"Bush tax cuts created deficit" Not.

I’m tired of hearing the Democrats and my hate-mailers stupidly try to pin our historic deficit spending on the “evil, immoral” Bush tax cuts, so let’s just put this narrative down for good, shall we?

NY TIMES, JULY 9, 2006: Surprising Jump in Tax Revenues Is Curbing Deficit

An unexpectedly steep rise in tax revenues from corporations and the wealthy is driving down the projected budget deficit this year, even though spending has climbed sharply because of the war in Iraq and the cost of hurricane relief.

On Tuesday, White House officials are expected to announce that the tax receipts will be about $250 billion above last year’s levels and that the deficit will be about $100 billion less than what they projected six months ago. The rising tide in tax payments has been building for months, but the increased scale is surprising even seasoned budget analysts and making it easier for both the administration and Congress to finesse the big run-up in spending over the past year.

Tax revenues are climbing twice as fast as the administration predicted in February, so fast that the budget deficit could actually decline this year.

The main reason is a big spike in corporate tax receipts, which have nearly tripled since 2003, as well as what appears to be a big increase in individual taxes on stock market profits and executive bonuses.

Italics mine. Read it all. It’s really not a difficult concept, but our credentialed gentry can’t seem to get it: when businesses are not overtaxed, they hire people and reinvest in their business. When people have jobs, they make money. When they make money they can pay taxes!

Angela Merkel seems to have figured it out; she outright rejected the Obama Way, and did the unthinkable–she cut some spending and lowered taxes–and German Unemployment Dips to 18-Year Low in October

Brace yourself for smaller paychecks
What happens when they expire
What changes could be in store for taxpayers
How will expiring Bush tax cuts affect you

About Elizabeth Scalia
  • Jeff

    Right on. This is an indisputable economic fact that Obama’s ideology won’t allow him to accept. JFK accepted it, but not the anointed one.

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  • Jeff

    If you google “JFK vs. Obama on taxes” there is a great YouTube clip showing how JFK understood that cutting tax rates is the best way to get out of recession, and increase revenues to the Treasury. This seems to be what is happening in Germany now.

  • http://zachriel.blogspot.com/2005/07/liberal-v-conservative.html Zachriel

    Huh? The rise in revenues was fueled in large part by a real estate bubble. You can’t point to the bubble as a success when it led to a precipitous collapse in equity and nearly collapsed the global markets.

  • http://zachriel.blogspot.com/2005/07/liberal-v-conservative.html Zachriel

    And it still didn’t balance the budget.

  • Jeff

    That’s incorrect. A rise in property values has no effect on revenues to the Treasury. It does increase consumer confidence, which can increase consumer spending, but it doesn’t raise or decrease revenues to the treasury.

  • http://zachriel.blogspot.com/2005/07/liberal-v-conservative.html Zachriel

    Jeff: A rise in property values has no effect on revenues to the Treasury.

    Borrowing against inflated equity fueled the boom in consumer spending and ensuing economic growth.

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  • Greta

    The democrats will never accept that lowering taxes increases revenue for the simple reason that raising taxes against “the rich” is part of their program that sells to the “poor” that they are doing something for them. Never mind that it never helps the poor, but simply makes them more dependent on a government that uses them to retain power. Unions also follow this program for when people are able to become wealthier, they tend to see less need for unions. Democrats never show the total cost and efficiency of any program or the impact of those programs on society as a whole. The put forth useless legislation, often programs that are clearly a ponzi scheme like social security and medicare. Yes, they have value to those dependent on the programs, but neither are sustainable without continuing increase in funds.

  • Old Fan

    Oh Zachriel, are you a partisan?

    Did you miss the point?

    Myth #1: The 2001 and 2003 tax cuts wiped out the $5.6 trillion surplus for 2002–2011.

    Fact: They caused just 14 percent of the swing from projected surpluses to actual deficits.

    Bubble? Did you study the Market Bubble of the late 90′s? The Real Estate Bubble you are trying to reference was a one aspect of a larger healthy economy, growing revenue during the Bush Administration tenure, largely credited to the positive impact of those Tax Cuts.

    The Mortgage Meltdown you are referencing, largely created by the Democratic Party exploiting the likes of Fannie – Freddie – HUD, etc. for many years, has little relation to the larger growth in revenue at this time – nor is it the point.

