N. Gregory Mankiw, former head of President Bush’s Council of Economic Advisers, once compared an economist who says that tax cuts pay for themselves to a “snake oil salesman trying to sell a miracle cure.” Unfortunately, miracle cures are just what some policymakers are trying to sell the American people as they push for extending the Bush tax cuts permanently.

Their claim is that cutting taxes causes so much economic growth that revenues rise to higher levels with the tax cuts than without them. If this were true, extending the Bush tax cuts past their scheduled expiration in 2010 would actually help reduce future budget deficits.

But it isn’t true.

There’s no evidence that the Bush tax cuts have caused any increase in economic growth — let alone enough growth to offset their cost. In fact, the 2001-2007 economic expansion was among the weakest since World War II in terms of growth.

Even the Bush Treasury Department’s own “dynamic” analysis estimated that extending the Bush tax cuts would generate only enough growth to cover less than 10 percent of their long-term cost. And that estimate was based on a best-case scenario: it depended on the assumption that Congress would cut spending enough to fully offset the cost of the tax cuts. But if tax cuts are deficit-financed, economists generally agree that the economy would be worse off in the long run than if those tax cuts had not been made at all.

In sum, the idea that tax cuts pay for themselves sounds too good to be true because it is too good to be true.

This entry was posted on Tuesday, July 22nd, 2008 at 2:14 pm and is filed under Politics, Economy/Budget .