CBO Report Supports Bush's Tax Cuts, Says Grassley

by Leroy Baker, Tax-News.com, New York

21 August 2006

Tax cuts enacted under the George W. Bush administration have not eaten into the revenue base and are not the cause of rising federal deficits, Sen. Chuck Grassley, Chairman of the Senate Finance Committee, has argued.

Citing the latest Congressional Budget Office deficit report, Grassley said that the revenue baseline for FY 2006 to FY 2010 will average 18.3% of the Gross Domestic Product, at the post-World War II historic average.

According to Grassley, this means that with the 2001-2003 bipartisan tax relief plans in full effect, the revenue base has been sustained in terms of the historic average.

“It’s pretty obvious that the critics of tax relief will ignore this report because it refutes their point," he commented in a statement last week.

"The critics like to say tax relief guts the revenue base and causes rising deficits. But the report clearly doesn’t support that assertion. In fact, the report shows that positive revenue changes to the baseline in the FY 2006 and FY 2007 budgets far exceeded the revenue loss from the reconciled and non-reconciled tax relief approved in this Congress. Spending is the problem, not tax relief," Grassley argued.

The CBO projects a deficit of $260 billion for fiscal year 2006, about $111 billion less than it estimated in March for the President’s budget, largely as a result of higher-than-expected tax revenues from strong corporate profits.

However, the CBO predicts that over the longer term, the gap between spending and tax revenues could rise, especially if President Bush succeeds in his key economic policy goal of making the tax cuts permanent.

The CBO forecasts that in 2007 the deficit will increase to $286 million, and could total $1.76 trillion over the next decade, but extending tax cuts through 2016 could add an additional $2.2 trillion to the deficit. Enacting a permanent fix to the Alternative Minimum Tax could push the deficit even higher, to $3.26 trillion over ten years, the CBO report stated.

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