Fox News' purported business expert Stuart Varney falsely claimed that tax cuts enacted under Presidents Reagan and George W. Bush caused "a gigantic increase in revenues to the federal treasury, reducing deficits. That's historically accurate." In fact, virtually no economist believes the evidence supports this notion.
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Varney claims tax cuts caused "a gigantic increase in revenues to the federal treasury"
From the July 26 edition of Fox News' The O'Reilly Factor:
VARNEY: The United States economy took off after Newt Gingrich swept Congress, the House of Representatives and the Senate in 1994 and the economy was certain of a cap on spending. It was at that point that we achieved enormous rates of growth, after the Republicans in 1994.
If you really want to go back and be historically accurate, look at the tax cuts under John F. Kennedy, under Ronald Reagan and George W. Bush. They cut tax rates, and very soon after, there was a gigantic increase in revenues to the federal treasury, reducing deficits. That's historically accurate.
SLOCUM: But Stuart -- but, Stuart, it is clear that asking America's most successful and wealthiest citizens to simply pay their fair share, to contribute to cutting down the debt.
VARNEY: No. Tyson, it is immoral to take half of a person's income because they're successful. That is immoral.
Varney previously claimed that ending Bush tax cuts "increases the deficit." During the July 20 edition of Fox News' Fox & Friends, Varney stated : "If you look at the money side of things, there's two things happening. Number one, taxes are going to go up on January the 1st of next year. That will slow the economy down. ... Secondly, this extension of unemployment benefits is going to put 33, 34 billion dollars extra right on to the deficit. So you're going to swell the deficit in the near term, swell it some more in the longer term when you raise taxes, because that slows the economy and increases the deficit."
Economists, including numerous Bush advisers, reject claim that the tax cuts raised revenue
FactCheck.org: Revenue would be higher without Bush tax cuts. FactCheck.org concluded on June 11, 2007 that "it is clear" the Bush tax cuts of 2001 and 2003 "did not 'increase revenues'" as Sen. John McCain had claimed. The post further stated: "The Congressional Budget Office, the Treasury Department, the Joint Committee on Taxation, the White House's Council of Economic Advisers and a former Bush administration economist all say that tax cuts lead to revenues that are lower than they otherwise would have been - even if they spur some economic growth."
Former Bush economist: "[N]o dispute among economists" that Bush tax cuts reduced revenue. The Washington Post reported on October 17, 2006:
"Federal revenue is lower today than it would have been without the tax cuts. There's really no dispute among economists about that," said Alan D. Viard, a former Bush White House economist now at the nonpartisan American Enterprise Institute. "It's logically possible" that a tax cut could spur sufficient economic growth to pay for itself, Viard said. "But there's no evidence that these tax cuts would come anywhere close to that."
Paulson: "As a general rule, I don't believe that tax cuts pay for themselves." Marketwatch reported on June 27, 2006, that then Treasury Secretary-nominee Henry Paulson "rejected notions that tax cuts pay for themselves":
Paulson rejected notions that tax cuts pay for themselves, but argued that they were nonetheless essential to ensuring economic growth.
"As a general rule, I don't believe that tax cuts pay for themselves," Paulson said, echoing the opinion of most economists. Paulson said the 2001 tax cuts, however, were crucial to boosting the confidence of consumers, investors and top executives.
Bush OMB Director: Tax cuts do not "totally pay for themselves." According to a November 15, 2007, Washington Post editorial, Jim Nussle, then the director of the Office of Management and Budget (OMB), told reporters, "Some say that [the tax cut] was a total loss. Some say they totally pay for themselves. It's neither extreme."
Chair of Bush's Counsel of Economic Advisers Lazear: "We do not say the tax cuts pay for themselves." The Washington Times reported on October 4, 2006 that Ed Lazear, the chair of Bush's Council of Economic Advisers (CEA) said, "We do not say the tax cuts pay for themselves." Similarly, during his September 26, 2006, testimony before the Senate Budget Committee, Lazear said:
LAZEAR: Will the tax cuts pay for themselves? As a general rule, we do not think tax cuts pay for themselves. Certainly, the data presented above do not support this claim. Tax revenues in 2006 appear to have recovered to the level seen at this point in previous business cycles, but this does not make up for the lost revenue during 2003, 2004, and 2005. The tax cuts were a positive step and have contributed to the enhanced economic growth, additional jobs, higher real disposable income, and the low unemployment rates that we currently see today. Our goal is not to maximize the size of government, but to provide revenues to make sure that we can operate those programs that society deems necessary, while at the same time allowing the private sector to take full advantage of its growth potential.
