Say Anything Blog

A number of our left-leaning, arithmetically challenged, progressive non-economists have made it an article of faith (such as THAT is among those on the Left), that the Bush tax cuts have vastly under-funded the coffers of the federal government.  Even those RINOs who are now nodding their silent agreement when the Democrats mention raising taxes, are taken in by this charming little fable.

Fact is, though, it just ain’t so.

To help understand the numbers, we turn to economist Daniel Clifton, head of the American Shareholder Association.

In fact, since the last tax increase in 1993, a total of $2.28 trillion of tax cuts have been enacted starting in 1996 and lasting through 2016.  The bulk of these tax cuts, 88 percent, have been enacted starting in 2001 with the election of President Bush…

In total Bush has signed into law just over $2 trillion of tax cuts with $1.84 trillion being implemented during the 2001-2010.  The remainder of the tax cuts is largely the permanent expansion of 401k and IRA contributions enacted as part of the Pension Protection Act in 2006 (note these are the only Bush tax cuts made permanent).

For those who believe these tax cuts have hurt the financial position of the federal government, we have run a real live test.  Imagine if in January 1997 the Republican Leadership announced they were seeking to cut taxes by $1.5 trillion over the next 11 years. President Clinton would have been outraged, the media would of told stories about the huge deficit that would be incurred, and the left wing think tanks would have written stories about children dying in the street of hunger.

Well, as a point of fact, over the last 11 years the federal government has cut taxes $1.5 trillion.  And today tax revenues are substantially higher than forecasted in 1997 without even taking into consideration that these taxes would be cut.

Why did this happen?  Forget the debate about dynamic v. static scoring.  1997 was the first year CBO put out a 10-year forecast of taxes, spending, and growth.  CBO’s (the non-partisan Congressional Budget Office) 10-year economic forecast underestimates economic growth over 10 year periods.  As such, the upward revisions in GDP increase the tax revenue baseline upwards.  The upward revision is so large that all of the tax cuts can fit into the budget window.
To test this analysis, we have compared CBO’s first 10 year economic and tax revenue forecast with the actual results.  During this time, the federal government cut taxes $1.5 trillion and the tech bubble collapsed.  Neither of these cases were incorporated into the forecast.  The results of our test show:

1) Tax revenues in fiscal year 2007 will be $291 billion higher (12.3 percent) than initially forecasted in 1997 without accounting for the tax cut costs;

2) Tax revenue collections above the baseline is even more significant given the fact that the federal government cut taxes more than any other 10 year period in American history;

3) Accounting for static tax cuts, tax revenue collections came in nearly $547 billion higher, 26.3 percent, above the adjusted baseline.

Please.  Read through that again.  The 10 year economic forecast put out by the CBO in 1997 projected federal tax revenues for FY 2007 at $291 billion below the current projection, and overall adjusted for static tax cuts, tax revenue collections have been nearly $547 billion higher than was projected WITHOUT the Bush tax cuts!

As noted above, all of this is based on the 10 year projections by the Congressional Budget Office in 1997.  Projections which did not account for the 2000 recession or the economic impact of 9-11, and the subsequent War on Islamist Terrorism or the War in Iraq, events which should all have had a negative effect on the overall economy and thus tax collections.

In brief then, tax cuts increase federal revenues.  Just as George Bush, Ronald Reagan, and John F. Kennedy each predicted they would.  Case closed!