Tuesday, July 11, 2006

Eating Crow

Back in the spring of 2003, shortly before President Bush signed tax cuts into law and unleashed this remarkable economic boom, Minority Leader Nancy Pelosi (D-CA) had this to say:

“None of these tax cuts is affordable. None of them creates jobs, and they are not fair. All of them do damage to our long-term economic growth and contribute to the national deficit.”

Huh? Mrs. Pelosi could not have been further off the mark if she tried.

Let’s break down that ridiculous statement.

“None of them creates jobs…” Actually, since the passage of Bush’s tax cuts, over 5 million jobs have been created in the U.S. Unemployment dropped from 6.3 percent to 4.6 percent. Simply put, Americans are working.

“All of them do damage to our long-term economic growth…” Wrong. The economy has grown at a 4.0 percent annualized rate, way above historical averages. $13 trillion of new wealth has been created during this time.

“All of them…contribute to the national deficit.” Wrong again. Amid a surge in tax collections, the Bush administration cut its estimate of this year's budget deficit today by 30 percent to $296 billion. The projected shortfall is down from the $423 billion deficit the White House forecast five months ago and represents 2.3 percent of gross domestic product, according to the OMB. Government revenue has risen 13 percent so far this year, driven by higher than expected tax receipts as the economy grew at an annual rate of 5.6 percent in the first quarter, the fastest in almost three years (when the tax cuts were introduced). Individual tax receipts were almost $60 billion higher than expected because of the rise in personal income. Corporate tax receipts were over $50 billion higher than expected.

Despite stubborn naysayers like Mrs. Pelosi, the pro-growth, supply-side tax cut formula is a winner. It has been proven right, yet again.

The numbers tell it all. American workers thrive and businesses flourish when they’re able to keep more of their income. Treasury Secretary Hank Paulson was absolutely right in his confirmation hearings, low taxes really do change behavior. And, as the New York Sun pointed out yesterday, “It’s official – Arthur Laffer wins.”

Perhaps now, after analyzing the overwhelming evidence against them, Mrs. Pelosi and the rest of the high-tax aficionados will finally see the light.

I won’t hold my breath.