In recent American history three presidents, Republicans Ronald Reagan and George W. Bush—and Democrat icon John Fitzgerald Kennedy—all lowered taxes in response to economic recessions. In all three cases, more money flowed into federal coffers than expected, and all three recessions ended.
In 2003, President Bush lowered income, capital gains and dividend tax rates. As a result of the Bush tax cuts, the amount of revenue flowing into the federal Treasury over the next four years surged by over 40%, or $743 billion. To illustrate how the tax cuts boosted the economy, Gross Domestic Product grew at an annual rate of just 1.7% in the six quarters before the 2003 tax cuts. In the six quarters following the tax cuts, the growth rate was a robust 4.1%. While some of that growth was naturally occurring, the sudden and dramatic turnaround in the economy began at the exact moment those pro-growth policies were enacted.
Yet, despite compelling evidence, the Obama administration and Congressional Democrats intend to raise taxes beginning in 2011 by letting the Bush tax cuts expire. The top marginal tax rate will increase from 35% to 39.6%, capital gains rates will increase from 15% to 20%, and dividend rates will increase from 15% to as high as 39.6%.
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