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Wednesday, July 23, 2014
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Published: Monday, 5/22/2006

The legacy of tax cuts

George W. Bush has a child-like faith in the power of tax cuts even though the President's own bean counters aren't so sanguine.

Before signing the $70 billion extension of rollbacks on capital gains and dividends taxes this past week, Mr. Bush recited a litany of the supposed benefits of the cuts that included virtually everything but a cure for cancer.

If you looked closely, though, the President's nose seemed to grow a little when he got to the part where he asserted that economic growth spurred by the cuts, first adopted in 2003, "means more tax revenue for the federal treasury."

Actually, according to a Knight Ridder Newspapers report, the tax cuts won't pay for themselves. They will result in less tax revenue.

Who says so? Not some left-leaning, lily-livered, ivory-tower theorist but no less a certified true-believer than Douglas Holtz-Eakin. He was chief economist for Mr. Bush's Council of Economic Advisers from 2001-02, then served through 2005 as director of the nonpartisan Congressional Budget Office.

Apparently under the influence of truth serum, Mr. Holtz-Eakin allowed that there are other reasons for the extra tax revenue - $274 billion, a 15 percent increase, in 2005 - the economy is enjoying as it recovers from the 2001 downturn.

These include higher population and a larger overall economy, factors that would boost revenues even without tax cuts.

Similarly, Treasury Secretary John Snow admitted the obvious - that economic growth was brisk in the late 1990s when higher tax rates were in effect on both capital gains and income. And, no, he conceded the tax cuts won't pay for themselves.

Responsible economists have nothing against tax cuts so long as they are not financed with borrowed money, which is just what the administration is doing. The result, a higher budget deficit, means huge add-on interest costs, which only drives the deficit spiral upward or crowds out health care and other needed programs.

It is important to remember that Americans in the highest IRS brackets will get not only larger tax cuts dollar-wise but also a higher proportion of the benefit from continuation of the cuts. That is the Republican priority, the extension of Vice President Cheney's statement that tax cuts are "our due."

The vast majority - our children and grandchildren - will find government programs curtailed or will be forced to pay higher taxes to maintain them. That is the true legacy of Mr. Bush's tax cuts.



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