You say how can that be? Governments raise taxes to increase revenues. Then lowering taxes should decrease revenues. Right? WRONG!

Here is a story of what was discovered in 1815 in England after England vanquished Napoleon and ended up with a debt burden equal to 200% of Gross Domestic Product (GDP). This historical story was presented in Barron's issue of December 4, 2000 and was written by Stephen W. Shipman.

After the French wars with the return of the British troops and subsequent demilitarization, a surplus emerged. Thus began the modern era's first great debate over tax cuts and debt reduction.

After much debate and wrangling among the British politicians, along the same lines as we see today, it was decided to return the surpluses to the people by reducing the high taxes necessary to sustain the war effort instead of paying down the debt.

The British economy boomed and revenues barely receded. They had enough to make the payments on the debt. So they decided to try lowering taxes again and again revenues increased because of the explosive economic boom.

The result was tax reductions to eliminate the surpluses rather than paying down the debt provided more benefits than just paying down the debt with the surpluses, because the government received more revenue as a result of the increased economic activity. Mr. Shipman stated:

"Clearly all evidence suggest and the record demonstrates that Great Britain's phenomenal economic expansion following the French Wars derived from a policy mix that favored top-line production over balance-sheet austerity. The people of Britain, its laborers and entrepreneurs alike, responded by creating so much wealth that the government never again really worried about its debt burden."

Mr. Shipman goes on to state that it is "...ludicrous to oblige American taxpayers to ..." pay off the debt when the size of the debt compared to the British debt at the time is so small.

Hence, the statement that "when governments lower taxes, government revenues increase" was born and proven in the real world starting in 1815. And if you want the economic principles and mathematical proof go to Economic Impact Analysis .

But Mr. Shipman hit the nail on the head about the present debate in Congress and President Bush:

"Instead, today's debate should focus exclusively upon the extent and type of tax reductions earned by the workers and businesses that financed the Cold War.

To this end, Congress and the next President (Bush) ought to examine, with an eye toward cutting, all major tax burdens: not only income taxes, but capital gains, payroll, death and excise taxes, as well. [I would also include gasoline and many business taxes.]

Real wage gains have eluded a vast majority of Americans for good reason.

Their elected officials insist upon benefiting our nation's comfortable creditors before encouraging and rewarding its over-taxed producers."

Mr. Alan Greenspan, Chairman of the Federal Reserve, knows everything stated above; but he sometimes inserts politics in place of economics, especially when he now states that some of the surpluses should be used to pay down the national debt.

The income tax reduction package, when enacted, will favor the wealthiest members of our society as all tax reduction packages have in the last 40 years. It is the trickle-down approach. Give a bucket of water to the wealthiest members of our society (5%) and a few drops will trickle down to 95% of us.

Remember (1) He who owns the gold rules and (2) He who writes the rules wins.

You lost again. You neither own the gold nor write the rules. Someday may be you will get enough intestinal fortitude to at least write a few rules, because you surely do not own the gold.

Well, you can try again in four (4) years. Of course, we have been saying this every four (4) years for the last 40. But at least we are consistent. That may mean something.

As Paul Harvey always says "Now you the know the rest of the story. Good day!"