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Taxes and Revenues



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Yesterday I noted that Bush’s tax cuts had caused revenue to be lower than it would otherwise have been. A number of people have emailed me saying that I’m wrong: Revenues have been growing fast, and are higher than they were before the tax cuts took effect.

That shows that the tax cuts were compatible with rising revenues, not that they caused them. The tax cuts may have boosted our economic growth, but we would have had some growth without them. So the question is whether tax cuts boosted growth so much that they ended up raising money.

I can’t think of any serious economist who thinks that happened. The 2003 Economic Report of the President said that “[a]lthough the economy grows in response to tax reductions… it is unlikely to grow so much that lost tax revenue is completely recovered by the higher level of economic activity.” Bush’s own Treasury Department has disavowed the view that Bush’s tax cuts have raised revenue.Rob Portman and Ed Lazear, while serving in the Bush administration (as head of the OMB and the Council of Economic Advisers, respectively), said that the tax cuts had reduced federal revenue.

I’ll give the last word to Alan Viard, an economist who worked at the White House before joining AEI. Last year, the Washington Post quoted him: “Federal revenue is lower today than it would have been without the tax cuts. There’s really no dispute among economists about that.”



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