    Of course the record reveals the Bush Tax Cuts, as all tax cuts have, stimulated the economy, thus grew revenue and lowered the Deficit. There is no denying this simple reality.

    Ever have a product that doesn’t move in a store? And when one reduces the price, making a sale? Suddenly one can encounter a rise in revenue with the move of more product, when the price is readjusted to a more fair rate. This is simply how tax reduction can work, stimulating the economy, growing more revenue. And the opposite: raise the rate, raise the price, you lower the rate of exchange in the market – business, and will predictably see less revenue. Ironically, the Democrat Party solution to lower revenue is always raise taxation to recoup lost revenue – more revenue, further killing the environment for a healthy economy. They seem to never grasp the most basic economic realities, or try to ignore them for the sake of their Political Machine.

    Democrats are stuck on a failed system of collectivism – but their addiction to spending other people’s money is not really inspired a ‘purist ideal’ intended to help. This disastrous Democratic Partisan tax – spend – ponzi scheme is a product of an unethical Political Machine which is designed to buy influence, votes, power, dependency (especially via UNION interests). It has wreaked havoc on NJ, LA, NY, CA, MI, etc.

    It doesn’t matter if it is Corzine, McGreevy, Blanco, Gregoire, Clinton, Obama, Pelosi, Davis, Granholm, etc., they all have a history of being dishonest about raising taxation and governmental spending while campaigning for Office. Then, once elected, they have shown an truly socialist mindset, making a disastrous environment for all Americans.

    These various forms of collectivism, always raise the cost of living for all, cement economic classes, stop growth and opportunity, kill incentive, ruin the quality of life, crush basic freedoms. I have lived in the EUROPEAN failures of socialism – it makes life very difficult for all, especially the poor, primarily because the rising cost of living is so severe, one cannot afford to live their dream.

    The Bush Tax Cuts, were coupled with a more sane form of spending with the Republicans in control from 2002 to 2006 (especially to what Democrats did after they took over Congress in 2006). The Bush Tax Cuts definitely grew the economy – and clearly reduced the Deficits because of the healthy rise in revenue (historic governmental revenue receipts at the time), with admirable GDP growth, low unemployment rates (4% at one point), record market highs, etc.

    9-11 and the Clinton Recession of 2000 are largely credited for growing Deficits. The Bush Administration faced the Recession of 2000, largely attributed to the Clinton failure to lower taxation as the economy slowed (after giving us the largest tax increase in US History in 1993). The Clintons also foolishly aided the Market Bubble of the late 1990′s, with mindless FED Loan Guarantees for corrupt-ponzi schemes like Enron.

    Regardless, the Bush Administration’s sound response to the Clinton Recession of 2000, greatly aided all, especially the tax reduction which grew the economy. Even with the horrid destruction on 9-11, (9-11 itself was estimated to have cost us some 600 Billion alone), our economy grew in a healthy manner, and the Deficits were sinking again, under admirable control. Prior to the Democrats taking control of Congress in 2006, prior to the Democratic Party’s manufactured Mortgage Crisis finally erupting (after the Bush Administration tried 18 times to reform the problems with Fannie and Freddie), we were in good shape.

    Since Pelosi – Reid – Democrats took over Congress, the national debt has increased by $5 trillion?

    What a mess…
    “President Obama’s fiscal 2011 budget will generate nearly $10 trillion in cumulative budget deficits over the next 10 years, $1.2 trillion more than the administration projected, and raise the federal debt to 90 percent of the nation’s economic output by 2020, the Congressional Budget Office reported Thursday.”

  • Jeff

    Let’s just wait and see if the Clinton tax hikes are allowed to go back into effect on 1.1.11. Contrary to the propaganda the lamestream media is peddling, the deficit will increase, unemployment will further increase, and consumer confidence will plummet further.

  • http://zachriel.blogspot.com/2005/07/liberal-v-conservative.html Zachriel

    Greta: The democrats will never accept that lowering taxes increases revenue for the simple reason that raising taxes against “the rich” is part of their program that sells to the “poor” that they are doing something for them.

    Cutting taxes can stimulate an economy that is not already working at capacity. This will generate additional revenues.


    Not enough to compensate for the lost revenues.

