The New Republic’s senior editor Jonathan Chait wrote an interesting op-ed on Sunday determined to prove that President Bush’s tax cuts in 2001 and 2003 haven’t resulted in increased tax revenues (hat tip to Dave Pierre), while also attempting to make the case that tax hikes are better fiscal policy. The article’s title was “Bush’s Silly Budget Logic,” which is quite apropos given the fuzzy math and distorted recollection of history employed by the author: “There's no dispute among economists. Conservative, moderate or liberal, every credentialed economist agrees that the Bush tax cuts caused revenues to drop.”
Really? Well, let’s look at some of the facts first, shall we? For instance, according to the historical tables supplied by the Office of Management and Budget, tax receipts in FY 2003 were $1.783 trillion. The most recent estimate for FY 2006 is $2.402 trillion, a 35 percent increase. Simple, right?
Unfortunately, not for Chait who chose to represent an incomplete and misleading picture to his readers: “When Bush took office, tax revenues accounted for 19.8% of gross domestic product. After the tax cut, they collapsed to a low point of 16.3% — far lower than even the most pessimistic projection.” What Chait did here was represent data for FY 2004 just after the tax cuts had been implemented, and totally ignore the most recent data. For FY 2006, receipts appear to be 18.4 percent of GDP, which is higher than during most of the forties, fifties, sixties, seventies, and eighties.
Yet, that was just the beginning of the deception. Next, Chait chose to conveniently forget a tax cut in 1997:
Go back to the last time there was a major tax hike. That was in 1993. Just about every major elected Republican predicted the 1993 tax hike would slow down the economy, probably cause a recession and cause revenues to decline. Instead, they boomed, rising from 17.5% of GDP when Bill Clinton took office to 19.8% when he left.
Chait of course is correct in presenting a tax hike in 1993. However, following that hike, receipts only increased by 17 percent through fiscal 1996. Compare that to the 35 percent in the three years following Bush’s second tax cut. Furthermore, Chait ignored the tax cuts in 1997:
- A family tax credit of $400 for every child under the age of 17 for single filers with gross incomes of $75,000 or less and joint incomes of less than $110,000.
- The capital gains rate cut enacted last May will take full effect this year, reducing the tax from 28 percent to 20 percent for upper income brackets and from 15 percent to 10 percent those in the 15 percent tax bracket.
- No capital gains tax will be levied on a home sale of up to $500,000.
- The IRS reports as many as 15 million taxpayers report capital gains in their annual tax returns.
- Education relief for parents includes a $1,500 tax credit per child for the first two years of college, a deduction of up to $1,000 in interest costs for college loans, and tax-free withdrawals from individual retirement accounts (IRAs).
- Congress has increased the adjusted income phase-out for IRAs from $40,000-to-$50,000 to $50,000-to-$60,000.
- Death tax relief has increased the amount of money exempt from federal estate taxes from $600,000 to $625,000, and rising to $1 million over the next eight years.
- For small businesses and farms the estate tax relief jumped to $1.3 million.
- Social Security beneficiaries may now earn up to $14,500 without having their benefits reduced, and up to $30,000 by year 2002.
With that in mind, tax receipts following these Republican sponsored tax cuts grew from $1.579 trillion in FY 1997 to $2.025 trillion in FY 2000. As such, in the three years following Clinton’s tax hikes, receipts only grew by 17 percent. Yet, in the three years following the tax cuts in 1997, and the three years following this decade’s cuts, tax receipts grew by 28 and 35 percent respectively.
Any questions about which is better for growing tax receipts, Jonathan?