Those wacky editors at the Wall Street Journal are still peddling the supply-side nostrums that every respectable economist disavows. In an editorial today, they trumpet the recent decline in the federal budget deficit as vindicating President Bush's tax cuts:
Not even the most unbridled supply-sider predicted that President Bush's investment tax cuts would unleash such a spurt of tax receipts this year. But thanks to sustained economic growth, more Americans working and improved business profits, individual income tax receipts have shot up by 17.6%. Even more astonishing is the nearly 41% spike in corporate revenues. There's a fiscal lesson here that bears repeating: The best way to grow tax revenues is to grow the tax base, and that is what has happened this year.
This is wildly dishonest -- tax revenues haven't grown! As the Center on Budget and Policy Priorities points out, they're down significantly from projections:
The recent increase in revenues follows three consecutive years (2001-2003) in which revenues declined in nominal terms, an extremely rare occurrence, and a year (2004) in which revenues were lower as a share of the economy than in any year since 1959. Even with the recent increase, revenues in 2005 will remain well below the levels at which they were projected to be when the 2001 tax cut was enacted.
Nor has economic growth been especially strong. But the Journal is still drinking the Kool-aid, so all of these points are omitted. Instead, here's how the editors conclude the column:
All of this is to say that Washington doesn't have a budget deficit problem, it has a spending problem. Thank goodness for Mr. Bush's tax cuts or things would be much worse.
The implication, of course, is that the budget deficit would be worse without Bush's tax cuts, which means that the tax cuts have increased revenue (the idea behind the so-called Laffer Curve). This claim has been made frequently by President Bush and other administration officials, and it is so outrageous that even the President's economic advisers have cast doubt on it on two separate occasions. The reality, according to CBPP, is that revenues are lower than CBO projected in January 2002 after taking the tax cut into account.
Why the readers of the Journal continue to pay for this nonsense is beyond me.
Correction 7/13: Jon Henke's comment below made me realize that I had misread CBPP and made a claim about projections from before the tax cut that wasn't included in their article. This error has been fixed above - apologies. The salient point is that revenues are below CBO's projections made in 2002, which came after the bubble bursting, Sept. 11 and major CBO technical adjustments that substantially decreased projected revenues.
Update 7/15: The Journal has published another editorial on the subject, which also suggests that tax cuts increase revenue (though less blatantly).