    Per the CBO in 2005, a 10% cut in taxes would increase economic output by 0.5% to 0.8% over the first five years. The resulting gain in revenue would be no more than 22% of that lost to the tax cuts themselves. So, if you want to balance the budget, you have to cut spending or raise taxes, or both.

    The Bush tax cuts have cost about $2.5 trillion (with interest still being incurred). It’s probably not a good idea to take any precipitous actions until the economy is back on a sound footing, but taxes and spending cuts will eventually be required to bring the budget back into line.

  • JDC

    There are a lot of myths being perpetuated here, zombie ideas that continuously come back no matter how often they are killed. Nonetheless, I shall try to once more set the record straight:

    Tax cuts do not pay for themselves. They really don’t. It’s hard to dismiss the idea, because most of us have heard it parroted our entire lives, but try to recall even one time that the statement was backed up by facts, other than vague and unsubstantial references to Reagan and JFK.

    Zachriel was absolutely right; a booming derivative market saw companies insanely over-leveraged as of the second half of the decade. Only one domino needed to fall for the system to collapse. That is indisputable fact. Wages and benefits sat still during the Bush years while medical prices, housing, and other important expenses rose alarmingly. At the very least, you used to be able to say “well, at least the GDP continued to rise,” but now we know that even that was built on one of the biggest ponzi schemes in history. However you may feel about the wars or any of his other initiatives, the GWB years were a disaster, economically speaking.

    Old Fan, I really appreciate how much time you must have put into writing all of that, but your post is simply a regurgitation of a number of easily-dispelled falsehoods. No matter how many times you say things like “no denying” and “simple reality” it doesn’t make it more true.

    Watch this: All dogs are larger than commercial aircraft. There is no denying this simple reality. There is simply no way to dispute it. It is self-evident.

    Well, we’ll come back to that one later, and see if it had any effect.

    Anyway, stating that a bubble is part of a healthy economy is, in particular, mind-boggling. I simply had to call you on that one. I don’t care how conservative or liberal you are, you will not find a single economist to back up the notion that investment bubbles are somehow a positive thing. That you can say with categorical certainty that all tax cuts increase revenue (not even the usual hedged, Lafferian remark about it only SOMETIMES being true), while deriding actual facts as absurd prima facie is, to say the least, an impressive subversion of the entire science of economics (and everything we’ve ascertained about business cycles) up to this point.

    Also, the continued insistence that fannie and freddie were the central culprits is another curiosity, particularly since their participation was in response to a dip in their market share, and much of their toxicity was actually due to the persistent and fraudulent mislabeling of said assets as AAA or otherwise safe. Mind, that’s more the derivative side of things; the predatory lenders were also big players in this, and before anyone brings up the Community Reinvestment Act, it must be pointed out that the majority of subprime loans occurred outside of the purview of the CRA, whose loans have managed to remain surprisingly stable through this whole nightmare.

    This crisis was predominantly a private creation. The public sector’s hand in it mostly took the form of a gradual scaling back of regulation. Here is an illuminating article which demonstrates the sort of manipulation at work. Also here’s NPR’s Planet Money audio for the story if you’re so inclined.

    I think that’s about all I came here to say, though I meant to spend more time on tax policy. I suppose there’ll be more time for that down the road, whe-WHOA, LOOK AT THE SIZE OF THAT DOG!

  • Jeff

    But we aren’t talking about what precipitated the crash in 2008. And you can repeat the zombie like idea that the Community Reinvestment Act under Carter and Clinton had nothing to do with it. The issue is our current massive and ever expanding deficit, and whether reinstating the Clinton era tax hikes will reduce it. Sorry, they won’t. JFK cut tax rates and revenues increased. This is simply a fact.

  • JDC

    Jeff: Oh, it’s simply a fact. Then you shouldn’t have any trouble backing it up, yes?

    I’ll start you off with a few different accounts which stand contrary to your assertion. Now you can shoot some back at me, perhaps, and we can argue the merits of them. Like an extremely laborious game of tennis, you could say.

    Also, I do appreciate seeing my own words thrown back at me, as it indicates that I’ve at least made some impact. However, I must ask again that you substantiate that position. To what extent do you think the CRA is responsible? Do you have any proof? Which is to say, evidence? What mechanisms within it could be said to have triggered the effect you are describing, and what is the effect, itself?

