stated: "It is undeniable that the sharp reduction in taxes in the early 1980s was a strong impetus to economic growth." 

The Reagan tax cuts were followed by a sharp increase in revenue. Total federal revenue, including income tax revenue, rose every year from 1983 to 1988, after a dip in 1982 (due at least in part to the recession of that year--the recession began in December 1980 and ended in November 1982).  From 1982 to 1989, i.e., when Reagan budgets were in operation, total federal revenue rose from $618 billion to $991 billion. (And herein by “in operation” I mean in effect for at least 10 months of a given year.) 

Let's look at what happened to federal income tax revenue under Reagan from 1983 to 1989, bearing in mind that Reagan slashed income tax rates across the board:

1983 -- $326 billion

1984 -- $355 billion

1985 -- $396 billion

1986 -- $412 billion

1987 -- $476 billion

1988 -- $496 billion

1989 -- $549 billion

Critics point out that Reagan also signed a few tax increases.  However, the fact remains that the total tax burden was far, far lower when Reagan left office than when he took office.  In other words, even counting the two tax increases that Reagan signed, taxes overall were still much lower in Reagan’s last year than they were in his first year.  For example, when Reagan became president in January 1981, the top marginal tax rate was 70%--yes, 70%--but by the last month of his presidency in January 1989, it was 28%.  (Furthermore, Reagan signed those tax increases with the understanding that there would be spending cuts later on, but Congress broke its word and never passed the promised spending cuts.)

As a result of the Reagan tax cuts, tax payments and the share of income taxes paid by the top 1% climbed sharply. For example, in 1981 the top 1% paid 17.6% of all personal income taxes, but by 1988 their share had jumped to 27.5%, a 10 percentage point increase.  The share of the income tax burden borne by the top 10% of taxpayers increased from 48.0% in 1981 to 57.2% in 1988. Meanwhile, the share of income taxes paid by the bottom 50% of taxpayers dropped from 7.5% in 1981 to 5.7% in 1988. 

The economy grew impressively during Reagan’s presidency.  The economic expansion of the Reagan years is particularly impressive when we remember that Reagan inherited a weak and staggering economy.  In January 1981 the unemployment rate was 7.4% and was on its way to climbing to over 10%.  Double-digit inflation had pushed interest rates into the high double-digit range. Real pre-tax income of the average American family had been dropping since 1976, and after-tax income was falling even faster. With these facts in mind, the Reagan economic record seems especially praiseworthy.  Economists William Niskanen and Stephen Moore:

Real economic growth averaged 3.2 percent during the Reagan years versus 2.8 percent during the Ford-Carter years and 2.1 percent during the Bush-Clinton years.

Real median family income grew by $4,000 during the Reagan period after experiencing no growth in the pre-Reagan years; it experienced a loss of almost $1,500 in the post-Reagan years.

Interest rates, inflation, and unemployment fell faster under Reagan than they did immediately before or after his presidency. (

Dr. Peter B. Sperry:

Despite the steep recession in 1982--brought on by tight money policies that were instituted to squeeze out the historic inflation level of the late 1970s--by 1983, the Reagan policies of reducing taxes, regulation, and inflation were in place. The result was unprecedented economic growth:

This economic boom lasted 92 months without a recession, from November 1982 to July 1990, the longest period of sustained growth during peacetime and the second-longest period of sustained growth in U.S. history. The growth in the economy lasted more than twice as long as the average period of expansions since World War II.

The American economy grew by about one-third in real inflation-adjusted terms. This was the equivalent of adding the entire economy of East and West Germany or two-thirds of Japan's economy to the U.S. economy. (

Dr. Niskanen:

Real GDP per working-age adult, which had increased at only a 0.8 annual rate during the Carter administration, increased at a 1.8 percent rate during the Reagan administration. The increase in productivity growth was even higher: output per hour in the business sector, which had been roughly constant in the Carter years, increased at a 1.4 percent rate in the Reagan years. Productivity in the manufacturing sector increased at a 3.8 percent annual rate, a record for peacetime.

