Heritage Foundation Clings To Myths To Defend Bush Tax Cuts

June 23, 2011 11:34 am ET

On the Heritage Foundation's Foundry blog, Mike Gonzalez, Heritage's resident Bush hagiographer, wrote a highly misleading post defending lower tax rates for the very wealthy. It's almost impossible to defend President George W. Bush's economic policies without being at least somewhat dishonest, which Gonzalez accomplishes by claiming that the fantastical idea that tax cuts "pay for themselves" is actually a straw man set up by mischievous liberals. According to Gonzalez, the Bush Administration actually "went out of their way" to make it clear that their tax cut packages were not expected to pay for themselves. The fact, however, is that time and time again, President George W. Bush and others in his administration asserted that cutting taxes increases revenue, and the Heritage Foundation itself has spread that dishonest claim. He went on to suggest that cutting taxes also spurs growth, and that the Bush tax cuts themselves helped create millions of jobs. Both claims are undermined by data on jobs and the economy that indicate Bush's tenure to be a disaster for both economic growth and employment.

CLAIM: The Bush Administration Was "Clear" Tax Cuts Weren't Expected To Pay For Themselves

Heritage Foundation: The Bush Administration "Went Out Of Their Way To Be Clear That The Tax Cuts Were Not Expected To Pay For Themselves." Mike Gonzalez, Heritage's Vice President of Communications, wrote on The Foundry blog:

The tax cuts enacted by the U.S. Congress in 2003 were an important cause of an economic expansion that roared for some 50 months and created 8.1 million jobs. The opposite philosophy - a stimulus that has crowded out private investment, plus an enormous health bill and a nightmarish financial regulatory package that are killing job creation-has only delayed recovery and left us with 9.1% unemployment.

You won't hear this from liberals. What you hear instead is a straw man argument that the tax cuts failed to pay for themselves. The Bush Administration and congressional leaders at the time went out of their way to be clear that the tax cuts were not expected to pay for themselves. [Heritage Foundation, 6/22/11, emphasis added]

FACT: Bush Administration Did Say Tax Cuts Increase Revenue

Then-President Bush: "You Cut Taxes And The Tax Revenues Increase." In a 2006 speech in New Hampshire, George W. Bush said: "One of the interesting things that I hope you realize when it comes to cutting taxes is this tax relief not only has helped our economy, but it's helped the federal budget. In 2004, tax revenues to the Treasury grew about 5.5 percent. That's kind of counter-intuitive, isn't it? At least it is for some in Washington. You cut taxes and the tax revenues increase. See, some people are going to say, well, you cut taxes, you're going to have less revenue. No, that's not what happened. What happened was we cut taxes and in 2004, revenues increased 5.5 percent. And last year those revenues increased 14.5 percent, or $274 billion. And the reason why is cutting taxes caused the economy to grow, and as the economy grows there is more revenue generated in the private sector, which yields more tax revenues." [George W. Bush Remarks, 2/8/06]

  • Then-President Bush: "The Deficit Would Have Been Bigger Without The Tax Relief Package." During a 2002 meeting with cabinet members, George W. Bush said: "Well, we have a deficit because tax revenues are down. Make no mistake about it, the tax relief package that we passed -- that should be permanent, by the way -- has helped the economy, and that the deficit would have been bigger without the tax relief package." [George W. Bush Remarks, 11/13/02, via CNN]

Then-Vice President Cheney: "I Also Believe [Tax Cuts] Produce More Revenue For The Federal Government." In an interview with Fortune, Dick Cheney said: "Over the years, especially during the Reagan years, I think a lot of us became supply-side advocates. I certainly reached that point where I believe that it is extraordinarily important to keep taxes as low as possible, and that that does produce significant benefits, not only for the economy, in terms of job creation and wealth and economic expansion, but I also believe it does produce more revenue for the federal government." [Fortune, 11/9/07, via CNNMoney]

Bush Press Secretary Ari Fleischer Said Tax Cuts Would "Create Additional Revenues For The Federal Government, And Pay For Itself." According to National Review: "Lastly, White House Press Secretary Ari Fleischer had this to say on January 8: 'The entire package the president does believe will lead to growth, which will over time grow the economy, create additional revenues for the federal government, and pay for itself.' These statements are vastly stronger than anything anyone in the Reagan administration had to say on the subject. In fact, no one in the Reagan administration ever said that the 1981 tax cut would pay for itself." [National Review, 3/13/03]

