Tax Cuts Have Been Big Boost for Federal Revenue, Cato Analyst Says

Chris Edwards, director of tax policy studies at the Cato Institute, told CNBC’s “Street Signs” that President Bush’s tax cuts have played a part in boosting the government’s tax revenues.

Tax revenues rose for the third year in a row and 2007 payments are set to break 2001’s record.

“(Tax) revenues are soaring,” Edwards said. “They’ll be up at least 8% or so this year on top of about 15% growth last year. If you look at capital gains in particular, the president cut the capital gains rate from 20% to 15% back in 2003, but capital gains revenue has not fallen. It has exactly doubled over the last four years. So, you cut the rate and you get a lot more revenue. The main thing driving the flood of revenue into Washington is the strong economy. It’s making both individual and corporate tax revenues flood into Washington. I think the Bush tax cuts are a part of the reason why this is happening.”

But John Irons, a member of the Center for American Progress, said Bush’s tax cuts have benefited the "rich" and made the “overall system much less fair.”

“If you look at these numbers as a share of the economy, in 2000 total tax receipts were at about 21% of GDP and now they’re down to about 18.5% of GDP,” Irons said. “So, we have seen good growth in the last couple years, but revenues are quite a bit lower than they were at the end of the last expansion.”

Edwards countered that tax revenues at about 18.5% of GDP are the historic norm in recent decades.

“Going forward, the question is: Does the government need more revenues than it’s been used to in recent decades at 18.5% of GDP and if not – and I don’t think so – the Bush tax cuts should stay in place,” Edwards said. “The government can clearly raise enough revenue for its regular business.”