Caplis dubiously claimed Bush tax cuts boosted federal revenue; former Bush economists disagree
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On 630 KHOW-AM, Caplis & Silverman co-host Dan Caplis dubiously claimed, "had it not been for those Bush tax cuts, the economy at this point would probably be stalling and tax revenues would be far lower." In fact, many studies, some written by Bush administration economists, have concluded that tax reductions mean less money for the Treasury.
On the October 9 broadcast of 630 KHOW-AM's The Caplis & Silverman Show, co-host Dan Caplis made the dubious claim that "had it not been for those Bush tax cuts, the economy at this point would probably be stalling and tax revenues would be far lower." In fact, as the Knight Ridder Newspapers service reported on May 17, "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."
By "those Bush tax cuts," Caplis presumably referred to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA), and the Working Families Tax Relief Act of 2004 (WFTRA). A March 2005 Congressional Research Service report summarized all three laws:
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) reduced marginal income tax rates, created a new 10% income tax bracket, provided marriage tax penalty relief, and increased the child tax credit. Many of the EGTRRA provisions were originally scheduled to be phased in over the 2001 to 2010 time period. All of the act's provisions are scheduled to sunset (revert to prior law levels) at the end of 2010. The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) accelerated the implementation of certain tax reductions originally enacted in the 2001 act. Several of these JGTRRA provisions were temporary and were scheduled to expire at the end of 2004. JGTRRA also reduced the tax rate on dividend and long-term capital gains income. The dividend and capital gains tax relief is scheduled to expire after 2008. The Working Family Tax Relief Act of 2004 (WFTRA), extended many of the JGTRRA tax provisions scheduled to expire at the end of 2004 (it did not, however, extended the capital gains/dividend tax reductions).
The Knight Ridder article by Kevin G. Hall, titled "Tax cuts lose more money than they generate, studies conclude," was occasioned by Bush's May 17 signing of legislation to extend through 2010 the capital gains and dividend tax cuts contained in JGTRRA. After reporting Bush's signing-ceremony claim that by spurring economic growth, his tax cuts translated into "more tax revenue for the federal Treasury," Knight Ridder stated, "That's just not true." Knight Ridder pointed out, regarding the extension of capital gains and dividends tax cuts, that "[they] 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."
Among the experts Knight Ridder cited were Douglas Holtz-Eakin, a former chief economist of Bush's Council of Economic Advisers and recent director of the nonpartisan Congressional Budget Office (CBO). Knight Ridder reported that Holtz-Eakin responded, "No" to the question of whether "the president's 2001 and 2003 tax cuts generated enough additional revenue to pay for themselves." According to Holtz-Eakin, "Revenues would have risen in the post-2001 economic recovery with or without tax reductions, just as they did in the `90s."
Under Holtz-Eakin's direction, the CBO produced a study, released in December 2005, estimating that, given a hypothetical 10 percent cut in income-tax rates, up to 22 percent of the lost revenue would be regained over five years and up to 32 percent over five additional years.
Knight Ridder reported that former Bush administration Treasury Secretary John Snow "conceded Tuesday [May 16] 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."
N. Gregory Mankiw, a Harvard economics professor who headed Bush's Council of Economic Advisers from 2003 to 2005, stated, in a paper issued by the National Bureau of Economic Research in December 2004, that "[i]n the long run, about 17 percent of a cut in labor taxes is recouped through higher economic growth. The comparable figure for a cut in capital taxes is about 50 percent." In other words, according to Mankiw's study, only a fraction of the tax revenue lost due to a tax cut is recouped because of economic growth potentially resulting from that tax cut. As noted by Knight Ridder, Mankiw called this feedback "surprisingly large."
From the October 9 broadcast of KHOW-AM's The Caplis & Silverman Show:
CRAIG SILVERMAN (co-host): Do you think their [the Republicans'] economic strategy is wise? Do you think people are doing well in this country? The average person -- don't you think the gap between the middle class and the really rich is growing at a rate we've never seen before?
CAPLIS: Well, I think economically, again, keeping in mind 9-11, post-9-11, the multiple threats on the world stage, the effect that's had on the price of oil -- everything else -- I think the economy has been managed extraordinarily well under the circumstances. I am concerned about that gap as you are. But I don't think you can trace that back to anything in particular Republicans have done. My God, man, am I -- goodness, we're trying to get, you know, you never say God -- my goodness, had it not been for those Bush tax cuts, the economy at this point would probably be stalling and tax revenues would be far lower. So no, I -- overall, I think the Republican Party has done just fine.