The Heritage Foundation Itself Said Tax Cuts Would Lead To "A Growth In Tax Revenues." From a 2001 report by the Heritage Foundation: 

Dynamic tax analysis attempts to capture the many ways that taxpayer behavior changes following a significant tax policy change. For example, dramatic decreases in the taxes on labor or capital will cause more labor or capital to be employed in productive activities. A business owner who knows that his or her own labor will be taxed less may work more; a non-employed spouse may seek work outside the home once the taxes on labor fall. Overall, additional labor or capital can spur the economy to higher levels of output, which causes a growth in tax revenues as a result of the expansion of the tax base.

Those who employ static analysis, like the Center on Budget and Policy Priorities and Citizens for Tax Justice, assume that taxpayers will not alter their behavior in the face of significant tax policy changes. Thus, a major drop in taxes produces no additional labor or new uses of capital, just a drop in federal revenues. [Heritage Foundation, 4/27/01]

Heritage Predicted That Under The Bush Tax Cuts, "The National Debt Would Effectively Be Paid Off By FY 2010." A 2001 report by the Heritage Foundation made the following assessment of what the Bush tax cuts would mean for the economy and federal budget: 

  • Under President Bush's plan, an average family of four's inflation-adjusted disposable income would increase by $4,544 in fiscal year (FY) 2011, and the national debt would effectively be paid off by FY 2010.
  • The net tax revenue reduction, after accounting for the larger tax base that would result from higher employment and faster economic growth under the Bush plan, is $1.1 trillion from FY 2002 to FY 2011, 33.4 percent less than conventional static estimates.
  • The plan would save the entire Social Security surplus and increase personal savings while the federal government accumulated $1.8 trillion in uncommitted funds from FY 2008 to FY 2011, revenue that could be used to reform the Social Security and Medicare systems and reduce the payroll tax. [Heritage Foundation, 4/27/01]

FACT: Economists Agree That Tax Cuts Don't Increase Revenue

Even Conservative Economists Agree That Tax Cuts Do Not Pay For Themselves. As Time explains: "If there's one thing that economists agree on, it's that these claims are false. We're not talking just ivory-tower lefties. Virtually every economics Ph.D. who has worked in a prominent role in the Bush Administration acknowledges that the tax cuts enacted during the past six years have not paid for themselves--and were never intended to. Harvard professor Greg Mankiw, chairman of Bush's Council of Economic Advisers from 2003 to 2005, even devotes a section of his best-selling economics textbook to debunking the claim that tax cuts increase revenues." [Time, 12/6/07]

The Economist: "No Serious Economist Believes Mr Bush's Tax Cuts Will Pay For Themselves." From The Economist: "Even by the standards of political boosterism, this is extraordinary. No serious economist believes Mr Bush's tax cuts will pay for themselves. A recent study from the Congressional Budget Office suggested that, after ten years, up to one-third of the cost of a 10% cut in income taxes can be recouped from higher economic growth. That fraction may be higher for cuts in taxes on capital alone. But it is nowhere near 100%." [The Economist, 1/12/06]

2003 Economic Report Of The President: Lost Tax Revenue Won't Be Completely Recovered. The 2003 Economic Report of the President written by the Council of Economic Advisors points out: "Although the economy grows in response to tax reductions (because of higher consumption in the short run and improved incentives in the long run), it is unlikely to grow so much that lost tax revenue is completely recovered by the higher level of economic activity." [Economic Report of the President, February 2003]

AEI Economist: "Revenue Is Lower Than It Would Be Without The Bush Tax Cuts." According to PolitiFact:

"There is no real dispute among economists that broad-based federal income tax cuts reduce revenue (except when tax rates are much higher than they are now)," said Alan D. Viard of the conservative American Enterprise Institute. "Revenue is lower than it would be without the Bush tax cuts -- liberal and conservative economists are in accord on this question." [PolitiFact, 11/7/10]

Chairman Of Bush Council of Economic Advisors : "I Certainly Would Not Claim That Tax Cuts Pay For Themselves." From the Christian Science Monitor:

Another supply-side theory, now less popular, was voiced by Bush in February 2006: "You cut taxes, and the tax revenues increase."

The theory is that with lower marginal tax rates, people work harder and longer, thereby raising their income - and paying more taxes on it.