    Here, a couple of articles for you to digest while you formulate your response.

    Finally, I know people are in quite an uproar about the federal deficit, but I am still at a loss as to why. Well, actually, if I had to guess, it’d be a combination of the misconception that our fiat currency operates at all like commodity money (i.e. gold standard currency) and general libertarian cargo cult superstition. Austerity measures during recessionary periods are a poor idea both in theory (on which I will gladly elaborate, if you wish) and in practice. Right now, our best course would be to increase the deficit further, and as quickly as possible, before people start to latch on to the idea that the current rates of employment should constitute a new NAIRU.

  • JDC

    To elaborate a bit on the last thing I said: it should be noted that not all deficit spending is created equal, and I am not all for just throwing money at anything, willy-nilly. Specifically, we get the best utility out of our spending when we target functions and groups that have a high marginal propensity to consume, with a bias towards domesticity.

  • jeff

    Let’s just cut to the fifth set tiebreaker…obama and liberals like him just love confiscating other peoples’ money and spending it like there’s no tomorrow. They love it. His father thought 100% taxation was fine.

  • JDC

    Bad news, Jeff: that’s not how monetary economics works when you’re a sovereign nation issuing its own currency. The federal government is not revenue-constrained. They don’t “need” tax money to pay for anything, because they create the currency. They no more need tax revenue to implement programs than a scoreboard operator at a football game needs to collect points from previous games before adding a touchdown to the board. The only danger of issuing without recouping is the potential for inflation. However, the sort of demand-pull inflation that it could result in is only an issue when production cannot rise to meet the increased demand. Currency, the U-6 number is around 17%, which means we are nowhere near at full output. Hell, 2009 was a deflationary year. We’re in no danger of unmanageable inflation until we address our unemployment, and the quickest and most efficient way to do that is by using a government deficit to help build a private sector surplus.

    Taxation at the federal level doesn’t “fund” anything. In fact, it only serves two purposes: adjusting income distribution (depending on whether it is progressive [like the income tax] or regressive [like the payroll tax]) and removing demand from the economy. States, on the other hand, ARE revenue constrained, so state taxes pretty much behave the way you’d expect. (By the way, I am all for an extended payroll tax holiday and expanded revenue-sharing between the federal government and the states, since federal stimulus is not quite as helpful when it’s all being eaten back up by state austerity.)

    Also, I’ve never heard an american politician call for 100% taxation. Do you mean 100% average, or 100% marginal (i.e. top-bracket earnings)? There’s a key distinction, there. Do you have a source for that statement?

  • JDC

    Aah, for some reason I got turned around at the “100%” remark and thought by “his father” you meant George H. W. Sorry about the brain-fart.

    Also, if it’s any consolation with regards to the “must tax to fund spending” misconception about monetary econ, it is actually a misconception held by most of the american public, it seems. I might even go as far as to say most of its leadership, too.

    The problem is that economics is still taught as though we’re still on a gold standard, and Nixon Shock never happened. Hopefully, that’ll start to change, soon, because we are consistently selling ourselves short by focusing on balancing the federal budget irrespective of the rest of the economy.

  • Doc

    Nice job, Zach, you’ve got a helper. Old Fan, you gotta ask if Zach is partisan? Heh. Zach the hack never lets facts stand in the way of defending the narrative.

    JDC, you’re linking to Alternet? Really? May as well direct us to the economic whiz kids at the Daily Kos.

    Read Thomas Sowell. Learn something.

  • jeff

    JFK, game set match

  • Jeffery

    The 100% taxation rate is from Dinesh D’Souza’s book, The Roots of Obama’s Rage, in which the author posits that Barack Obama is channeling the beliefs of the dead father he didn’t know. In an academic paper from 1965, Obama Sr. stated “theoretically there is nothing that can stop the government from taxing 100% of income so long as the people get benefits from the government commensurate with their income which is taxed.” The right-wing blogosphere and FOX News predictably transmogrified this into Barack Obama supporting 100% taxation.

    There is no evidence, nada, zip, that tax cuts increase government revenues. When Kennedy’s proposed cuts were enacted in 1964 the top marginal rate was reduced from 91% to 77%. In fact, during the post-war boom when we built modern America, schools, interstate highways, bridges, dams, and airports our top marginal tax rate was always over 90%, all while paying down a WWII debt that was well over 100% of GDP in 1945 (greater than our current national debt). But pay it down we did. By 1980 our debt was less than $1 trillion and below 30% of GDP.

