Via Brad DeLong, here's important news that was ignored by the national press. In an interview with the Washington Times last week, Council of Economic Advisers chair Ed Lazear and Office of Management and Budget director Rob Portman admitted that President Bush's tax cuts have reduced federal revenue:
In an interview with editors and reporters at The Washington Times, Mr. Portman and Council of Economic Advisers Chairman Ed Lazear made a pitch for extending the personal and investment tax cuts, which they believe spurred growth in the economy and stock market.
But they conceded that the tax cuts have not prompted more people to get work and contribute to the economy, while they cut deeply into government revenue and contributed to record budget deficits that have not shown much improvement until recently.
"We do not say the tax cuts pay for themselves," said Mr. Lazear. "The point is that they created a positive environment for income growth" while helping make the 2001 recession shallower than it otherwise would have been.
In making this statement, Lazear joins many other administration economists in contradicting frequent White House claims that the tax cuts have increased revenue (see previous installments in the "Bush vs. his economists" series -- part 1, part 2, and part 3). Let's review the record.
Since taking office in 2001, President Bush and numerous officials in his administration have repeatedly implied that tax cuts increase revenue and reduce the deficit -- here is just a sampling of those statements:
President Bush, 11/13/02: "Well, we have a deficit because tax revenues are down. Make no mistake about it, the tax relief package that we passed -- that should be permanent, by the way -- has helped the economy, and that the deficit would have been bigger without the tax relief package."
President Bush, 1/7/03: "This growth and jobs package is essential in the short run; it's an immediate boost to the economy. And these proposals will help stimulate investment and put more people back to work, is what we want to have happen. They are essential for the long run, as well -- to lay the groundwork for future growth and future prosperity. That growth will bring the added benefit of higher revenues for the government -- revenues that will keep tax rates low, while fulfilling key obligations and protecting programs such as Medicare and Social Security."
Press Secretary Ari Fleischer, 1/8/03: "The entire [tax cut] package the President does believe will lead to growth, which will over time grow the economy, create additional revenues for the federal government and pay for itself."
Vice President Cheney, 1/30/03: "The President's proposals will reduce the tax burden on the American people by $670 billion over the next 10 years. By leaving more money in the hands of the people who earn it, people who will spend and invest and save and add momentum to our recovery, we'll help create more jobs and ultimately increase tax revenues for the government."
President Bush, 5/7/03: "[T]he other way to deal with the deficit is to put policies in place that increase the revenues coming into the Treasury. And the best way to encourage revenues coming into the Treasury is to promote policy which encourages economic growth and vitality. A growing economy is going to produce more revenues for the federal Treasury. The way to deal with the deficit is not to be timid on the growth package; the way to deal with the deficit is to have a robust enough growth package so we get more revenues coming into the federal Treasury."
President Bush, 8/6/05: "The tax relief stimulated economic vitality and growth and it has helped increase revenues to the Treasury. The increased revenues and our spending restraint have led to good progress in reducing the federal deficit. Last month we learned that the deficit is now projected to be $94 billion less than previously expected. I set a goal of cutting the deficit in half by 2009, and we are ahead of pace to meet that goal."
President Bush, 2/8/06: "One of the interesting things that I hope you realize when it comes to cutting taxes is this tax relief not only has helped our economy, but it's helped the federal budget. In 2004, tax revenues to the Treasury grew about 5.5 percent. That's kind of counter-intuitive, isn't it? At least it is for some in Washington. You cut taxes and the tax revenues increase. See, some people are going to say, well, you cut taxes, you're going to have less revenue. No, that's not what happened. What happened was we cut taxes and in 2004, revenues increased 5.5 percent. And last year those revenues increased 14.5 percent, or $274 billion. And the reason why is cutting taxes caused the economy to grow, and as the economy grows there is more revenue generated in the private sector, which yields more tax revenues."
Vice President Cheney, 2/9/06: The President's tax policies have strengthened the economy, as we knew they would. And despite forecasts to the contrary, the tax cuts have translated into higher federal revenues... Nobody's perfect, but when revenue projections are off by 180 degrees, it's time to reexamine our assumptions and to consider using more dynamic analysis to measure the true impact of tax cuts on the American economy. Recognizing this, the President's recently submitted budget would create a new Dynamic Analysis Division within the Treasury Department to analyze major tax proposals. The evidence is in, it's time for everyone to admit that sensible tax cuts increase economic growth, and add to the federal treasury.
President Bush, 7/11/06: "Some in Washington say we had to choose between cutting taxes and cutting the deficit. You might remember those debates. You endured that rhetoric hour after hour on the floor of the Senate and the House. Today's numbers show that that was a false choice. The economic growth fueled by tax relief has helped send our tax revenues soaring. That's what's happened."
During this time period, administration economists have repeatedly contradicted their political superiors, admitting that tax cuts decrease revenue:
-In the 2003 Economic Report of the President, CEA wrote 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."
-During his 2003 Senate confirmation hearings to replace Hubbard as CEA chair, Greg Mankiw was asked about Club for Growth president Stephen Moore's opposition to his nomination. Mankiw responded that Moore was criticizing "a passage [in Mankiw's writing] where I had raised skepticism about claims that tax cuts would generate so much employment growth as to be completely self-financing. And I remain skeptical of those claims."
-A Treasury Department analysis contained in the Office of Management and Budget's 2006 Mid-Session Review concludes that the tax cuts will not pay for themselves in even the most optimistic scenario. As the Center on Budget and Policy Priorities writes, Treasury found that "making the President's tax cuts permanent — and paying for the tax cuts with future reductions in spending — may ultimately increase the level of economic output (national income) in the long run by as much as 0.7 percent... Even if an increase in the level of economic output of 0.7 percent ultimately were to result from making the tax cuts permanent, the effect of this assumed additional economic growth would be to offset only a tiny fraction of the cost of the President's tax cuts."
-As stated above, CEA Chair Ed Lazear told the Washington Times in September 2006 that "We do not say that the tax cuts pay for themselves."
Despite these repeated contradictions between political spin and expert findings, the national press corps has largely failed to fact-check the administration's claims. Will journalists ever wake up?
Update 10/18 8:07 AM: The Washington Post published an article yesterday in which Robert Carroll, deputy assistant Treasury secretary for tax analysis, "said neither the president nor anyone else in the administration is claiming that tax cuts alone produced the unexpected surge in revenue. 'As a matter of principle, we do not think tax cuts pay for themselves,' Carroll said."