On Thursday, House Republicans unanimously rejected a resolution from Rep. Gary Peters, D-Mich., stating, among other things, that the Bush tax cuts added to the deficit. If you read the text they were voting on, its pretty clear that it wasnt built for bipartisanship: It was phrased to suggest that Bush was a liar and Republican governance was a fraud. That doesnt pick up votes across the aisle.
But theres a more important economic debate here. Republicans occasionally flirt with the idea that tax cuts dont increase deficits. Senate Minority Leader Mitch McConnell, R-Ky., has said this directly. Speaker John A. Boehner, R-Ohio, has decreed that tax cuts dont need to be offset, but spending cuts do. But theres a very easy way to see that Republicans dont really mean this: They believe that tax cuts cause deficits when Democrats are behind them.
The debate over the payroll tax is a good example. When Republicans proposed a payroll tax cut as stimulus in 2009, it wasnt offset. When they agreed to it in the 2010 tax deal, it wasnt offset. But since it has become the White Houses favored policy, House Republicans – the same House Republicans who passed the CUTGO rules stating that spending cuts had to be paid for but tax cuts didnt – are insisting the payroll tax cut be offset.
Then theres the Bush tax cuts. When Republicans tally up President Obama deficits over the last few years, theyre adding $620 billion for the two-year extension of the Bush tax cuts. When they project his deficits for the next five years, theyre assuming the extension of the Bush tax cuts. And theyre doing so explicitly. I recently worked with the Center on Budget and Policy Priorities on a column summing up the projected budgetary effect of every single piece of legislation Obama had signed into law. In the end, my numbers showed, Obama has passed policies adding about $1 trillion to the deficit. But Keith Hennessey, who directed the National Economic Council under George W. Bush, responded that I had ignored the trillions in deficits from policies President Obama proposes to enact in the future (like extending most but not all tax cuts rates beyond 2012).
And Hennessey is right. Not about my analysis, which was restricted to actual policies, not proposed policies (should I also have subtracted $4 trillion from the deficit because Obama favors a deficit deal of that size?). But about the Bush tax cuts, which will add trillions of dollars to the deficit if Obama extends all or most of them in 2012.
Finally, there is a particularly odd claim you occasionally hear about the Bush tax cuts: Revenue increased in their aftermath.
This relies on mixing up the effects of inflation, economic growth and taxes. The normal way to measure how much revenue a given tax regime is pulling in is to look at taxes as a percentage of GDP. In 2001, tax revenues were 19.5 percent of GDP. In 2002, they fell to 17.6 percent of GDP. In 2003, 16.2 percent of GDP. In 2004, 16.1 percent of GDP. Some of that is the 2001 recession. But at no point in Bushs presidency, and at no point since, have taxes returned to 19 percent of GDP.
To put it slightly differently, if tax cuts actually increased revenues, then it would have been absurd for George W. Bush to propose tax cuts as a way of paying down the surplus. In that world, tax cuts would have made the surplus larger, and given the government even more of the peoples money. We would end up in a paradox, with the government constantly trying to give back its surplus, but ending up with an even larger surplus as a result. But thats not the world we live in.