Does the GOP Now Fear Tax Cuts?

The Conservative Political Action Coalition (CPAC) recently issued a message to red states seeking to pass tax cuts before the year’s end — stop buying the Left’s argument that tax cuts don’t facilitate economic growth.

The group’s statement came in response to the state of North Carolina toying with “offsetting” proposed cuts to the state income tax by legalizing commercial gaming. However, a slew of red states across the country are similarly struggling to understand how much of a net-revenue-generator tax cuts really are. Texas, for example, is proposing a sales tax increase to offset a property tax cut, while Georgia wants to raise taxes in other areas to pay for an income tax reduction.

The massive tax cuts designed by Treasury Secretary Andrew Mellon under Presidents Warren Harding and Calvin Coolidge — some of the biggest and boldest tax cuts in American history to date — brought down the highest income tax bracket from 60 to 25 percent while reducing Main Street’s tax liabilities in historic fashion. Rather than lead to holes in the federal budget, it turbocharged revenue by hundreds of millions while increasing gross natural product by close to 5 percent.

The Kemp–Roth tax cuts of 1981 followed the same playbook, decreasing the top individual tax rate from 70 percent to 50 percent while significantly slashing individual income tax rates for all the other brackets. Predictably, it led to similar growth, raising overall tax revenue by 6 percent.

Tax cuts increase revenue for a number of reasons.

For one, they reduce incentives for taxpayers to utilize tax-evasion tactics, such as offshore banking and concealing taxable assets. When tax liabilities become more reasonable and in line with historic norms, most Americans take no issue with paying the pipers. (READ MORE: Abolish the IRS: A Massive System Beyond Repair)

More importantly, however, tax cuts put more money in workers and businesses’ pockets, leading to increased demand, spending, and jobs throughout the economy. The American people witnessed this phenomenon firsthand with the Trump tax cuts of 2018, when job growth and demand soared while prices on an array of consumer goods hit rock bottom.

For all these reasons and more, there is no reason to pair tax cuts with other revenue generators — at least not right away.

As CPAC put it, “[L]inking tax cuts to either drug legalization or gambling expansion requires careful scrutiny.” Sometimes, these things are positive revenue generators; other times, the added public safety and entitlement costs make them net negatives for taxpayers. It’s unclear which it will be for North Carolina. What is clear, however, is that the state — which just legalized sports betting this summer — should slow down, analyze the positive and negative revenue effects that sports betting brings to the state, and revisit the larger issue of gambling expansion next year. Expansion isn’t needed to pay for the state’s proposed income tax reduction.

Georgia, Texas, and other red states toying with cutting taxes shouldn’t let fears of falling revenue delay their plans either.

With President Joe Biden’s economic policies estimated to cost every American family an average of over $400 a month, now is not the time for conservative lawmakers to second-guess the Republican Party platform and delay what they promised to their constituents. Now is the time to implement every last kernel of the party’s economic agenda and make a lasting difference in the lives of countless vulnerable Americans. It’s what they were elected to do.

Richard Manning is the president of Americans for Limited Government.

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