Novel Thinking: Lower Taxes = Higher Revenues

Cheney Says New Unit Will Prove Tax Cuts Boost Revenue

By Nell Henderson
Washington Post Staff Writer
Saturday, February 11, 2006; Page A11

Vice President Cheney said Thursday night that the verdict is in before the Bush administration's new tax analysis shop has even opened for business: Tax cuts boost federal government revenue.

That assertion won applause from his audience at the Conservative Political Action Conference, but it is a long-standing source of debate among many economists and tax experts at a time of rising federal budget deficits.
Cheney touted President Bush's recently announced proposal to create a tax analysis division as a move toward providing more evidence for the administration's side of the argument.

"The president's tax policies have strengthened the economy, as we knew they would," Cheney told the conference, according to a text posted on the White House's Web site. "And despite forecasts to the contrary, the tax cuts have translated into higher federal revenues."

Cheney said some forecasters have underestimated the degree to which tax cuts would stimulate economic growth and tax revenue.

"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," Cheney said, explaining why Bush has proposed the new Treasury Department division. "The evidence is in, it's time for everyone to admit that sensible tax cuts increase economic growth and add to the federal treasury."

Bush's proposal, unveiled in his budget plan last week, comes as he is pushing Congress to make permanent the recent tax cuts that are scheduled to expire in coming years. The nonpartisan Congressional Budget Office predicted last month that the budget deficit would swell to $337 billion this year and that the red ink would end in 2012 only if the tax cuts were allowed to expire.

Treasury officials said yesterday that the president's proposed Division on Dynamic Analysis -- with a handful of employees and a $513,000 budget -- would go beyond the government's old "static" methods of analyzing proposed changes in tax policy only in terms of their direct effects on certain affected taxpayers. Instead, "dynamic" analysis looks at how tax changes cause consumers and businesses to behave differently in ways that affect the overall economy's growth.

For example, a tax break to encourage business investment might lower some individual companies' tax bills -- looking like a hit to Treasury revenue under a static analysis. But if that tax cut caused businesses to buy more equipment, hire more workers and increase profits, that might contribute to stronger overall economic growth -- causing the employees and companies to pay more in income, sales and other taxes over time.

Astounding! How dare he tell the truth? How dare he state what any objective observer of revenue history knows? In every situation since Congress passed JFK's tax-cut, without exception, everytime Congress has cut taxes, revenues have increased. The fact that Treasury officials are still not sure of this speaks volumes about the state of our education system and the quality of critical thinking required to obtain an economics degree.

Full Story: Stating the Obvious

What do you think?

To leave your opinion click on the word "COMMENT(S)" below