Time to Face the Music
That's the good news. The problem is that the Bush administration also suggests that the tax cuts effectively pay for themselves through their stimulus to the economy and the corollary increase in tax revenues. This is dead wrong. Gregory Mankiw, who served as chairman of the Council of Economic Advisers for President Bush, looked at the extent to which tax cuts stimulated growth and tax revenue. His conclusion? Even over the long term, once you have allowed all of the extra growth to seep through into extra revenue, cuts in capital-gains taxes stimulate the economy enough to recoup just half of the lost revenue, and cuts in income taxes deliver a boost that recoups only 17 percent of the lost revenue. That math just doesn't add up.
Bernanke, the Fed chairman, endorses this view, pointing out that tax cuts do spur economic growth but that they usually do not pay for themselves by generating more tax revenue than they drain from the treasury.
The conclusion is clear, and Bernanke put it well when he was asked when lawmakers should tackle the growth of spending in our entitlement programs. "The longer we wait," the Fed chief said, "the more severe, the more draconian, the more difficult the objectives are going to be. I think the right time to start was about 10 years ago."
We must not miss the opportunity to address this impending national disaster, nor should we blame the distinguished Fed chairman for the bad news. As Cleopatra's slave in Shakespeare's rendition put it when she brought the news that Mark Antony had married Caesar's sister, "I that do bring the news made not the match."
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