Democrats Call For Tax Cuts and Flat Income Tax Rate

American real GDP, “the most comprehensive measure of economic activity”, has increased by an average of 3.85% in the last two years. During those same two years, federal tax revenue has increased by 22%. Those “Bush tax cuts” have certainly been effective, haven’t they?

In Massachusetts, happy to have a flat income tax, the Republican Governor is tallying up the state’s surplus and proposing a tax cut. Good for our friends in Mass, they knew better than to vote for tax increases and progressive rates. Their smart thinking and voting has paid off. (We’re beginning to think Mass. voters send Kennedy and Kerry to the U.S. Senate to keep them out of the state and away from their state’s economy.)

Now it looks as though Rhode Island Democrats have decided to face facts - their state’s progressive income tax is hurting the state’s economy. The state’s lawmakers are calling for a flat tax – one that would change the current income tax rates, ranging from 3.75% - 9.9%, to a flat rate of 5.5%. Will wonders never cease?

Here’s hoping New Jersey’s Democrats will discover reality and take a lesson from President Bush and their “progressive” New England counterparts, lower tax rates and tax cuts work. Cut state spending and lower New Jersey’s tax rates and watch our economy fly. Hey, hope springs eternal. (You didn't think our post title applied to the federal government or New Jersey did you? - We should be so lucky!)

From today’s Political Diary (subscription required):

For all of their famous liberalism, Massachusetts voters have consistently voted down attempts to modify their state's flat tax, which imposes a single rate of 5.3% on all taxpayers regardless of income.

Now neighboring Rhode Island, which has a progressive income tax with rates ranging from 3.75% to a staggering 9.9%, is considering its own flat-rate tax to keep jobs and businesses from leaving the state.

The news is that the campaign is being led by Democrats. Last week, House Speaker William Murphy and fellow House Democratic leaders held a press conference in which they talked up the need to make Rhode Island more tax-friendly to high-income "decision makers." Mr. Murphy told the Providence Journal that the Ocean State's high tax rates not only drive away jobs but also chase away charitable contributions when its wealthy residents move to Florida, a state with no income tax.

Under the Democratic proposal, taxpayers would have the option of paying a flat-rate tax that would eventually fall to 5.5% with no exemptions and no deductions. To sweeten the pot, the Democratic proposal also includes a two-day sales tax holiday set for next August as well as a tax-free week in which residents could buy up to $2,500 worth of "energy efficient" items without any sales tax.

Astonishingly, the flat tax proposal may not even be much of a point of dispute in this year's race for governor. A spokesman for Republican Governor Don Carcieri welcomed the Democratic tax cut plan and said he looked forward to negotiations over it.

Lt. Governor Charles Fogarty, the most likely Democratic candidate, also endorsed the proposal by House Democrats as "an excellent starting point" in an effort to improve the state's economic climate, although he said he would continue to focus more on cutting property taxes.

The sour grapes were left to Kate Brewster, director of Rhode Island College's Poverty Institute, who complained that there "is absolutely no evidence or research that cutting taxes for a handful of wealthy individuals will stimulate economic growth."

Perhaps she hasn't noticed that the capital gains tax cut passed by Congress in 2003 has already brought in enough new revenue to pay for itself, and that overall the federal government has taken in 22% more in revenue over the last two years -- a development fueled in large part by the 2003 tax cuts.

It's certainly true that Washington D.C. policymakers -- along with the ones in Rhode Island -- have to do a better job controlling spending but the message that tax cuts work to stimulate the economy is now such a powerful one it's even impressing New England Democrats.