    In 1982 we further cut the top rate to 50%, in 1987 to 38.5%, in 1988 to 28%. Did this unleash a stifled economy? Not by any standard measure. By 1993 our national debt had swollen to over 60% of GDP and to over $6 trillion. In 1993 the top rate was increased to 39.6% and over the next 8 years our national debt actually decreased. In 2003 the top rate was cut to 35% and the debt again began to grow, increasing to nearly 80% of GDP by 2009! (In fairness, the invasions and occupations of Iraq and Afghanistan also added to the debt).

    Most of our current national debt was incurred during the time periods 1981-1993 and 2001-2009, after we had cut taxes (although the Great Recession significantly reduced revenues in 2009 and 2010, adding another $1 trillion or so.)

    Conservatives seem concerned about deficits and debt only when a Democrat is in the White House. After all, according to VP Cheney, “Reagan proved deficits don’t matter.”

  • JDC

    Doc: Yes, I appear to have posted a source renowned for a particular point of view. Is that unacceptable? Are we not having this very discussion in one such a place? What about the other article? Does it pass your muster? Do you have any response to Sheila Blair’s summary? What about this source? Maybe this detailed account, or this analysis? How do you feel about an explicitly nonpartisan organization weighing in? Is the Dallas Fed of sufficiently high profile to participate in your discussion?

    I was kind of hoping we could actually discuss things in such a way that ideas are addressed on their own merits, and not who is making them; after all, there is a reason argumentum ad hominem is considered a logical fallacy. Even if you’re convinced that you won’t find any common ground with another source, surely you can concede that even a broken clock must be right twice a day, yes?

    Apart from the inherent dangers in dismissing a thought based solely on its source, I take issue with something else: “Is that what you’re doing? Really?” is an easy response. You don’t have to think. You don’t have to reason. You just have to sit back and look real smug. If you attest that you aren’t capable of anything more than that, then I suppose I’ll accept the reality of your shortcomings. However, I believe you are capable; you’re just taking the easy way out because you know you have the advantage of being part of the general ideological milieu of this corner of the internet. Hell, use that advantage, if you must; get some buddies and put your heads together to actually best me on the battlefield of ideas. If one is truly comfortable and secure in one’s positions, then how can one do any less than bear them out?

    Of course, then you are opening yourself up to the possibility that if you can’t win against an amateur such as myself, then you might be forced to reevaluate a position you hold. I’m not issuing any particular challenge in this paragraph, but simply expressing what seems to be the most natural of conclusions – i.e., there comes a time when one must ask oneself, ‘am I prepared to relax my grip on a belief if it is shown to be in error?’ If the answer is ‘no,’ it prompts further questions, such as ‘why?’ and ‘what might I have attached to this particular belief that I am unwilling to question it?’ What I am advocating is essentially a mindset of meditative introspection, which I am sure many here, admin included, would consider to be a good thing, yes?

    As for Sowell, I must confess I have read some of his oeuvre. More often than not I have found his logic to be riddled with embarrassing sophistries and fallacies, couched in all manner of rhetorical camouflage. But maybe I’m just not reading the right things he’s written. Do you have a particular favorite piece or pieces you could perhaps direct me to? As I’ve said, I’ve had poor experiences with him in the past, but I am prepared to accept that I may have been getting a lopsided view of his work. Or – and I cringe at the thought – is this going to be another dismissive wave of the hand; “throw a dart at the board, any one of them will do”?

    Jeff: Ah, yes. The classic “thrusting fingers in ears and kicking over the chessboard” technique. No need to substantiate your claim, just keep repeating it so everyone knows how true it is. Keep doing this, no matter what silly little things like “historical data” and “coherent and internally consistent theory” have to say. Hey, you know, I once saw someone write that if you keep saying things that you know are true loudly and often enough, sooner or later people start to see just how right those things are. Which is to say, so right. I forget who it was, though. Might have been someone in some newspaper article or something. (Ho ho ho, that’s a joke of course; print media is dead!)

    Of course, the beauty of this game is that once you remove causality from the picture, anything can mean anything. So I rebut your argument thus:


    It appears that now I have the upper hand, as you have been hoist by your own petard!

