The "tax cuts pay for themselves" canard is still part of Republican economic theory (and I use the word theory with the most
liberal possible definition). While I deconstructed this lie before, there is yet more evidence from the
Center for Budget and Policy Priorities that this "theory" is nothing more than great PR because it promises something for nothing.
First, let's look at a little history of tax receipts. According to the White House's own history of the US budget published this year (the figures are also available on the Congressional Budget Office's website under
historical budget data), total revenues from individual taxpayers were 994 billion in 2001 and 927 billion in 2005. That's a decrease of 6.7% -- those tax cuts are
really making headway into paying for themselves at this rate, aren't they? According to the National Bureau of Economic Research, the recession ended in the fourth quarter of 2001 and revenues are still below the levels when Bush took office.
This decrease is a historical oddity. As the Center noted in the same report cited above:
Growth in nominal revenues is so normal, in fact, that only once since the Great Depression have nominal revenues fallen for three years in a row. That anomaly was the period from 2001 through 2003, reflecting the 2001 tax cuts.
Even when Bush's tax cuts are compared to earlier years (before his presidency), the overall growth in revenue comes up far short. From 1993 to 2000, individual tax revenues increased from 590 billion to 1 trillion - or an increase of 69%. Going back the same period of time as Clinton's administration (8 years), the increase in tax revenue decreases significantly, rising from 828 billion in 1998 to 927 billion in 2005 - an increase of 25% (less than half of the growth when Clinton raised taxes on the upper-level taxpayers). In fact, we have to go back to 1995 (11 years) when revenues were 590 billion to get near the growth of revenues from individual taxpayers under Clinton. (none of this history deals with the explosive growth of spending under the "fiscally conservative" Bush)
Slower growth in revenue from individual taxpayers is common with supply-side tax cuts:
In fact, the economy grew at about the same rate in the 1990s as in the 1980s, and tax revenues grew about twice as fast in the 1990s as in the 1980s: 3.5 percent (after adjustment for inflation and the increase in the size of the population), compared to 1.7 percent in the 1980s.
It's also important to note that Reagan's slower growth in revenue from individual tax receipts occurred even after he raised taxes 7 times during his administration.
But wait - maybe tax revenues from individual taxpayers will pick-up? Even Bush's current budget projections do not think tax cuts will pay for themselves (and they have a habit of over-projecting individual tax revenues):
The Administration's own budget shows that it does not expect the tax cuts to produce revenue growth that would make up for their costs. Based on the budget projections for revenues in 2006-2011, real per-person revenues will grow at an annual average of 0.6 percent between 2000 and 2011, only about one-third the growth rate during the 1980s and less than one-fifth the growth rate during the 1990s. The Administration's budget projects that revenues in 2011 will be about $450 billion below the levels projected before the 2001 tax cuts.
Perhaps most telling, several of the President's own advisors have stated that tax cuts won't pay for themselves:
N. Gregory Mankiw, former chairman of President Bush's Council of Economic Advisors and a Harvard economics professor, wrote in his well-known 1998 textbook that there is "no credible evidence" that "tax revenues ... rise in the face of lower tax rates." He went on to compare an economist who says that tax cuts can pay for themselves to a "snake oil salesman trying to sell a miracle cure.
The President's own Council of Economic Advisors concluded in its Economic Report of the President, 2003, that, "although the economy grows in response to tax reductions (because of the higher consumption in the short run and improved incentives in the long run) it is unlikely to grow so much that lost revenue is completely recovered by the higher level of economic activity." The CEA chair at the time was conservative economist Glenn Hubbard.
In conclusion:
The historical record indicates revenues from individual taxpayers usually rise during an economic expansion. However, the rate of increase decreases after tax cuts - or revenues decrease.
The president's advisors don't think that cuts pay for themselves,
The president's budget projection don't think his tax cuts will pay for themselves.