Quote of note:
Treasury Secretary John Snow conceded Tuesday that the much-touted tax cuts for capital gains and dividend income don't drive today's strong economy.
Asked by Knight Ridder if the tax reductions paid for themselves, Snow acknowledged that they don't.
...A Harvard University paper last December concluded that up to 50 percent of a cut in capital-gains taxes would flow back to the Treasury in new revenues. "The feedback is surprisingly large," concluded N. Gregory Mankiw, the study's co-author. He headed Bush's Council of Economic Advisers from 2003 to 2005.
Mankiw's study also concluded that the Treasury payback would be 17 percent of the tax-cut's cost if the reduction were on wages instead of capital.
That's in line with a December study by the CBO. It looked at a hypothetical 10 percent cut in income-tax rates. It concluded that up to 22 percent of the lost revenue could be regained over five years, and up to 32 percent over five more years.
But paybacks of 50, 17, 22 or 32 percent still mean a net revenue loss for the Treasury.
Tax cuts lose more money than they generate, studies conclude
By Kevin G. Hall
Knight Ridder Newspapers
WASHINGTON - When President Bush signed legislation Wednesday to extend lower tax rates for capital gains and dividend income through 2010, he suggested that his tax cuts are behind a surge of new revenue into the Treasury, and implied that it's enough to offset the revenue lost by these reductions.
At a ceremony on the White House lawn, Bush said his tax cuts had helped the economy grow, "which means more tax revenue for the federal Treasury."
That's just not true. A host of studies, some of them written by economists who served in the Bush administration, have concluded that tax reductions mean less money for the Treasury.
The cuts Bush extended Wednesday will cost the Treasury an estimated $70 billion over five years. They may help spur economic growth, but they still lose more revenue than they generate. And unless they're matched by lower federal spending, they worsen federal budget deficits.
To be sure, tax revenues grew by $274 billion in 2005, a 15 percent increase over the previous year, and receipts are growing this year too.
But does that mean the president's 2001 and 2003 tax cuts generated enough additional revenue to pay for themselves?
"No," said Douglas Holtz-Eakin. He was the chief economist for Bush's Council of Economic Advisers in 2001 and 2002, then the director of the nonpartisan Congressional Budget Office until late last year.
Holtz-Eakin said other factors were behind the surge in tax revenues. One is that revenues rise as the population and the economy grow. Revenues would have risen in the post-2001 economic recovery with or without tax reductions, just as they did in the `90s.