Bush CEA Chair Mankiw: Claim that broad-based income tax cuts increase revenue is not "credible." Economist Greg Mankiw, who also served as chair of the Bush CEA wrote on July 2, 2007:
I used the phrase "charlatans and cranks" in the first edition of my principles textbook to describe some of the economic advisers to Ronald Reagan, who told him that broad-based income tax cuts would have such large supply-side effects that the tax cuts would raise tax revenue. I did not find such a claim credible, based on the available evidence. I never have, and I still don't.
My other work has remained consistent with this view. In a paper on dynamic scoring, written while I was working at the White House, Matthew Weinzierl and I estimated that a broad-based income tax cut (applying to both capital and labor income) would recoup only about a quarter of the lost revenue through supply-side growth effects. For a cut in capital income taxes, the feedback is larger--about 50 percent--but still well under 100 percent. A chapter on dynamic scoring in the 2004 Economic Report of the President says about the the [sic] same thing.
Reagan economist Feldstein: "It's not that you get more revenue by lowering tax rates, it is that you don't lose as much." The New York Times reported on March 26, 2008:
While Mr. Laffer insists that tax revenue will rise when tax rates are cut, other supply-siders are less categorical. Martin Feldstein, a Harvard economist who was the first chairman of President Reagan's Council of Economic Advisers and now supports Senator McCain, estimates that a 10 percent tax cut would in fact reduce tax revenue -- but only by 3 to 5 percent.
"It is not that you get more revenue by lowering tax rates, it is that you don't lose as much," he said.
Feldstein also reportedly wrote in 1986 that "[t]he height of the supply-side hyperbole was the 'Laffer curve' proposition that the tax cut would actually increase tax revenue because it would unleash an enormously depressed supply of effort. ... I have no doubt that the loose talk of the supply-side extremists gave fundamentally good policies a bad name and led to quantitative mistakes that not only contributed to subsequent budget deficits, but also made it more difficult to modify policy when those deficits became apparent."
Former Bush chief economist to CEA Samwick: "You know that tax cuts have not fueled record revenues." In a January 2007 New Year's Plea," to "anyone in the [Bush] Administration who may read this blog," Andrew Samwick, an economics professor at Dartmouth College and former chief economist to the Council of Economic Advisers during the Bush administration, wrote:
You are smart people. You know that the tax cuts have not fueled record revenues. You know what it takes to establish causality. You know that the first order effect of cutting taxes is to lower tax revenues. We all agree that the ultimate reduction in tax revenues can be less than this first order effect, because lower tax rates encourage greater economic activity and thus expand the tax base. No thoughtful person believes that this possible offset more than compensated for the first effect for these tax cuts. Not a single one.
Bartlett: "Only in very exceptional circumstances" would there "even be the possibility of a tax cut" that pays for itself. Bruce Bartlett, who has worked for the Heritage Foundation, the Cato Institute and the Treasury Department, wrote on March 28, 2006:
The fact is that it is only in very exceptional circumstances that there would even be the possibility of a tax cut that would so stimulate growth that it would pay for itself. Even the Bush Administration admits this. The 2003 Economic Report of the President (pp. 57-58) says, "Although 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."
Recent academic research suggests that feedback effects would offset only a fraction of the static revenue loss, that which would result from no effect on consumption or incentives.
