Sunday, August 3, 2008

The Tax Cut Myth

Supply-side dogma holds that if taxes are cut, there will be enough economic benefit to more than make up for lost revenue. This assertion is not supported by the facts. Consider the words of two economists from Bush's team:

Edward Lazear, chairman of President Bush’s Council of Economic Advisers told Congress, “I certainly would not claim that tax cuts pay for themselves”

N. Gregory Mankiw, an earlier CEA chair in President Bush’s administration once compared an economist who says that tax cuts pay for themselves to a “snake oil salesman trying to sell a miracle cure”

The Center on Budget and Policy Priorites reports that the cost of borrowing money to pay for tax cuts far exceeds any benefit from it.

The CBO reported in 2007 that the budget might have been in surplus if not for the Bush tax cuts:

Orszag concluded that the tax cuts’ indirect impact on economic growth, investment and saving and could affect this year’s budget deficit anywhere from an increase of $3 billion to a reduction of $14 billion, depending on the assumptions used. That is separate from the direct boost to the deficit trhough lost revenue and the added interest on borrowing to cover the gap of $211 billion.

It currently expects this year’s deficit to be between $150 billion and $200 billion, implying that without the tax cuts, the budget would probably be in surplus this year.