Fox and WSJ: Lower Rates Would Lead To More Revenue To The Treasury

Varney: “How Do You Grow The Economy? In My Opinion, Tax Reform. Lower Rates, Fewer Deductions, More Revenue To The Treasury.” During the November 22 broadcast of Fox News' Fox & Friends, Fox host Stuart Varney claimed lower tax rates lead to more revenue. From the broadcast:

BRIAN KILMEADE (co-host): So, let's talk about the downgrade. I'm only kidding. Let's do this. How about this: The New York Times postulates that maybe this is going to work out good because in 2013, the Bush tax cuts go away, and the 1.2 trillion in cuts, it'll get us on the negative term when it comes to the deficit, and a lot of people don't really care that much about defense, and they're willing to take these cuts and this increase in taxes.

VARNEY: If you think that the way to tackle our debt problem is to raise taxes and cut the military, OK, I suppose this is a good thing. If you think that that will have a good outcome for our debt and our economy, yeah, OK, The Times has a point. I think the exact opposite. The way to fix the debt problem is not with higher taxes and cutting the military, it's to grow the economy. How do you grow the economy? In my opinion, tax reform. Lower rates, fewer deductions, more revenue to the Treasury. Better economy. [Fox News, Fox & Friends, 11/22/11, via Media Matters]

WSJ: "[N]early All Economists Agree That Lower Rates And A More Efficient Tax Code Would Increase Economic Growth And Lead To More Revenues Over Time." In a November 22 editorial titled, “Thank You, Grover Norquist: The super committee's failure is rooted in a clash of visions,” The Wall Street Journal claimed that “nearly all economists agree that lower rates and a more efficient tax code would increase economic growth and lead to more revenues over time.” [The Wall Street Journal, 11/22/11]

In Fact, Economists -- Including Bush Advisers -- Reject Claim That Tax Cuts In The Past Have Increased Revenue

EPI: Bush Tax Cuts “Added $2.6 Trillion To The Public Debt Over 2001-10.” In a September 26 article, Andrew Fieldhouse of the Economic Policy Institute (EPI) wrote:

A spending-cuts-only approach is regressive in that it forces the brunt of deficit reduction on the backs of poor and working families while ignoring a prime culprit of the budget deficit: the expensive, ineffective, and unfair Bush-era tax cuts. These top-heavy tax cuts added $2.6 trillion to the public debt over 2001-10 and will add $3.8 trillion to deficits over the next decade if fully continued. [EPI, 9/26/11]

Bartlett: Revenue Has Been Historically Low Because “Taxes Were Cut In 2001, 2002, 2003, 2004 and 2006.” In a July 26 New York Times blog post, Bruce Bartlett, former policy adviser to Presidents Ronald Reagan and George H.W. Bush, wrote:

In a previous post, I noted that federal taxes as a share of gross domestic product were at their lowest level in generations. The Congressional Budget Office expects revenue to be just 14.8 percent of G.D.P. this year; the last year it was lower was 1950, when revenue amounted to 14.4 percent of G.D.P.

But revenue has been below 15 percent of G.D.P. since 2009, and the last time we had three years in a row when revenue as a share of G.D.P. was that low was 1941 to 1943.

Revenue has averaged 18 percent of G.D.P. since 1970 and a little more than that in the postwar era. At a similar stage in previous business cycles, two years past the trough, revenue was considerably higher: 18 percent of G.D.P. in 1977 after the 1973-75 recession; 17.3 percent of G.D.P. in 1984 after the 1981-82 recession, and 17.5 percent of G.D.P. in 1993 after the 1990-91 recession. Revenue was markedly lower, however, at this point after the 2001 recession and was just 16.2 percent of G.D.P. in 2003.

The reason, of course, is that taxes were cut in 2001, 2002, 2003, 2004 and 2006.

[...]

According to a recent C.B.O. report, they reduced revenue by at least $2.9 trillion below what it otherwise would have been between 2001 and 2011. Slower-than-expected growth reduced revenue by another $3.5 trillion.[The New York Times, 7/26/11]

Krugman: After Reagan's 1981 Tax Cuts, “Revenues Are Permanently Reduced Relative To What They Would Otherwise Have Been.” In a July 2010 post on his New York Times blog, Nobel Prize-winning economist Paul Krugman wrote 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.” [The New York Times, 7/15/10]

Time: “Tax Cuts Don't Boost Revenues.” In a December 2007 article titled, “Tax Cuts Don't Boost Revenues,” Time magazine asserted that “economists agree” that the idea that tax cuts raise revenues is “false.” From the article:

If there's one thing that Republican politicians agree on, it's that slashing taxes brings the government more money. “You cut taxes, and the tax revenues increase,” President Bush said in a speech last year. Keeping taxes low, Vice President Dick Cheney explained in a recent interview, “does produce more revenue for the Federal Government.” Presidential candidate John McCain declared in March that “tax cuts ... as we all know, increase revenues.” His rival Rudy Giuliani couldn't agree more. “I know that reducing taxes produces more revenues,” he intones in a new TV ad.

If there's one thing that economists agree on, it's that these claims are false. We're not talking just ivory-tower lefties. Virtually every economics Ph.D. who has worked in a prominent role in the Bush Administration acknowledges that the tax cuts enacted during the past six years have not paid for themselves--and were never intended to. Harvard professor Greg Mankiw, chairman of Bush's Council of Economic Advisers from 2003 to 2005, even devotes a section of his best-selling economics textbook to debunking the claim that tax cuts increase revenues. [Time, 12/6/07]

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 Council of Economic Advisers (CEA), wrote on his blog 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. [Greg Mankiw, 7/2/07]

Former Bush Economic Adviser Samwick: “Tax Cuts Have Not Fueled Record Revenues.” In a January 2007 blog post titled “New Year's Plea,” Andrew Samwick, former chief economist for George W. Bush's Council on Economic Advisers, wrote:

You [in the Bush administration] 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. [Vox Baby, 1/3/07]

The Economist: “No Serious Economist Believes Mr Bush's Tax Cuts Will Pay For Themselves.” A January 2006 Economist editorial stated:

A surprising rise in tax revenue last year has pushed this chutzpah even further. Mr Bush last week implied that the supply-side fantasy might hold after all: tax cuts do pay for themselves. “There's a mindset in Washington that says, you cut the taxes, we're going to have less money to spend,” he noted contemptuously, before claiming that recent experience suggested otherwise.

Even by the standards of political boosterism, this is extraordinary. No serious economist believes Mr Bush's tax cuts will pay for themselves. A recent study from the Congressional Budget Office suggested that, after ten years, up to one-third of the cost of a 10% cut in income taxes can be recouped from higher economic growth. That fraction may be higher for cuts in taxes on capital alone. But it is nowhere near 100%. [The Economist, 1/12/06]

FactCheck.org: “Revenues Would Have Been Even Higher Without [The 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. [FactCheck.org, 6/11/07]

For more on the false claim that lowering taxes increases revenue, SEE HERE.