NCPA - National Center for Policy Analysis

Tax Cuts Are Often Reversed

July 26, 1999

Last week, Republican moderates nearly derailed a major tax cut, concerned that it was too big and would reduce the budget surplus too much. But new entitlements, such as Bill Clinton's proposed prescription drug benefit, are a far greater threat to budgetary restraint than a tax cut.

History shows that while entitlements are indeed very, very difficult to reduce once in place, Congress has proven more than willing to undo tax cuts.

  • According to a recent Treasury Department study, there have been 15 major tax bills since 1980.
  • Only three were tax cuts, while two had no net impact on revenues.
  • The remaining 10 bills were all tax increases that offset much, if not all, of the tax cuts.

This suggests that even if the House tax bill is too big in some sense, it can simply be undone later; for example, in 1982 Congress moved swiftly to take back more than one-third of the 1981 tax cut in the Tax Equity and Fiscal Responsibility Act.

Another point skittish moderates should remember is that failure to cut taxes from time to time means that taxes will automatically rise. As long as we have progressive tax rates and a tax system that is not fully indexed, inflation and real growth will push people into higher tax brackets and increase their tax burden. Indeed, this effect is so strong that the 1997 tax cut didn't even keep taxes from rising. Estimates of federal revenues by the Congressional Budget Office were significantly higher after the tax cut was enacted in August 1997 than before.

If we can't cut taxes when we have a large budget surplus, when can they ever be cut? Those concerned about fiscal responsibility should worry more about new entitlement programs and less about tax cuts.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, July 26, 1999.


Browse more articles on Tax and Spending Issues