Thursday, December 06, 2012

The Bush tax cuts revisited

Writing in The Fiscal Times earlier this week, University of Oregon economics professor Mark Thoma makes an interesting claim regarding the Bush tax cuts:
For those who wondered how we would pay for such a large cut to the government’s revenue stream, the Republican prospectus had a remarkable claim. The tax cuts wouldn’t cost us anything. Growth would be so strong that the tax cuts would more than pay for themselves.
But did anyone ever make this claim? I sent a tweet to Thoma asking this question, but he has not responded. No matter, let's take a look at what the tax cuts' chief advocate -- the Bush administration -- thought the likely fiscal impact of the tax cuts would be. Here is an excerpt from the White House budget for fiscal year 2003, which presumably accounted for the impact of the 2001 tax cuts:

Note the first column is revenue, the second column projects outlays and the final column is the resulting surplus or deficit. As can be seen, the budget anticipated revenues of $2.57 trillion for 2007. Now let's a look at the White House budget for FY 2005, which presumably accounted for the impact of both the 2001 and 2003 tax cuts:

This time the picture has shifted slightly, with 2007 revenues projected to drop off to $2.35 trillion -- curious, given Thoma's allegation that tax cut supporters argued they "more than pay for themselves."

Finally, here is the White House budget for FY2009, which provides actual rather than estimated data for 2007:

In fact, we see that revenue for 2007 was $2.57 trillion, higher than what the White House had projected in FY2005 and almost exactly what was anticipated in FY2003. The truly interesting data, however, is not on the revenue side, but spending. In FY2003 the Bush administration estimated spending for 2007 at $2.47 trillion, while actual spending clocked in at $2.73 trillion -- a difference of $260 billion in the wrong direction. Furthermore, had the Bush administration actually spent its projected amount, the federal government would have enjoyed a surplus of $101 billion. 

The real story of the last decade is not one of supply-side charlatans foisting fantastical revenue numbers upon an unsuspecting public, but politicians engaged in out-of-control spending.  

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