Call it the refusal of “trickle-down economics” to die. Ever since Ronald Reagan introduced the idea, Republicans have clung to a very mistaken concept ― that tax cuts always pay for themselves. Though proven false again and again, this is the fallback Republican position when trying to hoodwink the American public into massive tax cuts for those at the tippy-top of the income scale. “Don’t worry,” the GOP tells the public, “these tax cuts will generate so much new growth that they will pay for themselves!” As always, the reality turns out to fall far short of this lofty goal.
Exposing the GOP’s “big lie” about tax cuts is easy ― all you have to do is look at the last time they tried it (or, for that matter, the time before that, or the time before that...) A new report by the Center on Budget and Policy Priorities (C.B.P.P.) examines exactly what happened the last time this snake oil was sold to the American public, in detail. Titled “The Legacy of the 2001 and 2003 ‘Bush’ Tax Cuts,” it clearly shows what an empty promise “tax cuts always pay for themselves” truly is. The very first paragraph sums it up:
High-income taxpayers benefited most from these tax cuts, with the top 1 percent of households receiving an average tax cut of over $570,000 between 2004-2012 (increasing their after-tax income by more than 5 percent each year). Despite promises from proponents of the tax cuts, evidence suggests that they did not improve economic growth or pay for themselves, but instead ballooned deficits and debt and contributed to a rise in income inequality.
The authors found that the true cost of the Bush tax cuts equalled 2 percent of gross domestic product, and then helpfully put this number into perspective:
At the time, many policymakers ― including President Bush and Federal Reserve Chair Alan Greenspan ― cited projected surpluses and falling debt as a reason to cut taxes. But as the nation’s fiscal outlook changed, because the tax cuts were financed by borrowing, they added to a growing national debt.
The 2 percent of G.D.P. cost figure does not include the extra interest costs resulting from the required borrowing. In 2013 C.B.P.P. estimated that, when the associated interest costs are taken into account, the Bush tax cuts (including those that policymakers made permanent) would add $5.6 trillion to deficits from 2001 to 2018. This means that the Bush tax cuts will be responsible for roughly one-third of the federal debt owed by 2018.
The tax cuts which were supposed to pay for themselves instead cost us a full one-third of our national debt. This was immediately after Bill Clinton balanced the budget with higher taxes in place, mind you. And, as always, the wealthier you were, the more you benefited from all this borrowing. The bottom 20 percent of households got only a 1.0 percent raise in their incomes due to lower taxes. The middle 20 percent saw a 2.8 percent rise, while the top 1 percent saw a generous 6.7 percent increase ― which translates into over $50,000 per year.
Giving all this largesse to the wealthy did not deliver the economic growth that had been promised. Not even close. What did it do instead? Exactly what you’d expect:
Evidence suggests that the tax cuts ― particularly those for high-income households ― did not improve economic growth or pay for themselves, but instead ballooned deficits and debt and contributed to a rise in income inequality.
This is really Economics 101 ― give rich folks more money, and income inequality will get worse. All GOP claims to the contrary, that’s a pretty basic thing to understand. The trickling down never seems to quite happen, and the magic growth numbers never actually appear. Massive tax cuts for businesses and the 1 percent just don’t spur growth. Unless you live in Republican Fantasyland, of course.
In the real world, however, we look at the evidence and draw conclusions. And the conclusions are the exact opposite of what Republicans fervently believe. The study concludes with a comparison between the Bush tax cut years and what happened in the 1990s under Bill Clinton, after Congress raised taxes:
In comparison, the economic expansion of the early 1990s ― which followed considerable tax increases ― produced a much faster rate of job growth and somewhat faster G.D.P. growth than the expansion of the early 2000s. An analysis of business activity between 1996 and 2008 found that even the sharp cut in dividend tax rates in 2003, which proponents claimed would spur immediate business growth, had no significant impact on business investment or employee compensation after 2003.
And, when the tax cuts were scheduled to expire at the end of 2012, extending the high-income tax cuts in particular was projected to have almost no effect on economic growth. The Congressional Budget Office (C.B.O.) estimated in 2012 that extending the high-income tax cuts would have boosted G.D.P. by just 0.1 percent in 2013. Indeed, allowing the high-income tax cuts to expire after 2012 does not appear to have had any substantial negative impacts on economic growth, as proponents of the tax cuts had claimed, and the economy has continued to grow steadily since then. This is consistent with the broader empirical literature about taxes on high-income people and economic growth. As one comprehensive review of the empirical literature by three leading tax economists found, “there is no compelling evidence to date of real responses of upper income taxpayers to changes in tax rates.”
So if you take the past few major changes in tax policy, the economy grew faster and better after taxes had been raised (this was, incidentally, the first “Bush tax cut” ― the one that got George H. W. Bush in so much trouble with his fellow Republicans for breaking his “read my lips, no new taxes” pledge). Republican claims that the economy would tank if taxes were raised turned out not to be correct. Then when George W. Bush cut taxes, the economy grew slower and income inequality got worse. Republican claims that the tax cuts would pay for themselves with awesome economic growth were proven wrong, once again. And then when Dubya’s tax cuts were allowed to expire, Barack Obama made a deal which kept all the tax cuts intact except for those for the wealthiest. The Republicans warned of dire consequences, which did not actually occur.
Now, they’re at it again. The Trump tax cuts are going to be bigger and better than ever, and it’s going to spur so much economic growth it’ll make your head spin. With all that muscular economic growth, tax revenues will absolutely flood into the I.R.S., and the tax cuts will more than pay for themselves. That’s according to Republicans ― who have gotten this prediction wrong in every single instance over the last quarter century.
In the upcoming debate over tax cuts, you’ll hear quite a few Republicans argue that the numbers they are forced to use (from the Congressional Budget Office) are not “dynamic” enough, and that their own private calculations show a rosy future where massive borrowing isn’t required in order to slash taxes on the wealthy and Wall Street. But there’s a reason the C.B.O. doesn’t use Republican math ― because it never seems to add up in the real world. All that magical growth never actually materializes. Over and over again, trickle-down economics is proven to be nothing short of a Stalinesque Big Lie. But that never seems to stop Republicans from going to this particular well one more time.
Chris Weigant blogs at ChrisWeigant.com
Follow Chris on Twitter: @ChrisWeigant
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