Most other economic conditions also improved. The unemployment rate declined from 7.0 percent in 1980 to 5.4 percent in 1988. The inflation rate declined from 10.4 percent in 1980 to 4.2 percent in 1988. (

 Economist Larry Kudlow:

Immediately upon assuming office, he reversed the economic policy of the decline years. He brought down marginal tax rates, restoring the incentives necessary for economic growth. He gave Federal Reserve chairman Paul Volcker the strong ground to stand on, allowing him to harden the value of the dollar and slay inflation.

At bottom, what became known as Reaganomics was a new pro-growth policy mix of tax incentives at the margin and stable money. But there was more. . . .  He deregulated oil prices, proving the conventional wisdom wrong as energy became much cheaper. . . .   He created individual retirement accounts and 401k accounts, giving birth to the investor class. . . .
By 1986, Reagan’s tax-reform plan left two marginal rates of 28 percent and 15 percent, a long stone’s throw from the 70 percent top rate he had inherited. His plan also cut about 2,000 pages from the tax code. . . .

Between 1982 and 1989, the economy grew, adjusting for inflation, by 35 percent: more than 4.5 percent per year. As growth was restored, tax revenues came flowing in. Income-tax revenues grew even as tax rates dropped. By 1986, the inflation rate had fallen to 1 percent. By the end of his term, unemployment had dropped to 5.5 percent. Interest rates had plunged. The stock market had soared.

From July 1982 through the end of 1988, the S&P 500 averaged a near 21 percent annual gain. Brand-new industries arose in computing, software, communications, and the Internet — original endeavors that completely streamlined and transformed the American economy for the decades to come. (

JFK Tax Cuts: President John F. Kennedy's tax cuts were the biggest of the modern tax cuts.  The Tax Foundation explains:

Contrasting the size of the tax cuts with national income shows that the Kennedy tax cut, representing 1.9% of income, was the single largest first-year tax-cut of the post-WW II era. The Reagan tax cuts represented 1.4% of income while none of the Bush tax cut even breaks 1% of income. The Kennedy tax cuts would only have been surpassed in size by combining all three Bush tax cuts into a single package.

Comparing the size of these tax cuts with the federal budget shows that  Kennedy’s tax cuts represented 8.8% of the budget. In 1981, Reagan’s tax cuts represented 5.3% of the budget. Each of Bush’s tax cuts are smaller than Reagan’s—EGTRRA (3.8%), JCWA (2.5%) and the 2003 Tax Cut (1.8%). When the Bush tax cuts are combined (8.1%), they would be larger than Reagan’s tax cut, yet smaller than Kennedy’s tax cut. ("Fiscal Facts,"

The result?  JFK’s tax cuts were passed in the summer of 1964.  From 1965 to 1968, total federal revenue rose by an impressive 30%, from $117 billion to $153.  Some argue that 1968 should be omitted from such calculations, since a tax increase was passed that year.  However, the 1968 tax increase (The Revenue and Expenditure Control Act) was not passed until June of that year, so for at least half of 1968 the JFK tax rates were still in effect.  In any event, if we omit 1968, we still get a very impressive revenue growth rate:  From 1965 to 1967, total federal revenue rose by 27%, from $113 to $149 billion   Moreover, if we compare revenue growth from 1961-1964 to 1965-1967, we find that revenue rose more rapidly in the latter period:  From 1961 to 1964 revenue grew by 12% ($101 billion to $113 billion), but from 1965 to 1967 revenue grew by 27% ($117 billion to $149 billion):  So the rate of revenue growth more than doubled after the tax cuts were passed.

Looking at revenue growth in relation to inflation from JFK's first year to the last year his tax rates were in effect, i.e., 1961 to 1968. we see the following:  From 1961 to 1968, total federal revenue rose from $101 billion in 1961 to $153 billion in 1968, an increase of 52%, for an average growth rate of 6.5% per year.  Total inflation for that period was only 19.13%, an average of only 2.4% per year.  From 1961 to 1967, total federal revenue rose from $101 billion to $149 billion, an increase of 48%, for an average growth rate of 6% per year.  Total inflation for those years was only 13.76%, an average of only 1.96% per year.

Not only did JFK’s tax cuts lead to an increase in federal revenue but they were followed by an average GDP growth of over 5% and by a drop in the unemployment rate from 5.2% down to 3.6%.  And unemployment stayed below 4% for two years after it dropped to 3.6%.