Tax Foundation: Would be "pretty extreme" to assume half of Bush tax cuts paid for themselves. The conservative Tax Foundation stated on May 26, 2010, that "there is much disagreement pertaining to the feedback effect that resulted from the tax cuts" and that "few if any of today's tax rates are so high that cutting them would generate a surge of income-producing activity so large that revenue would rise." The Tax Foundation further stated of the cost of the Bush tax cuts:
Using [Citizens for Tax Justice] numbers, if one assumes that 20 percent of the tax cuts paid for themselves (overall), the non-interest cost would be approximately $1.7 trillion. If one assumes that half of the tax cuts paid for themselves (which we would consider to be a pretty extreme assumption), then the tax cuts would have cost around $1 trillion over the past 10 years.
Bernanke: "I don't think that as a general rule tax cuts pay for themselves." In his April 27, 2006, testimony before the Joint Economic Committee, Federal Reserve chairman Ben Bernanke asserted "I don't think that as a general rule tax cuts pay for themselves," adding that "to the extent the tax cuts produce greater efficiency or greater growth, they will partially offset the losses in revenues"
Holtz-Eakin: "You are not going to get tax cuts to pay for themselves." As director of the Congressional Budget Office in 2005, Douglas Holtz-Eakin, who later became senior policy adviser on McCain's presidential campaign, released a study of a 10-percent federal income tax cut, which concluded that "the budgetary impact of the economic changes was estimated to offset between 1 percent and 22 percent of the revenue loss from the tax cut over the first five years and add as much as 5 percent to that loss or offset as much as 32 percent of it over the second five years." In other words, during the first five years of a 10-percent tax cut, the resulting economic impact on the budget would offset at most 22 percent of the federal revenues lost and during the second five years would offset at most 32 percent of the revenues lost. Holtz-Eakin also reportedly told Boston Globe columnist Scot Lehigh, "You are not going to get tax cuts to pay for themselves."
Krugman: After Reagan's 1981 tax cuts, "revenues are permanently reduced relative to what they would otherwise have been." Nobel Prize winning economist Paul Krugman wrote on July 15 that "the revenue track under Reagan looks a lot like the track under Bush: a drop in revenues, then a resumption of growth, but no return to the previous trend." He added, "This is exactly what you would expect to see if supply-side economics were just plain wrong: revenues are permanently reduced relative to what they would otherwise have been."
Clinton economist: Reagan tax cuts and Bush tax cuts "contributed to record US budget deficits." Harvard economist and former Clinton economic advisor Jeffrey Frankel wrote in 2008 that cuts in federal income tax rates "reduces revenue ... this was the outcome of the two big experiments of recent decades: the Reagan tax cuts of 1981-83 and the Bush tax cuts of 2001-03, both of which contributed to record US budget deficits." Frankel added that this is "the view of almost all professional economists, including the illustrious economic advisers to Presidents Reagan and Bush."
Varney has repeatedly shown that he is not a credible authority on economic issues
Varney falsely claimed that public sector jobs weren't jeopardized by the recession. On Fox & Friends Varney attempted to discredit the estimates of jobs saved or created by the stimulus by claiming that public sector jobs saved by stimulus funds "weren't in jeopardy." In fact, budget shortfalls led to thousands of layoffs by state and local governments and estimates by private analysts and the nonpartisan CBO suggest these numbers would be even higher in the absence of the Recovery Act.
Varney falsely claimed "we had double-digit unemployment" when Reagan took office. Appearing on Fox & Friends, Varney made extensive revisions to U.S. economic history, among them: the false suggestion that President Obama has not cut taxes; the false suggestion that President Bush presided over strong job growth; and the false claim the unemployment rate was in double digits when Reagan took office.
Varney falsely claimed Obama "gave" $100B in "taxpayer dollars" to IMF. Varney claimed that "our taxpayer money ... is bailing out the Greeks right now" because President Obama "gave" $100 billion in "American taxpayer dollars" to the International Monetary Fund (IMF). In fact, Obama did not "give" the IMF money; rather, he requested -- and Congress approved -- a line of credit that involves "an exchange of assets" and not "an expenditure."
Varney falsely claimed Fannie/Freddie caused the housing market collapse. Varney advanced the false claim that Fannie Mae and Freddie Mac were "the original cause" of the economic crisis. In fact, as economist Dean Baker has stated, holding Fannie Mae and Freddie Mac responsible for the financial disaster is "absurd on its face."