Don't Blame Tax Cuts For Deficits
July 28, 2016 at 4:25 p.m.
By Gary [email protected]
It's tax policy.
Heading into the November election, I hear lots of Democrats saying things that are demonstrably false when it comes to tax policy.
Things like this, which appeared in a letter to the editor earlier this week:
"... the so-called fiscally responsible GOP wants to extend the Bush tax cuts, which are one of the largest contributing factors to the deficit."
That assertion, I'm afraid, is patently and overtly false.
After the Bush tax cuts took effect in 2003, revenue in 2004 increased $100 billion to $1.88T; 2005, up to $2.153T; 2006, up to $2.4T; 2007, up to $2.5T; 2008, up to $2.5T.
Tax revenue collected by the government was either above the historical average or at record levels during those years.
That bears repeating.
Tax revenue collected by the government was either above the historical average or at record levels during those years.
And remember, no one would argue the economy in the second half of 2007 and all of 2008 was booming. It was sluggish at best. So even in a sluggish economy, the government was collecting record or near-record levels of revenue.
Does that sound like a failed tax policy?
But there were deficits, you say.
Yeah, of course there were. Because the government, while collecting record levels of revenue, went on a spending binge.
They spent it all and then some, enacting huge new entitlement programs like the prescription drug benefit, No Child Left Behind and homeland security.
But blaming Bush's tax policy for the deficit is like blaming your employer for running up your credit card.
We didn't have deficits because were were taxed too little. We had deficits because the government spent too much.
It's even worse now.
The government is spending some 25 percent more a year and the recession is putting a huge dent in the revenue stream.
Despite the dire mess the federal budget is in, some people in Congress say the government isn't spending enough. They want more stimulus - more government programs.
To me, that borders on insanity. Government needs to spend less - much less.
The decidedly conservative Heritage Foundation prepared a list of the top 10 Bush tax cut myths back in 2007. Conservative or not, figures don't lie.
The list remains relevant today.
Myth #1: Tax revenues remain low.
Fact: Tax revenues are above the historical average, even after the tax cuts. (See the earlier paragraph in this column. Revenue stayed high through 2008 even in a soft economy, remember?)
Myth #2: The Bush tax cuts substantially reduced 2006 revenues and expanded the budget deficit.
Fact: Nearly all of the 2006 budget deficit resulted from additional spending above the baseline.
Myth #3: Supply-side economics assumes that all tax cuts immediately pay for themselves.
Fact: It assumes replenishment of some but not necessarily all lost revenues.
Myth #4: Capital gains tax cuts do not pay for themselves.
Fact: Capital gains tax revenues doubled following the 2003 tax cut.
Myth #5: The Bush tax cuts are to blame for the projected long-term budget deficits.
Fact: Projections show that entitlement costs will dwarf the projected large revenue increases.
Myth #6: Raising tax rates is the best way to raise revenue.
Fact: Tax revenues correlate with economic growth, not tax rates.
Myth #7: Reversing the upper-income tax cuts would raise substantial revenues.
Fact: The low-income tax cuts reduced revenues the most.
Myth #8: Tax cuts help the economy by "putting money in people's pockets."
Fact: Pro-growth tax cuts support incentives for productive behavior.
Myth #9: The Bush tax cuts have not helped the economy.
Fact: The economy responded strongly to the 2003 tax cuts.
Myth #10: The Bush tax cuts were tilted toward the rich.
Fact: The rich are now shouldering even more of the income tax burden.
There are a lot of things for which to criticize George W. Bush, but one of them is not driving up deficits with his tax policy.[[In-content Ad]]Now, I know as I am writing this that people still will say the Bush tax cuts caused the deficit. I know that no amount of rational thought or reason will change these people's minds.
But I won't give up trying because I think it's important.
It's important because there is a lot at stake here. There is a movement afoot to let the tax cuts end when they expire at the end of this year.
If that happens, I am very afraid it will plunge this country back into recession.
Congress needs to make the tax cuts permanent and stop spending so much money.
