Revised March 13, 2003

Administration Tax Cuts Are Unlikely to Increase Economic Growth Substantially
And Will Not Pay for Themselves

by John Springer

PDF of fact sheet

ArrowReport on economic growth
ArrowReport on revenues
View Related Analyses

If you cannot access the files through the links, right-click on the underlined text, click "Save Link As," download to your directory, and open the document in Adobe Acrobat Reader.

Two new analyses from the Center on Budget and Policy Priorities evaluate related claims made by some supporters of the Administration’s tax-cut proposals, including the President:  first, that the tax cuts will spur substantial long-term economic growth, and second, that this growth will increase revenues sufficiently to offset the long-term cost of the tax cuts, so long-term deficits will not increase.  The analyses find little support for either claim, even in the analyses of the President’s own economists and the projections of the Office of Management and Budget (OMB), the President’s budget office.

Economic Growth and Tax Cuts

Average Annual Economic Growth over Selected Periods, Adjusted for Inflation and Size of Working-age Population

Calendar year and quarter (each period ends at a business-cycle peak) Average annual GDP growth per working-age person
1948:4 to 1960:2


1960:2 to 1969:4


1969:4 to 1981:3


1981:3 to 1990:3


1990:3 to 2001:1


2001 to 2008 (OMB estimate)



Revenue Growth and Tax Cuts

Claims That Tax Cuts Increase Revenues

·         President Bush said in November that the deficit would have been “much bigger” without the 2001 tax cut, meaning the tax cut is substantially more than paying for itself. 

·         In announcing his new “growth” package, the President said it would “lay the groundwork for future growth and future prosperity.  That growth will bring the added benefit of higher revenues for the government — revenues that will keep tax rates low, while fulfilling key obligations…”

·         Vice President Cheney has said that the proposed “growth” package would ultimately more than pay for itself. 

·         The Washington Post reported that “on February 8, press secretary Ari Fleischer said the [new tax] plan would pay for itself.” 

·          Congress Daily reported on January 8 that House Majority Leader Tom Delay, referring to the “growth” package, “told reporters that the long-term revenues generated by tax relief would more than cover the price tag of the cuts.” 


No “Free Lunch”

The new Center analyses show that in tax policy — as in virtually all other aspects of policymaking — there is no “free lunch.”  The idea that tax cuts can spur sufficient economic growth to pay for themselves sounds too good to be true because it is too good to be true.

The nation already faces the prospect of mounting deficits that threaten to reach dangerous levels when the baby-boom generation retires in large numbers.  Rather than helping to prepare for this difficult challenge, the Administration’s tax cuts would aggravate the problem by making long-term deficits more severe.