But even top Bush economic advisers now reject that thesis.

"I certainly would not claim that tax cuts pay for themselves," Edward Lazear, the current chair of the Council of Economic Advisers, has stated. [Christian Science Monitor, 6/25/07, via Lexis]

Wall Street Journal: Bush Tax Cuts Return 10 Times Less Than They Generate In Added Tax Revenue From Economic Growth. From a 2006 Wall Street Journal editorial: "The congressional Joint Committee on Taxation, using conventional analyses, says making the president's tax cuts permanent would reduce federal revenues in 2016 by $314 billion. That is more than 10 times what the Treasury analysis suggests tax cuts would generate by prompting more hours of work, more savings and investment and more efficient use of resources." [Wall Street Journal, 7/11/06]

CLAIM: Cutting Taxes Spurs Growth

Heritage Foundation "We Lower Taxes To Encourage Economic Growth." Mike Gonzalez, Heritage's Vice President of Communications, wrote on The Foundry blog:

Since tax revenues move up and down with GDP, the common-sense way to increase tax revenues is to expand the economy. This should start with a commitment not to raise taxes. Beyond that commitment, pro-growth policies such as revenue-neutral tax reforms dedicated to reducing tax rates, restrained federal spending, minimal regulation and free trade would raise more tax revenues than would be raised by self-defeating tax increases.

In The Heritage Foundation's plan, Saving the American Dream, issued last month, we call for tax reform. We lower tax rates to encourage economic growth but maintain tax revenues at 18.5% of GDP-their historical level. We do it by expanding the tax base by eliminating economically unjustified deductions and credits and we plow all those revenues back into keeping rates low. [Heritage Foundation, 6/22/11, emphasis added]

FACT: Lower Marginal Tax Rates Don't Correspond With Higher Economic Growth

Lower Taxes Have Not Resulted In Economic Growth. As the Center for American Progress's Michael Linden explains:

The top marginal income tax rate has ranged all the way from 92 percent down to 28 percent over the last 60 years. With such a large range, it should be easy to see the enormous impact of lower rates on overall economic growth, as conservatives routinely claim. Years with lower marginal rates should boast higher growth, right?

That's definitely not what happened. In fact, growth was actually fastest in years with relatively high top marginal tax rates. Back in the 1950s, when the top marginal tax rate was more than 90 percent, real annual growth averaged more than 4 percent. During the last eight years, when the top marginal rate was just 35 percent, real growth was less than half that.

Annual growth by GDP

[Center for American Progress, 6/20/11]

Bloomberg News: "Give The Wealthiest Americans A Tax Cut And History Suggests They Will Save The Money Rather Than Spend It." According to Bloomberg News: "Give the wealthiest Americans a tax cut and history suggests they will save the money rather than spend it. Tax cuts in 2001 and 2003 under President George W. Bush were followed by increases in the saving rate among the rich, according to data from Moody's Analytics Inc. When taxes were raised under Bill Clinton, the saving rate fell. The findings may weaken arguments by Republicans and some Democrats in Congress who say allowing the Bush-era tax cuts for the wealthiest Americans to lapse will prompt them to reduce their spending, harming the economy. President Barack Obama wants to extend the cuts for individuals earning less than $200,000 and couples earning less than $250,000 while ending them for those who earn more." [Bloomberg News9/14/10]

New York Times: "Research Suggests That Tax Cuts... Have Limited Ability To Bolster The Flagging Economy." According to the New York Times: "The concept of lower taxes is so appealing to voters that many embrace them as an economic cure-all. But economic research suggests that tax cuts, though difficult for politicians to resist in election season, have limited ability to bolster the flagging economy because they are essentially a supply-side remedy for a problem caused by lack of demand. The nonpartisan Congressional Budget Office this year analyzed the short-term effects of 11 policy options and found that extending the tax cuts would be the least effective way to spur the economy and reduce unemployment. The report added that tax cuts for high earners would have the smallest 'bang for the buck,' because wealthy Americans were more likely to save their money than spend it." [New York Times9/11/10]

CBO: Among Eleven Proposals To Spur Economic Growth, Cutting Income Taxes Ranks Last. Below is a chart created by the Congressional Budget Office to show the "cumulative effects of policy options on employment in 2010 and 2011":

[Congressional Budget Office, 2/23/10]

