The biggest Republican tax lie: the great Republican tax lie. Lawrence O’Donnell The Last Word June 20, 2011 video and transcript

O‘DONNELL: Coming up, the big Republican lie. Cutting taxes raises more money for the federal government. Bruce Bartlett is here to demolish that lie more powerfully than I ever could because Bruce Bartlett is a Republican who worked in the Reagan White House. Who better to kill an Republican lie than a Reagan Republican.

He‘s going to give you everything you will ever need to win the tax cut argument with your family, your friends, your co-workers—anyone else who buys that Republican lie. You need to see this. You and I are going to both learn a lot from Bruce Bartlett.

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TIM PAWLENTY ®, PRESIDENTIAL CANDIDATE: Once we unleash the energy of America‘s businesses and families and individuals, as we did in the ‘80s and ‘90s, a booming job market will reduce demand for government assistance and rising incomes will increase federal revenues. In the 1980s, revenues to the federal government increased by 99 percent.

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O‘DONNELL: Tim Pawlenty, like all the other Republican presidential candidates, pushes the great Republican tax lie, that tax cuts actually increase the amount of money the government collects in taxes. Republicans say the federal government will get more by taxing less because lower tax rates will make everyone work harder, they‘ll want to work harder, they‘ll make more money than before, the economy will be stimulated, and there will be more money in the total economy, subject to taxation. This is now a Republican article of faith.

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GEORGE W. BUSH, FORMER U.S. PRESIDENT: You cut taxes, and the tax revenues increase.

SEN. JOHN MCCAIN ®, ARIZONA: The fact is the tax cuts have dramatically increased revenues.

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O‘DONNELL: Republican Senate leader Mitch McConnell has said, quote, “There‘s no evidence whatsoever that the Bush tax cuts actually diminished revenue. They increased revenue because of the vibrancy of these tax cuts in the economy.”

Much ignored by Republican politicians is what Republican economic experts actually think about this. Here is George W. Bush‘s Treasury Secretary Henry Paulson during his confirmation hearing in 2006.

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HANK PAULSON, FORMER TREASURY SECRETARY: The general rule, I don‘t believe that tax cuts pay for themselves.

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O‘DONNELL: President Bush‘s chairman of the Council of Economic Advisers was completely ignored when he said this in testimony to the Senate Budget Committee in 2006. Quote, “As a general rule, we do not think that tax cuts pay for themselves. Certainly, the data do not support this claim.”

And Alan Greenspan, who was first appointed to the Federal Reserve by President Reagan, said this David Gregory last year.

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DAVID GREGORY, NBC NEWS: You don‘t agree with Republican leaders who say tax cuts pay for themselves?

ALAN GREENSPAN, FORMER FEDERAL RESERVE CHAIRMAN: I do not.

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O‘DONNELL: Joining me now, returning from the show, is Bruce Bartlett, who served as executive director of the Joint Economic Committee as a senior policy analyst in the Reagan White House, and as a treasury, deputy assistant secretary for economic policy during the first Bush administration. He is now a columnist for the “Fiscal Times” and a contributor to “The New York Times.”

Bruce, thanks for joining me again tonight.

BRUCE BARTLETT, THE NEW YORK TIMES: Happy to be here.

O‘DONNELL: Tim Pawlenty recently told Dave Weigel, “Slate” reporter, he said, when Ronald Reagan cut taxes in a significant way, revenues actually increased by almost 100 percent during Reagan‘s eight years as president.

You were there. What happened during the eight years of the Reagan presidency after the Reagan tax cut? What happened to how much revenue we collected?

BARTLETT: Look, what Pawlenty said is just factually untrue. And anybody who wants to find out can just go to CBO.com and look up the data at the Congressional Budget Office Web site for themselves.

The fact is that between fiscal year 1981 and 1989, revenues increased in nominal dollar terms, only 65 percent. But almost a good chunk of that was inflation. If you simply took the 1981 numbers and inflated them to 1989 numbers, the increase was only about 25 percent. And, of course, the population increased so—on a per capita a basis, revenues were only up about 15 percent.

But, at the end of the day, what really matters is revenues as a share of GDP and they were down about a percentage point, which means revenues were about $66 billion lower than they would have been if they had simply stayed constant as share of GDP.

O‘DONNELL: Bruce, we searched and searched, couldn‘t find any anybody in the Reagan administration, couldn‘t find any videotape of anyone in the Reagan administration saying these tax cuts will increase revenue to the federal treasury.

BARTLETT: Well, that‘s because nobody in the administration ever said that.

O‘DONNELL: Oh, OK. We‘ll stop searching then.

BARTLETT: If you go back to the documents that the administration sent to Capitol Hill in February 1981 they showed massive revenue losses based on standard revenue-estimating methodology. And if you check the CBO reports that came out around the same time, you will find that the CEO, which was then under Democratic control, had almost the same identical estimates.

Now, it turned out that revenues came in much lower than anybody expected, but that was mainly because inflation came down much more quickly than anybody expected, and inflation increases the size of the tax base. So, lower inflation reduces federal revenues.

O‘DONNELL: We—the studies that you have pointed out in your writing and others have indicated show that there is an effect, there is a stimulative effect to a tax cut. So, if you say, if you do, say, $100 billion in a tax cut, it will not generate $100 billion in new tax revenue, but it might generate as much as $30 billion, maybe $15 billion. There will be some stimulative effect to it. But the net loss is overwhelming.

We just heard Mitch McConnell say about the 21st century Bush tax cuts, that that same magic trick occurred, that we—that Bush cut taxes and we increased revenue. Where would he get that idea?

BARTLETT: Well, that‘s just complete nonsense. I really have no idea of what basis he‘s making that claim. Look, some very special type of tax cuts such as a cut in the capital gains rate can come very close to paying for themselves because taxpayers essentially decide for themselves whether to realize income or not. And in across the board tax rate reduction, may only lose 70 percent or so of the revenue that a static estimate would show.

But there are lots and lots of tax cuts and there were plenty of them in the Bush tax cuts, refundable child credits and things of that sort that just lose dollar for dollar revenue and have no feedback effects whatsoever.

O‘DONNELL: Feedback effects or what economists call that effective stimulative return to the Treasury, very small. There‘s a huge difference between what Republicans are saying is there‘s 100 percent or more feedback effect and what we found is way, way, way down into tiny numbers and then in many, many cases zero.

Bruce Bartlett, I can go on and on about this. I cannot thank you enough for coming on tonight and ruining this Republican lie. I hope you can still find some Republican friends in Washington to have dinner with tonight.

BARTLETT: All right. I will.

O‘DONNELL: Thank you very much for joining me tonight, Bruce.

Transcribed by the Barefoot Accountant of Accountants CPA Hartford, Connecticut, LLC

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