“It has been shown, time and again, that raising taxes reduces economic activity and future tax reciepts. Look back on the FDR years - we were stuck in a recession/depression for a decade because of an over-reaching and overtaxing government. Look at the decades of prosperity that came after the Reagan tax cuts.”
You can look at the FDR years another way—that the economy didn’t recover until the massive spending brought on by WW2. Many economists say the current financial crisis is similar to the one that brought on the Great Depression and that a similar response is needed to get the economy going again. It’s beyond my expertise, for sure.
As to the Reagan tax cuts, again there are different interpretations. When Reagan became president he inherited a national debt of about one trillion dollars. When he left office, it was close to three times that. When Bush left office at the end of this period of “prosperity”, the national debt was ten trillion dollars. Prosperity purchased by nine trillion dollars of deficit spending is not real prosperity. Moreover, the real wages of the middle class, adjusted for inflation, scarcely moved up at all during this thirty year period. Only the rich did well. Whereas during the years following WW2, the middle class prospered.
It wasn't the spending of WW-II that helped the economy - it was the productivity of WW-II that did so. Throughout the 1930's, the mood was much less positive in the country. The government spent and spent and spent prior to the war, but the economy wouldn't budge. When the Japanese bombed Pearl Harbor, people regained their desire to work. They had a goal. They had something to gain. Every fighter plane, every battleship, every rifle, and every tank was built by people that WANTED TO WIN THE WAR.
Fast-forward to today - we're seeing a lot of the same stagnency in the economy that we saw in the 1930's. And the more that the government responds as it did in the 1930's, the worse it will get.
As to the Reagan tax cuts, again there are different interpretations. When Reagan became president he inherited a national debt of about one trillion dollars. When he left office, it was close to three times that. When Bush left office at the end of this period of “prosperity”, the national debt was ten trillion dollars. Prosperity purchased by nine trillion dollars of deficit spending is not real prosperity.
In terms of spending, there was a problem in Reagan's time as well as Bush's time. But remember, the purse strings of the federal government lie in the House of Representatives, not the White House. Reagan did well considering that the house and Senate were both in Democrat hands. Bush, with the republicans, SHOULD have done better but didn't, partly because of the war on terror and partly because Bush wanted to continue some of the socialist programs rather than trim them.
But that is a side issue - the tax cuts in Reagan's time resulted in an increase in federal tax revenue due to the boosted economic activity. The same happened with Bush. In both cases, there was an increase in revenues due to the cuts. The problem is/was, there was an increase in spending that was larger than the increased revenue.
Moreover, the real wages of the middle class, adjusted for inflation, scarcely moved up at all during this thirty year period. Only the rich did well. Whereas during the years following WW2, the middle class prospered.
I don't have the hard stats in front of me, but to the extent that this is true (if it's really true), take a look at what kinds of businesses we now have in the US - manufacturing and especially heavy manufacturing have been in decline for decades (thanks to a great extent to excessive regulation by government), being replaced by services. Now, the service industry includes medical care and other professional help, but it also includes Hotel service and fast foods and we know how well those type of jobs pay. Additionally, we have illegals taking labor intensive jobs from Americans and driving wages down.
I don't have all the answers, but it has been shown that decreasing the tax rate increases economic activity among the people that the tax effects. Conversely, raising taxes decreases such economic activity. In simple terms, people see no need to buy and raise a cow for milk when the government steals 50% of the milk and gives it to someone else that is too lazy to raise their own cow.