NCPA - National Center for Policy Analysis

Growing the Economy with Tax Cuts

March 12, 2003

The Bush Administration's tax plan will reduce federal revenues. The Treasury Department and an independent estimate by Congress's Joint Committee on Taxation say it will reduce revenues by $1.5 trillion between 2003 and 2013.

However, in addition, the Council of Economic Advisers has said that the tax plan will raise economic growth and reduce unemployment.

  • It estimates that a larger economy and increased employment will offset about half of the estimated revenue loss by 2007.
  • The gross revenue loss is estimated at $359 billion, but the net loss will only be $166 billion, according to a CEA study.
  • In its 2003 Economic Report, the CEA goes on to caution that higher growth from any significant tax cut is never likely to be so great "that lost tax revenue is completely recovered by the higher level of economic activity." (p. 58)

Bush administration critics, such as the Center on Budget and Policy Priorities and Spinsanity (a Web site), continue to claim that the administration is somehow deceiving the American people about the revenue effect of its tax plan.

The tax cuts will reduce revenues, just not as much as standard budget estimates predict because they assume no change in economic growth. In a $10 trillion economy, even a very small increase in growth will expand the tax base and offset some of the projected revenue loss.

Contrary to popular belief, this is not a controversial proposition. As then-Minority Leader Dick Gephardt (D-MO) said on "Meet the Press" last year (January 27), "The purpose of tax to get the economy to grow. If you can get the economy to grow, you will start having more money coming into the government."

Source: Bruce Bartlett, "Growing the Economy With Tax Cuts," NCPA, March 12, 2003.


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