Jack Kemp

As I've often said before, the only thing one learns from history is that no one ever learns from history. While I don't accept this Hegelian pessimistic view of human nature, it's increasingly clear that the Republican Party may prove the German philosopher Hegel correct. How so? Republican members of Congress are floundering around in a post-Tom DeLay world, wondering what to do about an agenda when they have yet to extend the Bush tax-rate cuts.

It's still about "the economy, stupid!" And as the economy grows robustly, unemployment drops to 4.7 percent, 225,000 jobs are being created every month, inflation is relatively low, and revenues are up by 16 percent or more, the party of Ronald Reagan can't seem to recall the lessons most of us learned two decades ago - that lower tax rates on income from work and capital investment will produce more revenue availability to government.

Memo to the GOP in Congress, the White House and the Statehouse: We (the United States) didn't cut taxes, we didn't cut tax revenues, we didn't pass tax relief for the rich; we lowered the tax rate on labor and capital, and that is why the economy and revenues have surged since 2003. As The Wall Street Journal pointed out last March in a prescient editorial on the static analysis model of the Congressional Budget office, they (the CBO) estimated cutting the capital gains tax rate from 20 percent to 15 percent would cost revenue. Indeed, the CBO recently projected that extending the 15 percent rate for but two years would cost the U.S. Treasury $20 billion. But as Senate Finance Chair Charles Grassley, R-Iowa, showed recently, tax receipts from capital gains are now expected to be $87 billion more than CBO originally projected for the years 2003-2006.

To appreciate just how wrong Washington bureaucrats have been over the years with their static revenue-estimating methodology, check out the section on dynamic scoring at the Web site of the Institute for Policy Innovation, which houses more than 40 examples of dynamic scoring in action.

Consider a few of the more outrageous instances. One infamous episode occurred during the last major tax reform in 1986, when the tax rate on capital gains was increased from 20 percent to 28 percent. Congressional revenue estimators hugely overestimated capital gains revenues because their static analysis failed to take into account investors' behavioral response to the hike in the tax rate. Not only did capital gains revenues not increase as much as the Joint Committee on Taxation estimated, they actually declined.

Jack Kemp

Jack Kemp is Founder and Chairman of Kemp Partners and a contributing columnist to Townhall.com.
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