Losing Proposition

You gotta love Knight-Ridder. When other news gathering operations provide stenography services, KR actually asks some real questions:

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.

[...]

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.

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.

[...]

The federal budget held a $236 billion surplus in fiscal 2000. After Bush's 2001 and 2003 tax reductions, it went into annual deficits, peaking at $412 billion in fiscal 2004. This year's is projected to be about $300 billion.