More Bush Tax Cut Spin

By: Bryan Keefer

President Bush's renewed push for his tax cut plan in the past few weeks has featured a good deal of spin, both old and new.

A staple of Bush's stump speech has been a statistic about what he implies is an average family. To take one example, Bush claimed on April 24 that "If you're a family of four, making $40,000 a year, this tax plan will reduce your taxes from $1,178 to $45 - a family of four, $40,000." He then suggested a few moments later, "that thousand dollars a year will mean a lot. Tax relief is good for the average citizen." He has repeated the statistic on a number of occasions, most recently a May 6 speech to the U.S. Chamber of Commerce.

As we have pointed out before, while the tax reduction Bush advertises for this theoretical family is technically correct, it benefits disproportionately for a household of its income level. Bush's suggestion that the hypothetical family's benefit demonstrates that "[t]ax relief is good for the average citizen" is also misleading and unrepresentative. According to an analysis of the President's proposal by the center-left Urban-Brookings Tax Policy Center, a family in the middle one-fifth of the income distribution could expect a cut of $227.

Bush has also repeatedly claimed that, as he put it in his May 6 speech, that "[t]he right answer for how big the tax cut ought to be is a million jobs. That's the right answer. And that's the package I submitted to the United States Congress." Stephen Fisher, Director of the National Economic Council, made an identical claim in an online chat: "The Council of Economic Advisers projects that the President's [original] proposal would create 1.4 million jobs by the end of 2004. Congress is looking at a smaller proposal, which would create a million new jobs by the end of 2004."

Yet, as Dana Milbank and Jonathan Weisman reported in the Washington Post, Bush has not produced a study to verify this number. Instead, it represents a scaled-back estimate based on a projection by the Council of Economic Advisors that the original, $736 billion tax cut proposal would have produced 1.4 million new jobs by the end of 2004 (the final tax cut is likely to be somewhere between $350 and $550 billion due to budget votes in the House and Senate). As the New York Times noted, since the exact details of the plan - such as when it would go into effect - are not known, private-sector economists have not been able to directly evaluate Bush's claims. And even the White House has admitted that rather than "creating" new jobs, the plan would simply accelerate hiring that would have occurred in 2005 through 2007.

Bush has also repeatedly implied that his proposed tax cuts will pay for themselves or perhaps generate additional revenues (that is, revenues higher than those that the current system brings in). On May 6, Bush suggested that, in addition to controlling spending:

"...in order to get rid of the deficit, you boost revenues coming into the Treasury by encouraging economic growth and vitality.

I'm concerned about the deficit, but not as concerned about the deficit as I am about people trying to find work. I'm more worried about the person looking for work. And, therefore, we've got a plan that is robust and strong, that encourages economic vitality and growth, so our fellow citizen can get to work and get to work soon."

The effects of tax cuts on revenue are hotly contested, but even analysts who take such effects into account generally concede that, overall, tax cuts decrease revenues. Two models used by the Congressional Budget Office to estimate such effects from the older, larger proposal yielded widely divergent results. One model suggested such feedback effects could reduce the cost of the tax cut by about 15%, while another estimated that they would actually increase the cost of the proposed tax cut by as much as 10%. Regardless, even considering CBO's more optimistic projection, it is extremely unlikely that the proposed tax cut would actually increase revenues, as Bush's own economists stated in the Economic Report of the President.

Finally, Bush has been deceptive about the causes of the budget deficit, currently estimated at $347 billion for fiscal 2003. On May 6, Bush noted that "we've got a deficit because we went through a recession. You see, a recession means you get less money coming into your treasury. When the economy goes down, there's less tax revenues coming to the Treasury. Secondly, we've got a deficit because we're at war."

Notably missing from Bush's explanation for the present deficit is any mention of how tax cuts have contributed to the shortfall. A paper based on Congressional Budget Office data by the well-respected liberal analysts at the Center on Budget and Policy Priorities notes several factors have reduced anticipated revenues for fiscal 2003 relative to what the CBO projected they would be in 2001. The largest factor is the recession and technical adjustments, which account for a reduction of $340 billion. Tax cuts come in second at a cost of $205 billion. This is more than ten times the estimated $20 billion cost of the Iraq war, and nearly three times the estimated $70 billion cost of all other measures related to the war on terror for fiscal 2003. While it is true that the budget would be in the red even without the tax cut enacted in 2001, Bush's explanation of what contributed to the deficit is woefully inadequate.

The Bush administration now has a long history of misleading the public about tax and budget issues. More media outlets need to look at the President's claims with a critical eye, rather than reprinting his assertions unchallenged.