The Savage Truth on Money - Why Tax Cuts Work

History shows that tax cuts produce increased tax revenue and economic growth. History also shows that politicians from both parties produce spending -- and deficits.

The Temptation of Taxes

There's a double temptation to raising taxes, in spite of the lessons of history. The first is that simple belief -- though proven wrong by experience -- that raising tax rates will bring in more tax revenue. The second temptation is the belief that raising tax rates on the wealthy will bring more "equality" or "fairness" to the system.

Again, history shows that doesn't work in practice, though it might sound attractive in theory. People who are smart (or lucky) enough to earn more, tend to be smart enough (or get financial advice) that enables them to change their earning patterns, actually paying less in taxes.

The Beatles famously wrote about the "Taxman" -- who said "19 for you, and one for me" -- referring to the confiscatory top 95 percent tax rate in Britain at the time. And they left. In 1971, the Rolling Stones left England for France to escape high taxes. When Swedish taxes soared, tennis star Bjorn Borg and Ikea founder Ingvar Kamprad fled the country, taking their money with them.

Don't think that leaving will be an option in America. In the "Heroes Act" passed a year ago, Congress resolved that anyone voluntarily giving up his or her citizenship will be taxed on all of his assets as if he or she had sold them -- paying capital gains on assets that have increased in value, even though they have not been sold.

Americans want to make our system better, not leave it. Providing health care to all is truly a goal worthy of our society. But it can be paid for only through economic growth. Higher taxes have historically destroyed economic growth -- and tax revenues. That's the lesson of history. And that's The Savage Truth.