Friday, June 17, 2011

Do tax cuts "pay for themselves" by increasing government revenues?

Nope, argues Bruce Bartlett — who was an economic policy advisor to Presidents Ronald Reagan and George H.W. Bush.

But that hasn't stopped Republican presidential candidate Tim Pawlenty from using this idea to justify his economic plan, relying on statistical claims that, as Bartlett explains, are "completely untrue."

Bartlett also clears up the association people often make between Reagan and the "pay for themselves" idea:

[N]o one in the Reagan administration ever claimed that his 1981 tax cut would pay for itself or that it did. Reagan economists Bill Niskanen and Martin Anderson have written extensively on this oft-repeated myth. Conservative economist Lawrence Lindsey made a thorough effort to calculate the feedback effect in his 1990 book, The Growth Experiment. He concluded that the behavioral and macroeconomic effects of the 1981 tax cut, resulting from both supply-side and demand-side effects, recouped about a third of the static revenue loss.
As you'll see if you click the link, Bartlett similarly debunks Senate Minority Leader Mitch McConnell's claim that George W. Bush's tax cuts increased revenues.