Additionally, JFK’s tax cuts led to the rich paying a larger share of income taxes:

Just as happened in the 1920s, the share of the income tax burden borne by the rich increased following the tax cuts. Tax collections from those making over $50,000 per year climbed by 57 percent between 1963 and 1966, while tax collections from those earning below $50,000 rose 11 percent. As a result, the rich saw their portion of the income tax burden climb from 11.6 percent to 15.1 percent. (

The Kennedy tax cuts were followed by solid economic growth.  Economist Richard Rahn:

President Kennedy proposed major tax reduction before he was assassinated in 1963. Congress passed and President Johnson signed the tax cuts in the summer of 1964. Rates for all income groups were cut and the top rate was reduced from 91 percent to 70 percent. Economic growth averaged more than 5 percent a year for the three years after the tax cut, with very low inflation.  President Johnson and the Democratic Congress raised taxes in 1968, ending the Kennedy experiment. (

President Kennedy understood that tax cuts actually increase revenue, spark growth, and can actually lower deficits:

Our true choice is not between tax reduction, on the one hand, and the avoidance of large federal deficits on the other. It is increasingly clear that no matter what party is in power, so long as our national security needs keep rising, an economy hampered by restrictive tax rates will never produce enough revenue to balance our budget — just as it will never produce enough jobs or enough profits. . . .

In short, it is a paradoxical truth that tax rates are too high today and tax revenues are too low and the soundest way to raise the revenue in the long run is to cut the rates now. The experience of a number of European countries and Japan have borne this out. This country's own experience with tax reduction in 1954 has borne this out. And the reason is that only full employment can balance the budget, and tax reduction can pave the way to that employment. The purpose of cutting taxes now is not to incur a budget deficit, but to achieve the more prosperous, expanding economy which can bring a budget surplus. (

Harding/Coolidge/Mellon Tax Cuts:  Yet another example of the fact that major tax cuts lead to increased revenue and economic growth can be seen in the tax cuts of 1921, 1924, and 1926 that were crafted by Andrew Mellon, Secretary of the Treasury, and signed by President Warren G. Harding and by President Calvin Coolidge.  Not only did those tax cuts produce increased revenue and economic growth, they caused the rich to start paying a larger share of income taxes, even though (or because) they greatly reduced the top marginal tax rate.  Dr. Veronique de Rugy:

Changes in marginal income tax rates cause individuals and businesses to change their behavior. As tax rates rise, taxpayers reduce taxable income by working less, retiring earlier, scaling back plans to start or expand businesses, moving activities to the underground economy, restructuring companies, and spending more time and money on accountants to minimize taxes. Tax rate cuts reduce such distortions and cause the tax base to expand as tax avoidance falls and the economy grows. A review of tax data for high-income earners in the 1920s shows that as top tax rates were cut, tax revenues and the share of taxes paid by high-income taxpayers soared. . . .

When the federal income tax was enacted in 1913, the top rate was just 7 percent. By the end of World War I, rates had been greatly increased at all income levels, with the top rate jacked up to 77 percent (for income over $1 million). After five years of very high tax rates, rates were cut sharply under the Revenue Acts of 1921, 1924, and 1926. The combined top marginal normal and surtax rate fell from 73 percent to 58 percent in 1922, and then to 50 percent in 1923 (income over $200,000). In 1924, the top tax rate fell to 46 percent (income over $500,000). The top rate was just 25 percent (income over $100,000) from 1925 to 1928, and then fell to 24 percent in 1929.

Secretary Mellon knew that high tax rates caused the tax base to contract and that lower rates would boost economic growth. In 1924, Mellon noted: "The history of taxation shows that taxes which are inherently excessive are not paid. The high rates inevitably put pressure upon the taxpayer to withdraw his capital from productive business." He received strong support from President Coolidge, who argued that "the wise and correct course to follow in taxation and all other economic legislation is not to destroy those who have already secured success but to create conditions under which every one will have a better chance to be successful."