CLAIM: The Bush Tax Cuts Helped Create Millions Of Jobs

Heritage Claimed Bush Tax Cuts Resulted In Creation Of 8.1 Million Jobs. Mike Gonzalez, Heritage's Vice President of Communications, wrote on The Foundry blog: "The tax cuts enacted by the U.S. Congress in 2003 were an important cause of an economic expansion that roared for some 50 months and created 8.1 million jobs. The opposite philosophy - a stimulus that has crowded out private investment, plus an enormous health bill and a nightmarish financial regulatory package that are killing job creation - has only delayed recovery and left us with 9.1% unemployment." [Heritage Foundation, 6/22/11]

FACT: Job Creation Lagged Under Bush

PolitiFact: "Only Under Eisenhower Was Job Growth More Sluggish Than It Was Under George W. Bush." According to PolitiFact:

Employment under Bush grew by 4.5 percent using CES and 7 percent using CPS, whereas employment grew by double digits under presidents Bill Clinton and Ronald Reagan, and also under the combined eight-year administrations of Richard Nixon and Gerald Ford, who finished Nixon's term after he resigned, and John F. Kennedy and Lyndon B. Johnson. Only under Eisenhower was job growth more sluggish than it was under George W. Bush, and even then, it was only the case using one of the two BLS statistics." [PolitiFact, 5/10/11]

  • Population Increased 9.7 Percent Between 2000 And 2010. According to the Census Bureau: "The 2010 Census reported 308.7 million people in the United States, a 9.7 percent increase from the Census 2000 population of 281.4 million." [Census Bureau, March 2011]

Job Growth In Last Decade "Was Essentially Zero." According to the Washington Post: "The U.S. economy has expanded at a healthy clip for most of the last 70 years, but by a wide range of measures, it stagnated in the first decade of the new millennium. Job growth was essentially zero, as modest job creation from 2003 to 2007 wasn't enough to make up for two recessions in the decade." 

job growth by decade

[Washington Post, 1/1/10]

The Economy Shed Almost 8 Million Jobs Under Republican Policies Before President Obama's Policies Could Affect The Economy. According to economist Robert J. Shapiro:

From December 2007 to July 2009 - the last year of the Bush second term and the first six months of the Obama presidency, before his policies could affect the economy - private sector employment crashed from 115,574,000 jobs to 107,778,000 jobs. Employment continued to fall, however, for the next six months, reaching a low of 107,107,000 jobs in December of 2009. So, out of 8,467,000 private sector jobs lost in this dismal cycle, 7,796,000 of those jobs or 92 percent were lost on the Republicans' watch or under the sway of their policies. Some 671,000 additional jobs were lost as the stimulus and other moves by the administration kicked in, but 630,000 jobs then came back in the following six months. The tally, to date: Mr. Obama can be held accountable for the net loss of 41,000 jobs (671,000 - 630,000), while the Republicans should be held responsible for the net losses of 7,796,000 jobs. [Sonecon.com, 8/10/10, emphasis added]

FACT: Bush Tax Cuts Didn't Produce Economic Growth

Bush Policies Resulted In The Weakest Economic Cycle Since 1945. From the Center for American Progress: "The Bush administration's tax policies produced the weakest economic cycle since February 1945. The data is now available to evaluate the full job-creation record of the Bush economic cycle that began in March 2001 and ended in December 2007. What we find is that that in terms of jobs, incomes, and poverty reduction, the Bush policies helped produce one of the weakest economic cycles on record." [Center for American Progress, February 2009]

During Bush Years, Household Income Declined For First Time On Record. According to a report by the Center for American Progress: "The Bush economic cycle saw the first decline in median household incomes of any cycle since 1967, when the Census Bureau began tracking household data."

Household incomes

[Center for American Progress, February 2009]

Bush Tax Cuts Were Inefficient And Didn't Stimulate The Economy. According to the Tax Policy Center's William Gale: "Economic research over the past decade can explain why extending the original Bush tax cuts is not good stimulus policy. After the tax rebates in 2001, 2003, and 2008, households appear to have spent in relatively short order somewhere between 25 and 67 cents more for each dollar of tax cut. This makes tax cuts in general - even the parts of those tax bills that were intended to stimulate - a relatively weak way to help the economy compared to increases in government purchases, for which each dollar of increased deficit turns into an additional dollar of spending." [Tax Policy Center, 9/30/10]

For more on the Bush Tax Cuts, click HERE.

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