U.S. Drops to 18th in Global Economic-Freedom Rankings: Are You Worried?

● A 2005 Congressional Budget Office study during the time that Republican economist Doug Holtz-Eakin was director concluded that a 10 percent cut in federal income tax rates would recoup at most 28 percent of the static revenue loss over 10 years. And this estimate assumes that taxpayers have unlimited foresight and know that taxes will be raised after 10 years to stabilize the debt/GDP ratio. Without foresight and no compensating tax increases or spending cuts, leading to an increase in the debt, feedback would be negative; i.e., causing the actual revenue loss to be larger than the static revenue loss.

● In a 2006 article published in the Journal of Public Economics, Harvard economist Greg Mankiw, who chaired the CEA during Bush’s first term, estimated the long-run revenue feedback from a cut in taxes on capital at 32.4 percent and 14.7 percent for a cut in labor taxes.

● A 2006 analysis of extending the 2001 and 2003 Bush tax cuts by the Republican-leaning Heritage Foundation estimated that only 30 percent of the gross revenue loss would be recouped through behavioral effects and macroeconomic stimulus.

This is a view not shared by economists who worked for Bush. For example, Alan Viard, senior economist at the Council of Economic Advisers during Bush’s first term, told the Washington Post in 2006, “Federal revenue is lower today than it would have been without the tax cuts. There’s really no dispute among economists about that.” Robert Carroll, deputy assistant secretary for tax analysis at the U.S. Treasury Department during Bush’s second term, also told the Post, “As a matter of principle, we do not think tax cuts pay for themselves.” On September 28, 2006, Stanford economist Edward Lazear, chairman of the CEA in Bush’s second term, testified before the Senate Budget Committee:

“Will the tax cuts pay for themselves? As a general rule, we do not think tax cuts pay for themselves. Certainly, the data…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.”

When President Obama took office, the federal deficit was $1.413 trillion dollars. Three years later, at the end of fiscal year 2012, the deficit has been cut by 25% to 1.089 trillion dollars.

Tax cuts and slower-than-expected growth reduced revenues by $6.1 trillion and spending was $5.6 trillion higher, a turnaround of $11.7 trillion. Of this total, the C.B.O. attributes 72 percent to legislated tax cuts and spending increases, 27 percent to economic and technical factors. Of the latter, 56 percent occurred from 2009 to 2011.
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They would also have us believe that all of the increase in debt resulted solely from higher spending, nothing from lower revenues caused by tax cuts. And they continually imply that one of the least popular spending increases of recent years, the Troubled Asset Relief Program, was an Obama administration program, when in fact it was a Bush administration initiative proposed by the Treasury Department that was signed into law by Mr. Bush on Oct. 3, 2008.

Lastly, Republicans continue to insist that tax cuts are highly stimulative, often saying that they add nothing to the debt, when this is obviously ridiculous.

Conversely, they are adamant that tax increases must not be part of any deficit-reduction package because they never reduce deficits and instead are spent. This is also ridiculous, as the experience of the Clinton administration clearly shows. The new C.B.O. data confirm these facts.

The 2001 tax cut did nothing to stimulate the economy, yet Republicans pushed for additional tax cuts in 2002, 2003, 2004, 2006 and 2008. The economy continued to languish even as the Treasury hemorrhaged revenue, which fell to 17.5 percent of the gross domestic product in 2008 from 20.6 percent in 2000. Republicans abolished Paygo in 2002, and spending rose to 20.7 percent of G.D.P. in 2008 from 18.2 percent in 2001.