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Wednesday, July 26, 2006
Treasury Dept: Sorry, No Free Lunch
Supply-siders argue that tax cuts do not cause budget deficits because they create so much economic growth that total tax revenues will increase, even at the lower tax rates. In short: tax cuts pay for themselves.
The Treasury Department released a report today which analyzes the economic effect of President Bush's tax cuts and concludes that tax cuts do not, in fact, pay for themselves.
From page ii of the Office of Tax Analysis, U.S. Department of Treasury's A Dynamic Analysis of Permanent Extension of the President’s Tax Relief:
The analysis reveals that the long-run effects of these policies depend crucially on whether they are financed by lower spending or higher taxes in the future and are sensitive to assumptions on underlying parameters. The issue of how, or even if, these policies need to be financed remains a source of discussion among economists. The analysis presented here suggests these policies will result in substantially more economic activity if they are financed by a future reduction in government spending than if they are financed by future tax increases.
So, there you have it. The only remaining question is: Should the government raise taxes or cut spending?
Posted by Craig Jennings
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