February 13, 2003

Tax Cuts a Major Factor in Return of Deficits

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The Center on Budget and Policy Priorities has released Are Tax Cuts a Minor or Major Factor in the Return of Deficits?, which examines this question using data the Congressional Budget Office issued in late January.  Mitchell Daniels, the Director of the President’s Office of Management and Budget, has said that the tax cuts of the past two years have played only a “minor” role in the return of budget deficits and that the budget would be in deficit even without them.  The Center’s analysis finds that:

The CBO data do not reflect the possible economic stimulus effects of recent tax or spending measures.  The President’s Council of Economic Advisers argues that the tax cuts have stimulated economic growth and has estimated how much worse the economy would have been without them.  Yet even using the CEA estimates, the net cost of the tax cuts would still turn out to have caused almost 30 percent of the budget deterioration since 2000.  Moreover, other studies suggest the CEA estimates likely overstate the tax cuts’ effect on the economy.

Fig 1