It is often assumed that broad cuts in income tax rates only benefit the rich and thrust a larger share of the tax burden on the poor. But detailed Internal Revenue Service data show that the across-the-board rate cuts of the early 1920s-including large cuts at the top end-resulted in greater tax payments and a larger tax share paid by those with high incomes. . . .  As the marginal tax rate on those high-income earners was cut sharply from 60 percent or more (to a maximum of 73 percent) to just 25 percent, taxes paid by that group soared from roughly $300 million to $700 million per year. The share of overall income taxes paid by the group rose from about one-third in the early 1920s to almost two-thirds by the late 1920s. (Note that inflation was virtually zero between 1922 and 1930, thus the tax amounts shown for that period are essentially real changes).

The tax cuts allowed the U.S. economy to grow rapidly during the mid- and late-1920s. Between 1922 and 1929, real gross national product grew at an annual average rate of 4.7 percent and the unemployment rate fell from 6.7 percent to 3.2 percent. The Mellon tax cuts restored incentives to work, save, and invest, and discouraged the use of tax shelters.

The rising tide of strong economic growth lifted all boats. At the top end, total income grew as a result of many more people becoming prosperous, rather than a fixed number of high earners getting greatly richer. For example, between 1922 and 1928, the average income reported on tax returns of those earning more than $100,000 increased 15 percent, but the number of taxpayers in that group almost quadrupled. During the same period, the number of taxpayers earning between $10,000 and $100,000 increased 84 percent, while the number reporting income of less than $10,000 fell. (

Many liberal commentators argue that tax cuts have caused budget deficits.  This is an erroneous argument.  As we’ve seen, every major tax cut since JFK has been followed by a large increase in revenue.  The problem has been that government spending has usually risen even more than revenue has risen.  Furthermore, after JFK’s tax cuts were passed in 1964, the deficit was very small, even though Congress and President Lyndon Johnson went on a spending spree and increased spending by 24%.  From 1965 to 1967, the deficit averaged less than 1% of GDP (0.57%).  When Bill Clinton and the Republican-controlled Congress held spending below revenue from 1997 to 2000, an amazing thing happened—we balanced the budget, started running a surplus, and began paying down the national debt.  Similarly,  when President Harding not only held spending below revenue but actually cut spending, we balanced the budget, ran a surplus for several years, and began paying down the national debt.  Deficits have never been caused by tax cuts but by excessive government spending.

Sources for Further Reading


Ten Myths About the Bush Tax Cuts


Kennedy-Reagan v. Bush-Obama


Who Pays Income Taxes?


Federal Budget Data


Fiscal Facts


Tax Cuts . . . Caused the 1990s Boom


John F. Kennedy Address to the Economic Club of New York


Supply-Side Tax Cuts and the Truth About the Reagan Economic Record


Government Spending Grew Faster Than Revenue for Most Administrations


The Real Reagan Economic Record


The Reagan Economic Record and Rising Tides


The Blame-Reagan Shift: From the Media to the Historians


That Old Hack Magic: Krugman Goes Mystical in His Latest Attack on the Reagan Record


Decade of Greed?


Reagan: Strong Economic Growth In Spite of Big Recession




Reagan’s Link


Kennedy v. Kennedy


Debunking Liberal Myths About Tax Cuts and the Economy


Tax Cut Revenue Rewards


Bush Tax Cuts Boosted Federal Revenue


Americas Greatest Depression Fighter


ABOUT THE AUTHOR:  Michael T. Griffith holds a Master’s degree in Theology from The Catholic Distance University, a Graduate Certificate in Ancient and Classical History from American Military University, a Bachelor’s degree in Liberal Arts from Excelsior College, and two Associate in Applied Science degrees from the Community College of the Air Force.  He also holds an Advanced Certificate of Civil War Studies and a Certificate of Civil War Studies from Carroll College.  He is a graduate in Arabic and Hebrew of the Defense Language Institute in Monterey, California, and of the U.S. Air Force Technical Training School in San Angelo, Texas.  In addition, he has completed Advanced Hebrew programs at Haifa University in Israel and at the Spiro Institute in London, England.  He is the author of five books on Mormonism and one book on the JFK assassination.  His books on Mormonism include How Firm A Foundation, A Ready Reply, and One Lord, One Faith.