NCPA - National Center for Policy Analysis

Liberals React to the Archer Tax Cut Plan

July 19, 1999

Last week, House Ways and Means Committee Chairman Bill Archer (R-Texas) began to move an $864 billion tax reduction through his committee.

Within hours, the union-backed Citizens for Tax Justice had calculated that the top one percent of taxpayers would get 46.1 percent of the tax relief and the lowest 60 percent would get a mere 7.2 percent. This ignores most provisions except those benefiting the rich. It ignores the impact on jobs and economic growth, and exaggerates the effect of cutting the capital gains tax.

The liberal Center on Budget and Policy Priorities charged the plan would reduce revenues by $2.8 trillion in the second 10 years after passage. This makes assumptions far outside the normal budget estimation period, and fails to put the numbers into context. GDP over the 2010 to 2019 period will amount to $173 trillion, using the Center's methodology. Between 2000 and 2009 the tax cuts amount to just 0.7 percent of GDP.

Finally, Louis Uchitelle in the New York Times argues tax cuts will be too stimulative, potentially stoking inflation. He quoted several recent and former Federal Reserve officials to the effect that tax cuts will require the Fed to raise interest rates, which will cause the stock market to crash.

This argument is based on Keynesianism, which views budget deficits as economically stimulative. But if true, it really argues in favor of an even bigger tax cut because if deficits are stimulative, then surpluses must be depressing. The Archer plan would only reduce the total budget surplus by 2.8 percent the first year, rising to 24.5 percent by the fifth year. Even at its highest point, in the year 2009, there will still be an annual surplus of more than $200 billion.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, July 19, 1999.


Browse more articles on Government Issues