Can Tax Cuts Boost Revenue? Bush Says They Do

[dtotire]

A Heckuva Claim
Mr. Bush is oblivious to the consequences of his tax cuts.
Saturday, January 6, 2007; Page A16

PRESIDENT BUSH wrote in a Wall Street Journal op-ed Wednesday that "it is also a fact that our tax cuts have fueled robust economic growth and record revenues." The claim about fueling record revenue is flat wrong, and it is shocking that the president should persist in making such errors. After all, tax cuts are the central plank of his domestic policy. How can he fail to understand the basic facts about them?
This is not just our opinion. Harvard's N. Gregory Mankiw, an economic conservative who served as chairman of Mr. Bush's Council of Economic Advisers, has tested the hypothesis on which Mr. Bush's claim is based: He looked at the extent to which tax cuts stimulate extra growth and the extent to which that growth generates extra tax revenue that offsets the initial loss of revenue from the tax cut. Mr. Mankiw's conclusion: Even over the long term, once you've allowed all of the extra growth to feed through into extra revenue, cuts in capital taxes juice the economy enough to recoup half of the lost revenue, and cuts in income taxes deliver a boost that recoups 17 percent of the lost revenue. So a $100 billion cut in taxes on capital widens the budget deficit by $50 billion, and a $100 billion cut in income taxes widens the budget deficit by $83 billion.



If Mr. Bush does not believe Mr. Mankiw, perhaps he may believe the Congressional Budget Office. In a period when it was run by Douglas Holtz-Eakin, another economic conservative who worked in Mr. Bush's White House, the CBO estimated the extent to which a 10 percent reduction in personal taxes might pay for itself. On the most optimistic assumptions it could muster, the CBO found that tax cuts would stimulate enough economic growth to replace 22 percent of lost revenue in the first five years and 32 percent in the second five. On pessimistic assumptions, the growth effects of tax cuts did nothing to offset revenue loss.
If Mr. Bush believes neither Mr. Mankiw nor the Congressional Budget Office, he should at least respect his own Treasury. Prodded by the White House, Treasury economists have calculated how much extra growth would result from making the Bush tax cuts permanent. They have concluded that economic output would rise by about 0.5 percent in the first six years and by an additional 0.2 percent in the "long term." Since the federal government collects around 18 percent of gross domestic product in taxes, enlarging GDP by 0.7 percent would result in extra tax revenue equivalent to 0.13 percent of GDP. That would offset less than a tenth of the revenue that would be lost because of the tax cuts.
Mr. Bush's op-ed included nice statements about bipartisan cooperation. But the Democrats would be more likely to cooperate with the president if he stopped making things up.

http://www.washingtonpost.com/wp-dyn/content/article/2007/01/05/AR2007010501801.html

[Robbien]

1. Mr bush believes the unwashed masses will fall for the meme

that the rich elite will use their wealth in a socially responsible way in order to create a nice sized trickle down effect.

Sure, the rich elite trickle down all right.

[Mist]

3. I think there are quite a few folks out there who think they MIGHT become

millionaires someday, and when that happy day comes, they won't want to pay too much in taxes.

Krugman defines "Bush math" as "2-1=5." Nuff said.

[unblock]

6. there are indeed a LOT of people like that. i refer to them as "idiots"

growing up, i remember a metal shop worker who worked in a university physics lab. he had no rich relatives, never earned more than $30,000 a year and was retiring in about 3 years. yet he clung to the idiotic myth that someday he would be rich AND that it was important to protect his future wealth with lower marginal tax rates on the rich TODAY.

so people define success as wealth and cannot permit themselves to accept that they failed by that foolish measure.

[niceypoo]

2. Not according to the CBO

According to the congressional budget office, tax revenue hasn't yet reached the level of Clinton's last year.



The new congress needs to hold hearings on the root causes of the budget deficit going back to the early 80s and debunk all of this crap once and for all before it causes a major depression. The republicans openly lie about it on the house floor with no challenge whatsoever from the Democrats.

[unblock]

4. they CAN boost revenues. but you have to do the math

you need to look at the likely effect on income earners, but part of it is simple percentages:

if you cut the marginal tax rate from 90% to 80%, then you're reducing the tax revenue rate by 1/9th, but you're DOUBLING the taxpayers' marginal after-tax income (from 10% to 20%). this creates a huge incentive to earn more money (or, more accurately, it's a huge reduction of a huge DISincentive to earn more money).

however, if you cut the marginal tax rate from 39% to 33%, you're reducing the tax revenue rate by more than 15% (6/39), but you're only increasing the taxpayer's marginal after-tax income from 61% to 69%, which is only about 9% (6/61). this is a mild extra incentive to earn more, but not at all likely to lead to so much extra earning to overcome the 15% reduction in tax revenue rate.

in order to break even on a reduction from 39% to 33%, taxpayers must generate 39/33rds of the income they used to. that's a 6/33 increase, or 18%.

generate 18% more income just because there's a 9% advantage. that's a tall order.

obviously, i'm simplifying quite a bit, particularly by looking only at one tax bracket, ignoring the effect of future expectations, etc. but you get the idea.

[cdnwannabe]

5. Seems to me that a consumer-based economy needs more consumers

the trickle-down theory is the biggest joke ever perpetrated on civilization.

[porphyrian]

7. Voodoo economics bullshit.

It hasn't ever worked, unless you mean in that it makes the richest minority even richer at everyone else's expense.

[johnaries]

8. Oh, I LOVE this quote!!!!

"Mr. Bush's op-ed included nice statements about bipartisan cooperation. But the Democrats would be more likely to cooperate with the president if he stopped making things up."

:rofl:

[dem91203]

9. The National Debit

Just look at the history of George Walker Bush's 2001 Tax Cut⁽¹⁾ . This is the shift in Tax

liability created by Bush

The RNC's 2001 Tax Increase for The Poor

Individual tax liability

The minimum wage is stuck at $5.15/hr. The minimum wage earner has lost $54.00 per week in buying power since 1997. The RNC is raising their TAXES

Cost of the BUSH tax Cuts per Person

From the Children's Defense Fund

Look at the runaway job growth generated by George Walker Bush's 2001 Tax Cut⁽¹⁾ has generated

Nothing like a little RNC[/b>] / Cato/Heritage Rape and Pillaging of the U. S. Treasury to slow down the runaway growth of the President Clinton's out of control economy. And pump up a little national debit line the pockets of the The F.O.G. Elite

National Debit by President

George Walker Bush's 2001 Tax Cut⁽¹⁾ has blown all the other Administrations away. Just think if we give the The F.O.G. Elite another TRILLION $ DOLLARS $ maybe we ca double the national debit from here ,,, what's 16 Trillion just a drop in the bucket …..