Tax Cuts and the Budget

Posted: 21 Mar 2001

See all articles by Alan J. Auerbach

Alan J. Auerbach

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

William G. Gale

Brookings Institution

Abstract

This report provides new evidence on the magnitude of the budget surplus under responsible and realistic accounting procedures, and on the wisdom of a large-scale tax cut. The authors show that although the current projected surplus is about $5.6 trillion over the next 10 years, basic corrections to incorporate responsible approaches to budgeting and plausible notions of current policy reduce the available 10-year surplus to between $1.0 trillion and $1.7 trillion. A full recognition of the growth of unfunded entitlement programs makes the surplus vanish entirely.

These findings suggest that the president's proposed tax cut - which is billed as a $1.6 trillion proposal but that would in fact cost much more than $2 trillion - is excessively large. Moreover, the authors contend that the president's tax proposal is poorly designed to stimulate the economy, and that arguments that tax cuts are needed to stop wasteful government spending and to avoid fully paying off the government's debt are flawed. Taken together, these factors suggest that tax cuts that consume all or more of the available surplus over the next 10 years and significantly worsen the long-term fiscal outlook remain a poor idea.

Suggested Citation

Auerbach, Alan Jeffrey and Gale, William G., Tax Cuts and the Budget. Tax Notes, Vol. 90, No. 13, March 26, 2001. Available at SSRN: https://ssrn.com/abstract=264162

Alan Jeffrey Auerbach (Contact Author)

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States
510-643-0711 (Phone)
510-643-0413 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

William G. Gale

Brookings Institution ( email )

1775 Massachusetts Avenue, NW
Washington, DC 20036
United States
202-797-6148 (Phone)
202-797-6181 (Fax)

Register to save articles to
your library

Register

Paper statistics

Abstract Views
486
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information