    …Or, then again, we could actually do what grownups do and, y’know, debate and discuss. (I am pro-Those Things!)

  • Jeffery

    Did anyone actually make the statement, “Bush tax cuts created deficit”, or is it a strawman statement? A true statement is: “Bush tax cuts added to the national debt”.

    A deficit results from annual spending being greater than annual revenues. The yearly deficits add to the overall national debt. Most of our current national debt resulted from annual deficits incurred under Presidents Reagan, G.H.W. Bush and G.W. Bush. Spending exceeded revenues those years partly as a result of tax cuts.

    Paul Krugman, 2008 Nobel Prize winner in economics stated Nov 9, 2009: “Germany came into the Great Recession with strong employment protection legislation. This has been supplemented with a “short-time work scheme,” which provides subsidies to employers who reduce workers’ hours rather than laying them off. These measures didn’t prevent a nasty recession, but Germany got through the recession with remarkably few job losses.”

    Chancellor Merkel unveiled her austerity package in June 2010.

    How did Germany’s unemployment rate respond to the austerity package at least a year before the austerity package was announced?

    Germany has federal regulations in place to keep unemployment low and these regulations, not spending cuts a year later, that worked to buffer the effects of the global Great Recession on German workers. We will have to wait to understand the effects of the austerity program on the German economy.

  • jeff

    Jfk cut our tax rates. Revenues increased. I realize this is the equivalent of showing a cross to a big government vampire but

  • http://zachriel.blogspot.com/2005/07/liberal-v-conservative.html Zachriel

    Jeff: Jfk cut our tax rates. Revenues increased

    But deficits increased, helping fuel the growth in GDP.

    Meanwhile, income tax receipts increased dramatically and deficits shrank after Clinton raised taxes, because the economy expanded. And they have decreased dramatically over the last two years, even though rates are at historic lows, because the economy contracted.

  • Jeffery


    JFK reduced the top marginal rate from 91% to 77%. Do you have evidence that this was responsible for an increase in revenue? Do you have evidence that this was responsible for any increase in GDP?

    The current top marginal rate is 35%.

  • jeff

    All i ask is that the pro tax and spenders here google ‘jfk vs obama on taxes’ and you will get the evidence you need. Jfk benefitted from having a father who understood capitalism inside and out.

  • http://zachriel.blogspot.com/2005/07/liberal-v-conservative.html Zachriel

    jeff: All i ask is that the pro tax and spenders here google ‘jfk vs obama on taxes’ and you will get the evidence you need.

    In other words, you can’t provide the requested evidence to support your position or answer Jeffrey’s question.

    The first link in the Google search is to JFK’s original argument, which is a Keynesian argument. The economy of the early 1960′s was in recession and was running at less than full capacity, and by cutting taxes, it would provide a stimulus to put people back to work.

    In other words, you refute your own argument. It would be helpful if you understood a bit about Keynes’ theory.

  • jeff

    Zach you are making my point. Our economy is in the same position now and unemployment is higher. Im on a pda and cant type more but i think we can agree to disagree at this juncture

  • JDC

    Zach wasn’t making your point, jeff, in that your point was that tax cuts increase government receipts. They increase aggregate demand, but decrease tax receipts. Basically, income tax cuts are form of government spending with a really low multiplier. Demand-side policies are far more efficient.

    Also “tax and spend” is the most senseless of all memes, when applied to the federal government; it implies that the fed NEEDS tax money to pay for services, which is the same fallacy that I was addressing earlier. The federal government effectively creates money by spending, then removes money from the system via taxation. I’ve already gone over this, but I can expound further if you’d like.

    You are right to say that this is no time to be increasing federal taxes. However, you are wrong when you say that this is not the time for government spending. You belie your own sentiment when you then call for tax cuts, which are functionally a form of government spending.

    To reiterate a previous point, I think we absolutely should do away with the payroll tax. We can worry about increasing income taxes again once we make a full recovery and inflation starts knocking again.

  • http://zachriel.blogspot.com/2005/07/liberal-v-conservative.html Zachriel

    The GDP and tax revenues increased dramatically during the Kennedy Administration, but never did pass a tax cut.

    Today, Germany’s economy is in full recovery. They have higher marginal tax rates than the U.S., and have not implemented a rate cut.

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