Too many people apply static analysis when looking at tax cuts. By that, I mean that they see a billion dollars of tax cuts as a billion dollar loss to the treasury. History has proven this to be inaccurate.

First, the key is tax rate reduction in the marginal rates. Those who use static analysis look at the current rates and economic level and say, well, if we lower the rates by X%, we'll lose $Y. Again, history has proven otherwise.

When taxpayers get a reduction in their marginal rates, they get to keep more of the money they've earned. That money doesn't just disappear - it gets spent, invested, or saved as individuals see fit. Each of these things results in increased economic activity, and that has been proven several times to result in higher net revenues. It happened with the Kennedy tax cuts in the 1960s, with the Reagan cuts in the 1980s, and it can happen again. This is dynamic analysis.

For the converse, when money is taken from individuals in the form of taxes, it doesn't have as profound of an effect on the economy. Government must first take money out of the economy before it can spend it.

Of course, the key is how much of a rate reduction can we use. Looking at the extreme boundaries of the study, a 0% tax rate would result in zero revenues. Likewise, a 100% tax rate would result in little or no revenues (why would everyone work for nothing?). It's the old Laffer Curve question again, and it isn't a simple matter. Lower the rates too low and you can get decreased revenues.