Free: Trouble With the Curve
In baseball’s minor leagues there are plenty of talented players, gifted athletes who can hit everything except a major league curveball. Scouts frequently euphemistically say, “Trouble with the curve.” That is the death knell to many a career.
In the politics of economic policy Democrats frequently have “trouble with the curve.” In this case the curve is the Laffer Curve. Coined by Economist Art Laffer, the curve refers to declining government revenues due to over-taxation. There is a point where high taxes suppress economic activity. The depressed economic activity lowers tax revenues.
Conversely, lower taxes mean greater economic activity generating more tax revenue. Both the Kennedy administration and the Reagan administration spurred economic activity by lowering taxes.
The trick is to hit the sweet spot where tax rates are high enough to generate necessary revenues but low enough to encourage economic growth. This is the strategy of the Trump administration and the Republican Congress but this strategy has been universally opposed by the Democrats.
We now have data to support that the Republican policy has hit the sweet spot. This year Governor Northam announced that Virginia has an increase in revenue of $550 million. There will be a debate on what to do with this windfall but I, for one, like a debate about a surplus rather than one about a shortfall.
The picture is also bright on the federal side. Consider the numbers so far this year. Federal income tax revenues have grown by 9 percent after the Republican tax cuts providing for $76 billion in increased revenues so far this year. More economic activity has also resulted in a $3.8 billion increase in excise taxes. Custom taxes are up by one billion.
The increased economic activity has driven down unemployment to historic lows, especially for African Americans and Hispanics. For the first time in the history of our country the number of unemployed is lower then the number of jobs awaiting employees. Economic growth is a robust 4.1 percent and is anticipated to remain there. The stock market is at historic highs aided by the bright economic picture.
Always remember that every child we want to educate, every family we want to protect, and every road we want to build depends on economic activity to generate the funds necessary to pay for these programs. It is not taxes; taxes are the legal vehicle that transfers private money to public money. Make taxes too high and you erode your economic foundation.
Look at the failing cities of the Rustbelt. You will see a collapsing economic base, and the resulting hardships visited on one of these areas and our fellow citizens who reside there. Robust economic growth will turn this trend around. Let’s do that.
Everywhere, and in the Second District especially, Democrats want to roll back the tax cuts. Congressman Taylor wants to make the tax cuts permanent. Returning the rates to their former levels risks returning to the stagnant economy of the past ten years. Let’s not go back there. Stay the course.
Dennis Free is Republican Chairman of the 2nd Congressional District of Virginia.
