Conservatives have been pounding their fists and screaming for decades that tax cuts stimulate the economy.  With lower taxes, investors and business owners can provide more capital for new ventures and engage in more hiring, because they know less of their profits will be confiscated to pay for things like solar panels at the White House.

Tax cuts don’t revive the economy the second they’re passed—no one, not even Rick Santelli, ever said they did.  They don’t do so a few weeks later; they don’t always do so in time for the next election.  But eventually they do.

Tax cuts trim government revenue temporarily, but soon increased growth from lower tax rates results in net revenue increases.

In contrast, tax increases—which is what the impending reversal of the 2001 and 2003 Bush tax cuts would amount to—shrink the economy by decreasing hiring and investment.  Regarding the Bush tax cuts, that’d be a combined tax increase to the tune of half a trillion dollars over the next decade.  (Pop quiz: If Rhode Island and Massachusetts’ tax structures were switched, would John Kerry still take the trouble to dock his yacht in another state, even though it would cost him half a million dollars a year in taxes?)

It’s really not that complicated.

Imagine that you run a lemonade stand and make $100 profit a day, and the Obama administration taxes you at 50%, for a government revenue total of $50.

Now imagine that the incoming Christie administration slashes that rate to 20%.  Instead of worrying about paying your bills and staying afloat, and resenting the government’s punishing your entrepreneurship, you hire more workers and eventually expand to five franchises.  At $20 in taxes per stand, you are now sending twice as much revenue to the government as before.  read more »