One of the most common arguments coming out of the Bush Administration, and indeed, Republican dogma for a long time, is that tax cuts spur economic growth, which in turn leads to increased tax revenue.
While seeming to make sense in that "it's just so crazy it must be true" way, in fact, it's quite false. Demonstrably false. And the people who have been promoting this know it to be false, too.
Recall when Ronald Reagan first introduced the term "trickle down" economics to the nation? It was back in his run for the Presidency in 1980. What many folks don't recall is that when he was debating with George H. W. Bush in the primaries, the elder Bush introduced the nation to another term, "voodoo economics", in reference to Reagan's theory. Of course, once GHW Bush was chosen to become Reagan's running mate, all such talk was swiftly dumped behind the woodshed, never to be repeated again.
The reality is - and it's a reality backed up by facts - that
cutting taxes simply reduces tax revenue for the government. This makes imminent intuitive sense, on it's face. But we're all conditioned to think that there must be something inherently flawed with basic common sense when it comes to the economy. So when Republicans like George Bush repeat the familiar refrain that cutting taxes
somehow increases tax revenue, some of us still nod our heads.
It's one of those Big Lies that, told often enough, is soon believed. Like "Saddam and Osama are in cahoots" or "Saddam has WMDs."
Republican politicians know this, too. But because it's such a popular position to take (I mean, who doesn't want to pay less tax?) and because the Republicans have crafted an image of themselves as favoring the economy through tax cuts, you hear the idea bruited about far and wide. We've seen similar posturing right here in our own Chandler, Arizona, lately.
Here's what gets me: George Bush continues to make this statement - that our economy is growing and the tax cuts have increased federal revenue - EVEN WHILE our national debt is growing to gargantuan proportions.
As Lloyd Bentsen told Dan Quayle back in the Veep debates of 1988, "If you let me write 200 billion in hot checks, I could give you the illusion of prosperity, too!"
Indeed, there is a very strong argument that the only things propping up our economy currently are:
1. The huge price of oil, which bolsters the dollar,
2. Massive borrowing by the federal government,
3. A flood of cash into the economy from the refinancing and sale of homes in the past few years due to super-low interest rates and the real-estate bubble/boom, and
4. An increased tax base from growing population.
The reality is that the tax cuts are NOT improving the economy or leading to increased revenue for the government. They are instead, and at a time of war, continuing to deprive our government of the funds it needs and, because our Congress is not able to exercise fiscal restraint, and our President refuses to use a veto against them, our annual deficits are skyrocketing to record levels. It's my guess that the debt limit will have to be raised to
$10 trillion before the end of the year, because of these disastrous fiscal policies.
Do the Republicans in charge know this?
Oh yes, they do! In fact, many of the key economists in the Republican Party have
admitted it!
This article, from Knight Ridder, notes some of these admissions:
When President Bush signed legislation Wednesday to extend lower tax rates for capital gains and dividend income through 2010, he suggested that his tax cuts are behind a surge of new revenue into the Treasury, and implied that it's enough to offset the revenue lost by these reductions.
At a ceremony on the White House lawn, Bush said his tax cuts had helped the economy grow, "which means more tax revenue for the federal Treasury."
That's just not true. A host of studies, some of them written by economists who served in the Bush administration, have concluded that tax reductions mean less money for the Treasury.
The cuts Bush extended Wednesday will cost the Treasury an estimated $70 billion over five years. They may help spur economic growth, but they still lose more revenue than they generate. And unless they're matched by lower federal spending, they worsen federal budget deficits.
To be sure, tax revenues grew by $274 billion in 2005, a 15 percent increase over the previous year, and receipts are growing this year too.
But does that mean the president's 2001 and 2003 tax cuts generated enough additional revenue to pay for themselves?
"No," said Douglas Holtz-Eakin. He was the chief economist for Bush's Council of Economic Advisers in 2001 and 2002, then the director of the nonpartisan Congressional Budget Office until late last year.
Holtz-Eakin said other factors were behind the surge in tax revenues. One is that revenues rise as the population and the economy grow. Revenues would have risen in the post-2001 economic recovery with or without tax reductions, just as they did in the `90s.
Treasury Secretary John Snow conceded Tuesday that the much-touted tax cuts for capital gains and dividend income don't drive today's strong economy.
Asked by Knight Ridder if the tax reductions paid for themselves, Snow acknowledged that they don't. He also acknowledged that economic growth and stock market gains were strong in the late 1990s, when the capital-gains tax stood at 20 percent and dividend income was taxed at rates as high as 38.6 percent.
Bush and Congress cut both to 15 percent in 2003; the legislation that the president signed Wednesday extended that rate through 2010.
Still, Snow said, given a choice between good economic performance with high taxes or with lower taxes, "I'll vote for the good performance and the lower taxes every time."
That's great, Secretary Snow. We'd all like low taxes. But thank you for clarifying that your desire for low taxes has nothing to do with increasing revenue generation. The article goes on to ask:
But if the president's tax reductions have spurred the economy to grow larger than it otherwise would have, haven't they generated some more revenue to offset their cost?
Well, no. As the article notes, various studies have shown that the potential payback into the system from tax cuts could be from 17% to as much as 50% of the cost of the tax cut. But
that still means a net revenue loss for the Treasury. Indeed, the study most favorable to the idea that tax cuts create payback in increased revenue STILL loses 50%! The article continues:
That doesn't mean that economists oppose reducing taxes on capital gains and dividends. They just want them to be balanced so they don't worsen budget deficits.
"I'd be quite in favor of such cuts, if you made up for them with other revenue increases or spending cuts," said Rudolph Penner, who was the CBO director from 1983 to 1987.
But that hasn't happened.
Exactly. You know, I'd be the first to say "AMEN" to lower taxes IF they're paired with increased revenues from other sources and spending cuts in some areas, and key programs are being adequately supported. But unless that happens, then it's fiscal suicide to cut taxes without commensurately offsetting the tax cuts elsewhere.
If you recall, that's why we used to have PAYGO rules in Congress in the 1990s. Yet the Republicans eliminated them and continue to block their reinstatement. I'm encouraged to know that if the Democrats take control of Congress this November, the reinstatement of PAYGO is one of the first things they will do. It's long overdue.
So what's the result of this fiscal ineptitude on the part of the Republicans?
The federal budget held a $236 billion surplus in fiscal 2000. After Bush's 2001 and 2003 tax reductions, it went into annual deficits, peaking at $412 billion in fiscal 2004. This year's is projected to be about $300 billion.
As for Bush's "tax cuts boost the economy/revenue" fallacy, the real question is this: if the tax cuts DON'T grow the economy and DON'T increase revenue (and by the Republicans' own admission, they don't) then why are the tax cuts so important to the Republicans? Well, when you see that a tax cut benefits a middle-class family by perhaps a hundred bucks a year, but a millionaire benefits by $40,000, it's pretty obvious what's really going on.
To paraphrase the old saying: Don't trickle down on my shoes and tell me it's raining.
The truly aggravating thing is, as the article notes, the Republicans - including Bush's Cabinet (and, one surmises, Bush himself) know all this. But they still willfully attempt to deceive the public in order to have their tax cuts approved, without being held accountable for sound fiscal management. The result is a disastrous fiscal policy being promoted by lies.
This kind of fiscal mismanagement and lack of integrity is one of the reasons I left the Republican Party in March. And it's why I will happily vote for fiscally responsible Democrats this coming November.
