Treasury Department Mid-Session Review Casts Doubt on Bush Claims that Tax Cuts Pay for Themselves

“Some in Washington say we had to choose
between cutting taxes and cutting the deficit….Today’s numbers show that that
was a false choice.  The economic growth fueled by tax relief has helped send
our tax revenues soaring.  That’s what has happened.” --George W. Bush, July 11, 2006

While Bush claims that tax cuts have 'paid for themselves', the Center on Budget and Policy Priorities (CBPP) claims otherwise.  Using projections from the Office of Management & Budget's mid-session review of the 2007, they point out that the increased revenue gained from the tax cuts under the most optimistic economic forecasts would be $29 billion.  While this is a positive benefit from tax cuts, it is far short of the Joint Committee on Taxation's estimate for the cost of making the tax cuts permanent (not counting the costs already incurred or the costs of fixing the Alternative Minimum Tax): $314 billion.  The Bush administration believes that they can issue hollow rhetoric that even ignores their own estimates of the effect of tax cuts.  In fact, I believe that the CBPP estimates of tax revenue increases is overstated.  Their estimate assumes that of the $146 billion increase in GDP in 2016, 20 percent of that will be collected in taxes.  According to the non-partisan  Congressional Budget Office's (CBO) latest budget projections between 2007 and 2016 (pdf), federal government revenues will never reach 20 percent of GDP, ranging from a low of 17.5 percent in 2005 (actual data) to a projected high of 19.7 percent in 2016 with an average over the period of 18.9 percent.  This is even probably an overestimate because CBO estimates do not include any estimates of cyclical economic fluctuations, which will probably dampen the levels of revenue (revenue falls when the economy slows or contracts).