But, given this administration's penchant for spending, I don't think the second part of my admonition has much of a chance.
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It's tax policy.
Heading into the November election, I hear lots of Democrats saying things that are demonstrably false when it comes to tax policy.
Things like this, which appeared in a letter to the editor earlier this week:
"... the so-called fiscally responsible GOP wants to extend the Bush tax cuts, which are one of the largest contributing factors to the deficit."
That assertion, I'm afraid, is patently and overtly false.
After the Bush tax cuts took effect in 2003, revenue in 2004 increased $100 billion to $1.88T; 2005, up to $2.153T; 2006, up to $2.4T; 2007, up to $2.5T; 2008, up to $2.5T.
Tax revenue collected by the government was either above the historical average or at record levels during those years.
That bears repeating.
Tax revenue collected by the government was either above the historical average or at record levels during those years.
And remember, no one would argue the economy in the second half of 2007 and all of 2008 was booming. It was sluggish at best. So even in a sluggish economy, the government was collecting record or near-record levels of revenue.
Does that sound like a failed tax policy?
But there were deficits, you say.
Yeah, of course there were. Because the government, while collecting record levels of revenue, went on a spending binge.
They spent it all and then some, enacting huge new entitlement programs like the prescription drug benefit, No Child Left Behind and homeland security.
But blaming Bush's tax policy for the deficit is like blaming your employer for running up your credit card.
We didn't have deficits because were were taxed too little. We had deficits because the government spent too much.
It's even worse now.
The government is spending some 25 percent more a year and the recession is putting a huge dent in the revenue stream.
Despite the dire mess the federal budget is in, some people in Congress say the government isn't spending enough. They want more stimulus - more government programs.
To me, that borders on insanity. Government needs to spend less - much less.
The decidedly conservative Heritage Foundation prepared a list of the top 10 Bush tax cut myths back in 2007. Conservative or not, figures don't lie.
The list remains relevant today.
Myth #1: Tax revenues remain low.
Fact: Tax revenues are above the historical average, even after the tax cuts. (See the earlier paragraph in this column. Revenue stayed high through 2008 even in a soft economy, remember?)
Myth #2: The Bush tax cuts substantially reduced 2006 revenues and expanded the budget deficit.
Fact: Nearly all of the 2006 budget deficit resulted from additional spending above the baseline.
Myth #3: Supply-side economics assumes that all tax cuts immediately pay for themselves.
Fact: It assumes replenishment of some but not necessarily all lost revenues.
Myth #4: Capital gains tax cuts do not pay for themselves.
Fact: Capital gains tax revenues doubled following the 2003 tax cut.
Myth #5: The Bush tax cuts are to blame for the projected long-term budget deficits.
Fact: Projections show that entitlement costs will dwarf the projected large revenue increases.
Myth #6: Raising tax rates is the best way to raise revenue.
Fact: Tax revenues correlate with economic growth, not tax rates.
Myth #7: Reversing the upper-income tax cuts would raise substantial revenues.
Fact: The low-income tax cuts reduced revenues the most.
Myth #8: Tax cuts help the economy by "putting money in people's pockets."
Fact: Pro-growth tax cuts support incentives for productive behavior.
Myth #9: The Bush tax cuts have not helped the economy.
Fact: The economy responded strongly to the 2003 tax cuts.
Myth #10: The Bush tax cuts were tilted toward the rich.
Fact: The rich are now shouldering even more of the income tax burden.
There are a lot of things for which to criticize George W. Bush, but one of them is not driving up deficits with his tax policy.[[In-content Ad]]Now, I know as I am writing this that people still will say the Bush tax cuts caused the deficit. I know that no amount of rational thought or reason will change these people's minds.
But I won't give up trying because I think it's important.
It's important because there is a lot at stake here. There is a movement afoot to let the tax cuts end when they expire at the end of this year.
If that happens, I am very afraid it will plunge this country back into recession.
Congress needs to make the tax cuts permanent and stop spending so much money.
But, given this administration's penchant for spending, I don't think the second part of my admonition has much of a chance.
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